The latest newsletter contains items on:
1. Exemption of subscriptions
2. The DIY Scheme and live/work units
3. Information sheet on taxation of caravans
4. European case on voluntary registration
5. 40 years of VAT
Author Archives: helen
VAT and the DIY housebuilders’ scheme-live/work units
A recent case, Anthony Barkas, considered a development involving two barn-like properties with light industrial use planning consent (B1). The taxpayer applied for permission to convert one of the barns into a dwelling, the other to remain B1 use, the two to be used together as a live work unit (although the two properties were not physically linked they were close to each other). Permission was granted but with conditions, one of which (“condition 6”) was:
“6. The workshop/office within the application site shall only be used/operated by the occupiers of the dwelling hereby granted permission.”
The taxpayer submitted a DIY house builder’s claim. HMRC rejected this on the basis of condition 6, as “it is not possible to use the dwelling separately from the working space” the claim was not valid.
HMRC had an email from the planning authority which confirmed HMRC’s interpretation that the separate disposal of the dwelling was not permitted was correct.
The legal criteria for a dwelling included that “the separate use, or disposal of a dwelling is not prohibited . . .” The Tribunal ruled that condition 6 simply placed limitations on the use of the remaining commercial building rather than a prohibition on the disposal of the dwelling. They placed “no weight” on the planning authority’s opinions; the conditions must be interpreted as they stand. Therefore the DIY claim was valid.
Increasingly the rulings on DIY cases appear to be varying on very slight differences in facts and this highlights the importance of considering at a very early stage in a development whether there are likely to be any points of contention and addressing these with HMRC or the planning authorities as appropriate.
2013 Budget News
Increased registration and deregistration thresholds
The VAT registration threshold is to increase from £77,000 to £79,000 and the VAT deregistration threshold is to increase from £75,000 to £77,000. The registration and deregistration threshold for relevant acquisitions from other EU Member States will also be increased from £77,000 to £79,000. The increased thresholds will be effective from 1 April 2013.
Changes in Fuel Scale Charges
The legislation showing the amended figures can be found here and will come into effect for VAT periods beginning on or after 1 May 2013.
Change to Place of Supply Rule
For suppliers established in the EU, the place of supply for intra-EU (i.e. within the EU) supplies of telecommunications, broadcasting and electronic services is currently where the supplier is established. With effect from 1 January 2015 this will change to where the customer (consumer) is located. A ”Mini One Stop Shop” (MOSS) will be established. This will enable affected UK businesses to remain VAT registered in just the UK but, through an IT system, account for other EU VAT due on a single VAT return. The scope of e-services is extensive so the number of businesses affected by this change may be significant.
Review of Retail Export Scheme (Tax-Free Shopping)
HMRC intend to launch a consultation document in the summer of this year about the Retail Export Scheme. The aim will be to make the scheme simpler to use for retailer and consumer, whilst protecting the revenue, and will include the consideration of a digital version of the scheme.
Changes to zero-rating of exports from the UK
HMRC will consult on changes to UK legislation. This is with a view to allowing UK suppliers to zero-rate indirect export sales to customers who are VAT registered in the UK, but who have no business establishment in the UK (currently an overseas customer who himself exports the goods cannot benefit from zero-rating if he is VAT registered in the UK).
VAT treatment of refunds made by manufacturers
Legislation is to be introduced in the Finance Bill 2014 to “enable regulations” to allow manufacturers to make adjustments to their VAT payments to take into account of refunds they make directly to final customers. The refunds could relate to damaged or faulty goods or customer dissatisfaction. The government will consult with industry to get a better idea of practices in the sector. This appears to be an attempt to simplify the supply chain.
Health Research Authority and Health Education England – continuing VAT recovery
Due to proposed changes in the Care and Support bill these two bodies will be included within section 41 of the 1994 VAT Act to ensure that they will be able to continue to claim refunds of VAT.
Education – withdrawal of an exemption
HMRC’s consultation on the withdrawal of the VAT exemption of supplies of research between eligible bodies has now closed. Whilst the Government plans to proceed with the removal of the exemption with effect from 1 August this year, it will consider implementing transitional reliefs.
Education – an extension of the exemptions
Following a consultation about extending VAT exemption in the higher education sector to commercial entities, the Government recognises that there have been a number of “significant issues and concerns” raised by respondents. The Government will develop alternatives to those already proposed and consult again later in the year, with a view to implement into UK law at a later date.
18 March 2013 CVC VAT Focus
Latest CVC newsletter is now available
This newsletter contains items on:
1. CJEU case re Financial Advisory Services.
2. Reed-unjust enrichment.
3. Loyalty card case
4. Parking fines case.
Financial Advisory Services and VAT
The Court of Justice of the European Union (CJEU) has issued a ruling regarding a German business which may have a significant impact in the finance sector in the UK. The German taxpayer provided advice and recommendations for the buying and selling of shares to an investment management company (IMC) who managed a special investment fund. The IMC implemented the recommendations (on the basis that they did not break any statutory restrictions), although the final decision and responsibility lay with the IMC. The German taxpayer sought agreement from the German tax authorities that they were making exempt supplies of the “management of special investment schemes”. The German tax authorities thought the supplies were not the management of the fund so were taxable.
The CJEU ruled that the relevant European Directive should be interpreted so that the advisory services provided to a special fund manager fall within the concept of “management of special investment funds”. This interpretation appears to be at odds with the UK legislation which sees advisory services only as excluded from the relevant exemption.
14 March 2013 Newsletter now available
This newsletter includes items on:
1. Latest news from the CJEU.
2. Is a memorial a supply of land?
3. Time limits- no repayment due.
4. Failure by HMRC to consider exercising discretion.
Occupational pension schemes are not ‘special investment funds’
The CJEU has issued its judgment case of Wheels Common Investment Fund Trustees Ltd (Wheels). The question asked of the Court was whether the occupational pension scheme operated by Wheels should be regarded for VAT purposes as, or similar to, a ‘special investment fund’ such that fund management services provided could be exempt from VAT.
In its judgement, the CJEU has confirmed that occupational schemes are not ‘special investment funds’. The judgement draws a clear distinction between collective investment funds (such as Unit Trusts etc) and pension schemes like the one operated by Wheels, the principal differences being that:
•an occupational pension scheme is an employment-related benefit which employers grant only to their employees and is not open to the public;
•unlike private investors with assets in a collective investment undertaking, members of an occupational pension scheme do not bear the risk arising from the management of the investment fund in which the scheme’s assets are pooled. The pension that may be received by an employee, who is a member of an occupational scheme, is defined in advance on the basis of length of service with the employer and of the amount of the salary, whereas the return that can be hoped for by persons who purchase units in a collective investment undertaking depends on the performance of the investments made by the fund’s managers over the period for which those persons hold the units.
Since the two types of fund are not identical and are not similar to funds that constitute ‘special investment funds’, the principle of fiscal neutrality is not offended by treating the two types of fund differently for VAT purposes.
Reclaiming VAT on “acquisition costs” – BAA decision
This is an important decision not just in terms of the amount of input tax that was claimed (£6.7 million) but in highlighting the importance of getting structures in place at the right time.
In looking to acquire airport operator BAA plc, the acquiring investment consortium created a special purpose vehicle (SPV) for the acquisition called Airport Development and Investments Ltd (“ADIL”).
ADIL was charged significant fees by investment banks, lawyers and others in connection with the takeover and paid VAT on those fees. After the successful takeover of BAA, ADIL joined the BAA VAT group and the representative member of the group made a claim for the recovery of the VAT paid by ADIL in connection with the takeover costs.
HM Revenue & Customs (HMRC) refused to repay ADIL’s input tax claim. HMRC said that they were investment costs incurred by ADIL in raising finance to acquire the BAA group. BAA countered that ADIL’s purpose was not just the acquisition of the shares of BAA but its intention and purpose was to participate in strategy and business planning of the group.
Following appeals to the VAT Tribunal then High Court, the appeal process has reached the Court of Appeal, which has just released its ruling.
The Court of Appeal found that at the time ADIL incurred the VAT it had no economic activity to which it could link the VAT incurred on expenditure. As such it was a passive investment business with no right to deduct input tax incurred. Importantly, the judgment went on to say that joining the BAA VAT group it did not create a direct and immediate link between ADIL’s inputs and the taxable supplies made by the target, BAA.
The case shows the need to ensure that any business incurring VAT costs is itself engaged in an economic activity at the time the cost is incurred. An intention to manage the company acquired may constitute an economic activity (or can be treated as such by joining a VAT group).
There may be obstacles to achieving a right to VAT recovery. For example it may be that an acquisition vehicle cannot be VAT grouped with the acquired business until after the acquisition is completed because of the common control requirement for VAT groups. In this case it may be necessary to build a case for VAT recovery based on separate registrations. This would bring into sharp focus several points that must be addressed such as achieving a VAT registration and reclaiming VAT; and raises issues that must be considered in advance of the acquisition.
27 February 2013 newsletter
The latest CVC newsletter is now available. This newsletter covers:
1. Legitimate expectation case
2. Court of Appeal decision in BAA
3. Opportunity for not-for-profit cinemas
4. Live-work units
Legitimate Expectation.
In an important decision, Noor, the Upper Tier Tribunal (UTT) has ruled that the First Tier Tribunal (FTT) does not have jurisdiction in regards to the public law concept of “legitimate expectation” as this is a matter for remedy by judicial review.
HMRC will no doubt refer to this case regularly in the future, when a taxpayer feels that they have been given misleading advice from HMRC, despite all the relevant facts being given. Frustratingly this decision was on a case for a relatively small sum (£4,000) and involved a taxpayer that did not have the resources to have legal representation. The UTT noted in their decision that the lack of counter argument meant their ‘decision may not, therefore, be as persuasive as it might be, although as a matter of precedent it will be binding on the FTT”.
Latest CVC Newsletter now available
This newsletter contains items on:
Contains items on:
1. Room Hire and Catering
2. ADR to become ‘business as usual’
3. Insurance services are distinct from leasing services
4. Restriction on occupation = restriction on use
5. Tribunal costs
Supplies of room hire and catering
HM Revenue & Customs have issued a Brief stating that they view the supply of a room and catering as both being taxable even if the catering is supplied by a different party to the one supplying the room.
HMRC point out that although this view has been part of public notice 709/3, Hotels and holiday accommodation, since October 2011, HMRC will not take action to alter any “incorrect” treatment before 22 January 2013.
If you are operating a hotel, inn, boarding house, or similar establishment and use third party caterers this is an important issue if you are currently treating the room hire as exempt. Venue suppliers will also need to consider the commercial impact where the hirer cannot recover the additional VAT charged.