The latest CVC VAT Focus is now available on our website.
This VAT newsletter includes HMRC news and case updates regarding:
The latest CVC VAT Focus is now available on our website.
This VAT newsletter contains HMRC news and case updates regarding:
Direct Mail Marketing – July 2015
HMRC has published its long awaited Brief 10/15 regarding the VAT liability of direct mail marketing using printed matter.
Last month HMRC published revised editions of VAT Notice 700/24 ‘Postage, delivery charges and direct marketing’ and VAT Notice 701/10 ‘Zero-rating of books and other printed matter’.
This latest publication from HMRC clarifies transitional arrangements. HMRC has confirmed it will not take any retrospective action for supplies made prior to 1 August 2015 where the supplier has zero-rated a separate single supply consisting of either addressed or unaddressed mail only. Suppliers must notify HMRC of their intention to adopt transitional arrangements by 30 November 2015. Details of how to do this can be found in Brief 10/15.
Brief 10/15 also provides guidance for suppliers that have made supplies of direct marketing services prior to 1 August 2015 that are not within the scope of the transitional arrangements. Suppliers which do not fall within the transitional arrangements must settle their outstanding VAT liabilities with HMRC and notify HMRC by 30 November 2015. Details of how to do this is contained within Brief 10/15.
If you require assistance or VAT advice implementing these transitional and settlement arrangements or any other VAT matters please contact CVC using the details below.
Constable VAT Consultancy LLP (CVC) is a specialist independent VAT practice with a nationwide client base and offices in London and East Anglia. We work together with many charities and not-for-profit bodies ranging from national charities to regionally based organisations.
We understand that charities wish to achieve their objectives whilst satisfying the legal requirements placed upon them. Charities may be liable to account for VAT on supplies made and VAT will be payable on certain expenditure. As irrecoverable VAT represents an absolute cost to most charities, regardless of their VAT registration status, there is a need to review the position regularly and carefully. We offer advice with planning initiatives, technical compliance issues, complex transactions, help with innovative ideas on VAT saving opportunities, and liaising with HMRC.
If you would like to discuss how VAT impacts on your organisation please contact Stewart Henry, Laura Beckett or Sophie Cox on 020 7830 9669, 01206 321029 or via email on stewart.henry@ukvatadvice.com, laura.beckett@ukvatadvice.com and sophie.cox@ukvatadvice.com. Alternatively, please visit our website at www.ukvatadvice.com where you can view some of the services we offer in more detail and subscribe to our free general and regular VAT alerts and updates. Visit our website for current news updates. You can also follow CVC on Twitter.
This newsletter is intended as a general guide to current VAT issues and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains or for any errors or omissions. CVC cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this newsletter. Specialist VAT advice should always be sought in relation to your particular circumstance.
The latest CVC VAT Focus is now available on our website.
This VAT newsletter includes a VAT update following the Summer Budget 2015, and VAT cases with regards to the following:
The North of England Zoological Society (the Society) appealed against HMRC’s assessments for input VAT in excess of £1.3 million which HMRC concluded the Society was not entitled to recover. The Society makes both taxable (retail and catering) and VAT exempt (zoo admission) supplies; therefore, the Society is partially exempt and is not entitled to recover all of the input VAT incurred in running the zoo.
The main issue before the First Tier Tribunal (FTT) was whether ‘animal related costs’ (costs of keeping and maintaining animals in the zoo) were a cost component of taxable supplies (retail and catering).
The Society contends that the partial exemption standard input VAT recovery method (which it has used) represents a fair and reasonable apportionment of input VAT because ‘animal related costs’ are a cost component of the retail and catering supplies. HMRC, on the other hand, argued that the partial exemption standard method does not give a fair and reasonable apportionment because the ‘animal related costs’ are cost components of VAT exempt admissions and only some of the Society’s taxable supplies (in particular the ‘animal related costs’ are not cost components of the Society’s supplies of catering and retail). HMRC contend that the partial exemption Standard Method Override (SMO) should be applied to give a fair and reasonable apportionment of input VAT.
It was for the FTT to consider whether there is a sufficient link between ‘animal related costs’ and supplies of catering, merchandise and books to justify apportionment of VAT incurred on ‘animal related costs’ to those taxable supplies (as well as to other taxable supplies and VAT exempt zoo admissions).
The Tribunal found that it was clear from an objective analysis that the zoo has two purposes:
The Tribunal also noted that if the Society did not have catering and retail outlets then the zoo would have to operate on a much smaller scale. The zoo as an economic activity heavily relies on the income from the retail and catering outlets, which in turn relies on animal exhibits. It is significant that the catering and retail outlets were profitable. In five of the ten years at issue the Society would have made a deficit without the retail and catering income.
The Society’s appeal was allowed. The Tribunal concluded that the ‘animal related costs’ have a direct and immediate link to the catering and retail supplies. The animals were exploited to achieve various income streams. The Tribunal was satisfied that the ‘animal related costs’ are a cost component of retail and catering supplies.
This decision may be especially relevant to zoos, museums and theatres. Particularly those relying on HMRC guidance set out in Revenue and Customs Brief 65/09.
The decision of the FTT may present an opportunity for organisations that have applied the SMO to make a claim for under-claimed input VAT. However, FTT decisions are only binding on the parties involved and HMRC may challenge a claim. The case also acts as a reminder that charities should review their partial exemption position as a part of the annual adjustment process.
If you would like to discuss this case, or any other VAT matters, please do not hesitate to contact Stewart Henry, Laura Beckett or Sophie Cox on 01206 321029 or via email stewart.henry@ukvatadvice.com; laura.beckett@ukvatadvice.com; sophie.cox@ukvatadvice.com CVC can advise whether your organisation has a valid claim.
Constable VAT Consultancy LLP (CVC) is a specialist independent VAT practice with a nationwide client base and offices in London and East Anglia. We work together with many charities and not-for-profit bodies ranging from national charities to regionally based organisations.
We understand that charities wish to achieve their objectives whilst satisfying the legal requirements placed upon them. Charities may be liable to account for VAT on supplies made and VAT will be payable on certain expenditure. As irrecoverable VAT represents an absolute cost to most charities, regardless of their VAT registration status, there is a need to review the position regularly and carefully. We offer advice with planning initiatives, technical compliance issues, complex transactions, help with innovative ideas on VAT saving opportunities, and liaising with HMRC.
If you would like to discuss how VAT impacts on your organisation please contact Stewart Henry, Laura Beckett or Sophie Cox on 020 7830 9669, 01206 321029 or via email on stewart.henry@ukvatadvice.com, laura.beckett@ukvatadvice.com and sophie.cox@ukvatadvice.com. Alternatively, please visit our website at www.ukvatadvice.com where you can view some of the services we offer in more detail and subscribe to our free general and regular VAT alerts and updates. Visit our website for current news updates. You can also follow CVC on Twitter.
This newsletter is intended as a general guide to current VAT issues and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains or for any errors or omissions. CVC cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this newsletter. Specialist VAT advice should always be sought in relation to your particular circumstance.
The latest CVC VAT Focus is now available on our website.
This VAT newsletter includes HMRC news and comments on recent VAT cases:
Another defeat for HMRC on Fund Management Fees in Upper Tribunal
The Upper Tribunal has released its decision in the case of The Chancellor, Masters and Scholars of the University of Cambridge (UKUT 0305 TCC). This case was heard on 17 March 2015 and the decision released earlier this month.
The issue in point was whether VAT incurred by the university on Fund Management Fees charged by suppliers was partly recoverable. HMRC challenged a partial input VAT recovery on these costs on the basis that these funds are derived from a non-business activity. This was not in dispute; however, the university’s position is that income generated by the fund supports all its activities. The fund is unrestricted in the university’s hands and income generated is used in the furtherance of business (taxable and VAT exempt) and non-business activities. HMRC’s view is that the costs incurred related wholly to carrying out non-business activities.
This case was initially heard before the First Tier Tax Tribunal (FTT) on 19 August 2013. The FTT found in the university’s favour and the Upper Tier Tribunal (UTT) has dismissed HMRC’s appeal. The investment activity is outside the scope of VAT. As a result there is no supply or activity to which the VAT costs incurred can be directly attributed. However, the fund is used to support all of the university’s activities. The university makes VAT exempt supplies of education and taxable supplies including accommodation (out of term time) and catering. The UTT agreed with the FTT, the costs incurred are overheads and fall to be apportioned.
It remains to be seen how HMRC will react to the conclusion reached by the UTT. The position on the recovery of VAT incurred on investment management fees has been unclear for some time. HMRC did allow a partial input VAT recovery where it could be demonstrated that investment income was used to support taxable business activities; however, a policy shift saw HMRC challenging input VAT entitlement on the basis that an investment portfolio is not a business activity.
As the UTT has clarified the position it is hoped that HMRC will accept the decision. In the meantime we would recommend considering the following action:
If you would like to discuss the implications of this decision please do not hesitate to contact Stewart Henry or Sophie Cox on 020 7830 9669 or 01206 321029 or by email on stewart.henry@ukvatadvice.com or sophie.cox@ukvatadvice.com.
Constable VAT Consultancy LLP (CVC) is a specialist independent VAT practice with a nationwide client base and offices in London and East Anglia. We work together with many charities and not-for-profit bodies ranging from national charities to regionally based organisations.
We understand that charities wish to achieve their objectives whilst satisfying the legal requirements placed upon them. Charities may be liable to account for VAT on supplies made and VAT will be payable on certain expenditure. As irrecoverable VAT represents an absolute cost to most charities, regardless of their VAT registration status, there is a need to review the position regularly and carefully. We offer advice with planning initiatives, technical compliance issues, complex transactions, help with innovative ideas on VAT saving opportunities, and liaising with HMRC.
If you would like to discuss how VAT impacts on your organisation please contact Stewart Henry, Laura Beckett or Sophie Cox on 020 7830 9669, 01206 321029 or via email on stewart.henry@ukvatadvice.com, laura.beckett@ukvatadvice.com and sophie.cox@ukvatadvice.com. Alternatively, please visit our website at www.ukvatadvice.com where you can view some of the services we offer in more detail and subscribe to our free general and regular VAT alerts and updates. Visit our website for current news updates. You can also follow CVC on Twitter.
This newsletter is intended as a general guide to current VAT issues and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains or for any errors or omissions. CVC cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this newsletter. Specialist VAT advice should always be sought in relation to your particular circumstance.
CVC has previously reported on the VAT treatment of direct mail marketing services. In a letter to the Direct Marketing Association (DMA) dated 16 July 2014 HMRC stated that it does not view postage services provided in addition to the production of printed matter as ancillary to the supply of printed matter. Following discussions between HMRC, DMA and the Charity Tax Group (CTG) a broad agreement was reached as to the VAT liability of direct mail marketing supplies. HMRC agreed to postpone the start date from 1 October 2014 to 1 April 2015 allowing time for those affected to implement the changes.
On 9 June 2015 HMRC published revised editions of VAT Notice 700/24 ‘Postage, delivery charges and direct marketing’ and VAT Notice 701/10 ‘Zero-rating of books and other printed matter’.
Notice 700/24 provides that a direct marketing service is a standard rated supply. The supply of printed matter is ancillary to the direct marketing service (e.g. postage and data handling). Therefore, the entire supply is subject to the standard rate of VAT (currently 20%). However, Notice 700/24 comments that where printed matter and any services are supplied separately then that may comprise multiple supplies and each component is taxed according to its VAT liability. An example provided in Notice 700/24 is: A multiple supply occurs where a supplier provides marketing strategy advice to a charity and offers the option, under a separate contract, of printing leaflets. These are multiple supplies, one of standard rated marketing advice and one of zero-rated goods.
Notice 701/10 outlines the ‘package test’; where a package contains more zero-rated than standard rated items the package as a whole may be zero-rated. The package test may reduce the tax burden and be simpler than apportionment.
This is an important change which was effective from 1 April 2015. Charities and not for profit organisations are likely to be incurring additional VAT costs. If the cost does not directly relate to taxable business activities this VAT charge may be irrecoverable and present an absolute cost. Charities and suppliers of direct marketing services may wish to take advice to ensure compliance with the new VAT rules and ensure VAT is not charged, or incurred, in error.
Constable VAT Consultancy LLP (CVC) is a specialist independent VAT practice with a nationwide client base and offices in London and East Anglia. We work together with many charities and not-for-profit bodies ranging from national charities to regionally based organisations.
We understand that charities wish to achieve their objectives whilst satisfying the legal requirements placed upon them. Charities may be liable to account for VAT on supplies made and VAT will be payable on certain expenditure. As irrecoverable VAT represents an absolute cost to most charities, regardless of their VAT registration status, there is a need to review the position regularly and carefully. We offer advice with planning initiatives, technical compliance issues, complex transactions, help with innovative ideas on VAT saving opportunities, and liaising with HMRC.
If you would like to discuss how VAT impacts on your organisation please contact Stewart Henry, Laura Beckett or Sophie Cox on 020 7830 9669, 01206 321029 or via email on stewart.henry@ukvatadvice.com, laura.beckett@ukvatadvice.com and sophie.cox@ukvatadvice.com. Alternatively, please visit our website at www.ukvatadvice.com where you can view some of the services we offer in more detail and subscribe to our free general and regular VAT alerts and updates. Visit our website for current news updates. You can also follow CVC on Twitter.
This newsletter is intended as a general guide to current VAT issues and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains or for any errors or omissions. CVC cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this newsletter. Specialist VAT advice should always be sought in relation to your particular circumstance.
The latest CVC VAT Focus is now available on our website.
This newsletter includes HMRC news and comments on recent VAT cases.
The Court of Appeal released its judgment in the case of Littlewoods last Thursday. This case relates to the argument that European law requires the payment of compound interest by HMRC in cases where VAT was collected and paid to HMRC in error. The matter has been ongoing since 2007 (when Littlewoods first lodged claims at the High Court).
The Court of Appeal has upheld the earlier decision of the High Court in finding that simple interest is not adequate indemnity for losses incurred by incorrect over payments of VAT. Littlewoods is the lead case on the matter of compound interest and many organisations who have received VAT refunds from HMRC, and simple interest payments, have appeals stood behind Littlewoods. In the period 1973 to 2004 Littlewoods overpaid £204 million in VAT to HMRC. HMRC repaid this sum, plus simple interest. Paragraph 2 of the Court of Appeal decision states that a compound interest payment of £1 billion has been sought by Littlewoods. It seems likely that in view of the considerable sums involved in this case, and potential wider ramifications, that HMRC will appeal this decision to the Supreme Court.
If your organisation has submitted High Court claims or lodged Tribunal appeals these should be maintained. There is unlikely to be any movement on this issue in the immediate future. If you would like to discuss or refresh existing claims, or seek to protect an organisation’s position with new claims to HMRC, please do not hesitate to contact CVC at any time.
The latest CVC newsletter for charities and not for profit organisations is now available on our website.
This newsletter comments on:
In this newsletter we cover:
Many charities receive funding which is outside the scope of VAT. Such funding may include grants from Central Government, Local Authorities, charitable trusts, supporter donations and legacies. There is no requirement to account for VAT on this income; however, the income received may be used to support business activities.
Juliane Kokott (an Advocate General at the Court of Justice of the European Union [CJEU]) has recently given her opinion in the Lithuanian case of Sveda UAB that free use of an asset, with an intention to generate taxable supplies, has a business purpose. The opinion of the AG is not final; however, it is often a good indication of what the CJEU will conclude. If this case is settled in the taxpayers favour it may have a significant impact on the sector, and HMRC UK VAT policy.
This opinion has not been translated into English; however, it is very interesting to note from the AG’s opinion that the UK Government submitted written observations to the court in July 2014 and attended the hearing on 4 February 2015. The level of HMRC resource devoted to a case involving a taxpayer in another Member State demonstrates that HMRC recognises the potential importance of the decision.
In 2012 Sveda established a recreational trail dedicated to Baltic mythology. It built infrastructure (roads, car parking) and facilities such as campsites, an information booth, observation platforms, stairs and footpaths. Costs were financed by a 90% grant from the Lithuanian National Agency of Payments to the Ministry of Agriculture. The terms of the grant provided Sveda must allow free public access to the trail. The issue of whether the funding received could represent consideration was not discussed. The question referred to the CJEU concerned the right to recover input tax.
Sveda sought to recover VAT incurred on its capital costs, including the recreational trail which members of the public can access freely. This was on the basis that it intended to make taxable supplies of catering and sales of souvenirs. The local tax authority refused this VAT repayment claim because the costs incurred were not used for an activity subject to VAT.
The AG concluded that EU VAT law allows a taxable person to recover input VAT incurred “on the acquisition or production of capital goods, which are directly intended for free use by the public, but can be used as a way to encourage visitors to come in a place where the taxable person, in exercising its economic activity, is considering providing goods and/or services”.
This opinion, although not a final decision, is important for a number of reasons and may explain the representations of the UK Government at the hearing.
HMRC, when dealing with an entitlement to recover input VAT, often use the “cost component” argument. That is to say that there should be a nexus between a VAT cost incurred and an intended taxable supply. In addition, the taxpayer should take account of costs incurred when considering the price of its taxable supplies. HMRC are reluctant to allow input tax recoveries where taxpayers cannot demonstrate that costs incurred are considered when setting the price to customers of its supplies.
This is, of course, often a difficult test for charities who receive grants to support taxable activities to satisfy. In the case in point, the UK Government’s likely position (if this were a UK charity) would be to allow input VAT recoveries in respect of café and shop (costs incurred have a direct link to taxable supplies) but allow no input VAT recovery in respect of the trail because it is not used to generate taxable supplies. The AG disagrees with this approach, and if this opinion is followed by a judgement the following points should be considered by all organisations across the sector, but may be particularly relevant to charities offering free access to sites and buildings. This may include, but is not limited to, wildlife and conservation charities, arts organisations and cultural bodies.
Where a charity allows free use of an asset (free admission to premises for example) HMRC tend to view this as a non-business activity and seek to restrict input VAT recoveries. This is particularly so if an element of grant funding supports certain activities, and the charity is unable to demonstrate it is making taxable supplies. If the AG’s opinion is followed the possible implications are:
Any charity which has restricted input VAT recoveries on capital projects or other activities, may wish to consider protecting its position in view of the fact that retrospective adjustments to VAT returns rendered are capped at four years.
Southern Cross Employment Agency Limited (SC) was an agency which supplied nurses to dentists. In 2010 HMRC made a payment of £1.4 million to SC in settlement of a claim for output tax accounted for on supplies which it had treated as standard rated, and which HMRC agreed were VAT exempt. HMRC then changed its mind and sought to recover the amount repaid on the basis SC’s supplies were standard rated. SC’s contention was that the repayment of VAT had been made under a binding contractual agreement. HMRC argued that Section 80 of the VAT Act 1994 barred it from entering into any such agreement and doing so would be ultra vires and void. The First Tier Tribunal ruled in favour of SC.
The Upper Tribunal (UT) considered three issues. In relation to issue 1 the UT found that Section 80 did not bar HMRC from entering into a binding agreement. Section 85 allows HMRC to enter into a binding agreement in the context of an appeal. The UT noted that there was no reason why such an ability would not exist in the absence of an appeal. The second issue was also found in favour of SC, the fact that it was later established that supplies of dental nurses were standard rated and not exempt did not make the agreement void. The third issue was whether a contractual agreement was entered into, again the UT found in SC’s favour. Therefore, HMRC were bound by a contract and could not recover the amount of repaid VAT.
Servbet Limited appealed against a penalty of £14,773 issued by HMRC for an error in its 10/11 VAT return in which input tax was claimed in relation to an invoice for £118,188 (including VAT of £19,698) for work that was never undertaken. It was accepted that the disclosure of the error was prompted by HMRC and a penalty was payable. HMRC contended that this should be calculated on the basis that the error was deliberate and concealed (penalty applicable between 50% and 100% of the potential lost revenue) Servbet claimed the error was made carelessly and this should be reflected in the size of the penalty (penalty applicable between 15% and 30% of the potential lost revenue). The reduction for the quality of the disclosure is also disputed.
During a VAT inspection by HMRC in 2012 HMRC were presented with the purchase invoice in question. The HMRC officers present at the visit claimed Servbet confirmed the purchase invoice had been paid. This statement was not recorded in the officers’ visit notes and was only mentioned in the officers’ subsequent undated visit report. Servbet insisted that it would not have said the invoice had been paid as the company representative who met with HMRC was not responsible for the day-to-day management of Servbet. The Tribunal preferred Servbet’s recollection of events.
The Tribunal found that as there was no direct evidence that Servbet played any part in the creation of the purchase invoice (which was in fact a quotation) the error was not “concealed”. The Tribunal found that Servbet should have made further enquiries but the inclusion of the invoice in the VAT return was careless rather than deliberate. The Tribunal also found that further reduction should be given for the quality of the disclosure.
Whilst not a charity specific case, this highlights the readiness of HMRC to impose penalties on taxpayers. We recommend that if charities receive VAT inspections from HMRC that any queries arising be confirmed in writing to avoid confusion. If an inspection from HMRC produces no issues we would suggest charities maintain a note of points discussed and records inspected.
In our March 2015 newsletter we briefly covered announcements made in the Budget. One of which was that from 1 April 2015 VAT incurred on goods and services used for non-business activities will be available to certain ‘qualifying charities’. Qualifying charities include: palliative care charities, air ambulance charities, search and rescue charities, and medical courier charities. HMRC has published VAT Notice 1001 which provides further detail with regards to the VAT refund scheme. This is good news and if you would like to discuss the scheme please contact us.
A new penalty system for errors was introduced on 1 April 2009. A penalty may be charged if an inaccurate VAT return (or other document) is submitted and an incorrect VAT declaration arises. The standard amount of a penalty for:
The ‘potential lost revenue’ is the amount of the error; for example, amount of VAT underpaid or over claimed.
CVC has assisted clients in disclosing errors to HMRC and mitigating penalties. These errors are often due to a variety of reasons including accounting software issues, staff illness, or complex VAT liability issues. HMRC’s position is that if a person knows about an inaccuracy when a VAT return, disclosure or claim is submitted this is classified as a deliberate error. In addition to being exposed to a larger penalty HMRC are also able to revisit VAT periods retrospectively over twenty years where HMRC can demonstrate that an error was ‘deliberate’ (generally HMRC are only able to revisit VAT accounting periods going back four years). Therefore, we would always recommend that where an inaccurate VAT return or claim is likely to be submitted HMRC is notified prior to the submission.
CVC are able to assist charities and not for profit organisations that have been issued penalties for errors contained within their VAT returns or that need to disclose errors to HMRC. Please note that HMRC must reduce a penalty to reflect the quality of a disclosure. For example, where a person who would otherwise be liable to a 30% penalty has made an ‘unprompted disclosure’ of the error to HMRC, HMRC may mitigate the penalty to 0%. In determining how much to mitigate the penalty by HMRC will look at the timing, nature and extent of the disclosure. We would always recommend that errors are fully disclosed to HMRC as soon as discovered. If a charity faces difficulty in determining the correct output or input VAT figures to be included on a VAT return we would recommend contacting HMRC. HMRC may give permission for estimated VAT returns in advance of submission of the VAT return.
It is important that charities and not for profit bodies are able to identify barter transactions as these may present VAT obligations of which the organisation is unclear. In the case of a barter transaction there are two supplies. Each party’s supply constitutes the consideration it is providing in return for the supply from the other party.
For example, a charity uses a printer to print and distribute its magazine; the printer does not charge for this service and instead retains advertising revenue generated from the charity’s magazine. In this scenario there is a supply of printing services to the charity and a supply by the charity of advertising. The value of the charity’s supply would usually be the revenue generated from the advertising in the magazine. The charity would be required to account for VAT on this amount even though it did not receive the revenue (if the charity is not VAT registered it would need to consider the value of its supply when calculating whether it has exceeded the VAT registration threshold [Zero-rated supplies of advertising to other charities is still taxable for VAT registration purposes]). The value of the printer’s supply is the amount it would normally charge for its services. The printer may issue a VAT only invoice to the charity for the VAT it is required to account for. If the charity is not VAT registered the VAT will be an absolute cost. If the charity is VAT registered and makes VAT exempt and/or non-business supplies it may be unable to recover all or some of the VAT incurred.
Until the 1 April 2015, most businesses offering a Prompt Payment Discount (PPD) as part of their standard terms only accounted for VAT on the discounted price, even if the full price was subsequently paid. Some charities were able to benefit from the discounts by reducing irrecoverable VAT costs. Some charities may themselves offer PPD.
Doubts over whether PPD rules complied with EU law meant changes were made to the UK legislation in the Finance Act 2014. These changes came into force for the majority of businesses on the 1st April 2015. Businesses must now account for VAT on the amount received rather than the discounted price.
This may leave businesses in the uncomfortable position of not knowing how much VAT to charge when initially raising a sales invoice, or how to go about accounting for this unknown. HMRC suggest two possible solutions:
Of these two options, we would imagine that most businesses would choose the second. However, a large part of the decision may be taken out of the businesses’ hands and come down to how well the software it employs copes with the change.
There are two risks with using option 2. The supplier might not make the correct disclosure on the invoice to allow option 2 to be operated. Secondly, the customer might take the discount even when they have not complied with the terms of the PPD. This would leave the supplier:
The complexity described above relates to the supplier. It will be duplicated for customers, who will also be required to ensure that they claim the right amount of VAT and make the correct adjustments depending on whether they meet the PPD terms and the policy that any particular supplier has adopted.
Charities offering PPDs may wish to agree a tailored approach with HMRC that reduces some of the problems these new rules present.
Constable VAT Consultancy LLP (CVC) is a specialist independent VAT practice with a nationwide client base and offices in London and East Anglia. We work together with many charities and not-for-profit bodies ranging from national charities to regionally based organisations.
We understand that charities wish to achieve their objectives whilst satisfying the legal requirements placed upon them. Charities may be liable to account for VAT on supplies made and VAT will be payable on certain expenditure. As irrecoverable VAT represents an absolute cost to most charities, regardless of their VAT registration status, there is a need to review the position regularly and carefully. We offer advice with planning initiatives, technical compliance issues, complex transactions, help with innovative ideas on VAT saving opportunities, and liaising with HMRC.
If you would like to discuss how VAT impacts on your organisation please contact Stewart Henry, Laura Beckett or Sophie Cox on 020 7830 9669, 01206 321029 or via email on stewart.henry@ukvatadvice.com, laura.beckett@ukvatadvice.com and sophie.cox@ukvatadvice.com. Alternatively, please visit our website at www.ukvatadvice.com where you can view some of the services we offer in more detail and subscribe to our free general and regular VAT alerts and updates. Visit our website for current news updates. You can also follow CVC on Twitter.
This newsletter is intended as a general guide to current VAT issues and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains or for any errors or omissions. CVC cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this newsletter. Specialist VAT advice should always be sought in relation to your particular circumstance.
The latest CVC VAT Focus is now available on our website.
This newsletter includes:
The latest CVC VAT Focus is now available on our website.
This newsletter includes:
The latest CVC VAT newsletter for charities and not for profit organisations is now available on our website.
This newsletter comments on: