Author Archives: Sophie Cox

CVC VAT Focus – Autumn Budget 2017

22nd November 2017

Phillip Hammond has today delivered his Autumn Budget. Here we look at the key VAT measures which have been announced.

VAT registration threshold


The VAT registration threshold will be maintained at £85,000 for two years from April 2018. There had been speculation that the Government may seek to lower the threshold in line with other European countries following the recent report by the Office of Tax Simplification (OTS). In response to the report the Government will consult on whether changes could be made to better incentivise business growth.

Fraud in the provision of labour in the construction sector


We reported in our Spring Budget VAT Focus that the government would consult on a range of policy options to combat supply chain fraud within the construction sector. Following the consultation, the government will introduce a VAT domestic reverse. This will shift responsibility for paying VAT along the supply chain to remove the opportunity for it to be stolen. Changes will have effect from 1 October 2019.

Online VAT fraud


The government has announced a number of measures to tackle online VAT fraud by strengthening and extending existing powers that make online marketplaces responsible for the unpaid VAT of their sellers. These measures will come into force as part of Finance Bill 2017/18 and will include:

  • Legislation to extend HMRC’s powers to hold online marketplaces jointly and severally liable for the unpaid VAT of overseas traders on their platforms to include all traders (including UK traders), as well as any VAT that a non-UK business selling goods on these platforms fails to account for, where the business was not registered for VAT in the UK and that online marketplace knew or should have known that the business should be registered for VAT in the UK.
  • Legislation to require online marketplaces to ensure that VAT numbers displayed for businesses operating on their website are valid.

We reported in our Spring Budget VAT Focus that the government would launch a call for evidence on and consider a new VAT collection mechanism that will harness technology to allow VAT to be extracted directly by the Exchequer from online transactions at the point of purchase. This is often referred to as a ‘Split Payment’ model. Following the call for evidence, the government will publish a response in December.

VAT refunds


The government will amend legislation in Finance Bill 2017/18 to ensure UK Combined Authorities and certain fire services in England and Wales will be eligible for VAT refunds. Grant funding will also be provided under the Accident Rescue Charities Grant Scheme to help accident rescue charities meet the cost of VAT which would be irrecoverable.

Northern Ireland


The government will publish a call for evidence in early 2018 to consider the impact of VAT on tourism in Northern Ireland. This will be reported in the 2018 Budget.

Vouchers


The government will consult on plans to legislate in Finance Bill 2018/19 to ensure that when customers pay with vouchers, businesses account for the same amount of VAT as when other means of payment are used. This will align the UK with similar changes being made across the EU.

Should you wish to discuss any of the VAT announcements made in the Autumn Budget 2017 please contact us.

CVC VAT Focus 17 November 2017

17th November 2017

We also issue specialist Land & Property and VAT & Charities newsletters. If you wish to subscribe to the Land & Property newsletter please email laura.beckett@ukvatadvice.com. If you wish to subscribe to the VAT & Charities newsletter please email sophie.cox@ukvatadvice.com.

HMRC NEWS 

Autumn Budget 2017
The Chancellor will be presenting his Autumn Budget on Wednesday 22 November 2017. CVC will update readers on any VAT announcements in its CVC Budget VAT Focus.

Fulfilment House Due Diligence Scheme
HMRC has issued guidance on the Fulfilment House Due Diligence Scheme. If you store goods in the UK for sellers established outside the EU, you may need to apply for the Scheme.

EU VAT Refunds: service availability and issues
The latest updates on the availability and any issues affecting the EU VAT Refunds online service have been published.

VAT Notice 700/62: self billing
This Notice has been updated and guidance added to paragraphs 3.1, to clarify the requirements for self-billing agreements and 6.4 to confirm the self-billee is responsible for accounting for output tax.

CVC BLOG

Pension Fund update
In CVC’s latest blog Helen Carey considers the latest updates to VAT and pension schemes.

Office of Tax Simplification – Proposals for simplifying VAT
CVC has also commented on the Office of Tax Simplification (OTS) review of VAT and its proposals for simplifying VAT.

CASE REVIEW

Upper Tribunal

1. Distance learning courses 

We have previously reported in the case of Metropolitan International Schools Limited, which found that supplies of distance learning services  to customers should be treated as a single zero-rated supply of books (“the principal issue”).

Following an agreement between HMRC and the School in 1999,  the supplies made by the School to its customers were treated as two separate supplies: one of books (zero-rated); and one of educational services (standard rated). In 2009, following a repayment claim relating to 2006 HMRC withdrew its agreement on the grounds that supplies made by the School should be treated as a single supply of standard rated services. HMRC initially sought to withdraw the agreement retrospectively, although HMRC later conceded that point.

During the FTT hearing the FTT also set out views on two issues that would be relevant if the School’s appeal had failed on the principal issue. Firstly, that the School had a legitimate expectation in respect of the withdrawn agreement with HMRC and secondly, the School was entitled to repayment supplement in relation to payments of VAT for periods prior to 2009 that had been withheld (following HMRC’s initial decision that the agreed method should be withdrawn retrospectively.

HMRC appealed against the FTT decision on the principal issue. If HMRC was successful in this appeal, the School cross appealed against the two later issues. 

The UT found that the provision of manuals, as part of a distance learning package, was a single standard-rated supply and dismissed the School’s cross appeals.

CVC comment: It is important to ensure agreements in place with HMRC are reviewed and refreshed where necessary. 

First Tier Tribunal

2. Deduction of VAT as input tax

MG & ND Storer were in business as partnership operating a seafood takeaway, Gee White Kiosk. The building owned by Mr MG Storer was used as business premises not only for the Kiosk but also Quay Desserts, operated by Mr Storer’s son, and Quay Hole, operated by Mr Storer’s partner.

The building was completely demolished and rebuilt. The rebuilt building again housed all three businesses. Following a repayment verification query, HMRC raised assessments for VAT claimed in relation to refurbishment costs and on the purchase of alcohol. HMRC contended that the VAT was not input tax proper to the Partnership on the basis that the true recipient of the supplies of refurbishment was Mr Storer in his capacity as owner and the true recipient of the supplies of alcohol was Quay Hole.

The Tribunal concluded that input tax incurred on supplies of alcohol to the Partnership was recoverable (subject to the corresponding output tax on supplies to Quay Hole) and with regards to the refurbishment costs, only one third of the input tax is deductible.

CVC comment: The tribunal noted that deduction of input tax should relieve a taxable person entirely of the burden of VAT paid in the course of making supplies which are themselves subject to VAT. It is from this fundamental premise that the Tribunal viewed this case. Businesses should ensure that VAT incurred satisfies all of the conditions to be claimed as input tax.

3. Whether inaccuracy was ‘deliberate’

Mehaffey Ltd received a penalty in the sum of £156,162.72 in respect of VAT returns for the periods 12/09 to 09/13. Mehaffey Ltd sells furniture and the penalty related to sales of goods to customers in another EU member state which had been incorrectly treated as zero-rated.

HMRC contended that the inaccuracies were as a result of deliberate behaviour and Mehaffey knew that it did not have (nor could obtain) valid evidence to support zero-rating. The Tribunal considered a number of submissions from Mehaffey but concluded on a balance of probabilities that the inaccuracy was deliberate.

CVC comment: Whilst the onus is on HMRC to establish a penalty has been applied correctly, the Tribunal emphasised that as a general principle it is the responsibility of every trader to keep appropriate records to evidence its tax position.  

4. Disapplication of the option to tax

PGPH Limited was formed to carry on a property business in the healthcare sector. It acquired a property for use in that business and exercised the option to tax. PGPH granted a right to use the property to Smart Medical Clinics Limited (SMCL) following which PGPH incurred expenditure on refurbishment works.

HMRC contended that the option to tax did not apply to the grant to SMCL under paragraphs 12 to 17 of Schedule 10 VATA 1994 due to the financing arrangements for the works being via a ‘relevant person’ occupying the property other than for the purpose of making taxable supplies. As a result, HMRC denied input claimed by PGPH in respect of the refurbishment. The Tribunal considered whether PGPH intended  or expected the land  to be a ‘relevant capital item’ at the date of the grant and whether SMCL would be defined as a ‘relevant person’ for the purposes of the legislation. The Tribunal concluded this was the case and dismissed the appeal.

CVC comment: This case highlights the importance of considering the VAT implications of transactions from the outset.

5. DCM (Optical Holdings) Limited

DCM (Optical Holdings) Limited (“DCM”) is an optical business, specialising in the sale of dispensed spectacles and the provision of refractive eye surgery, operating from 151 stores in four countries.

A  tribunal hearing was arranged in respect of six appeals by DCM, all arising from output tax related issues connected to the operation by DCM of its stores. The appeals have a long  history and have been subject to extensive case management. Although the six appeals were heard together they were not consolidated.

The Tribunal dismissed all six appeals; however, the full case is lengthy covering an array of output tax issues. The decision makes for an interesting read for businesses operating in this sector.

CVC VAT & Charities Newsletter November 2017

12th November 2017

This VAT & Charities newsletter comments on the following:

  1. Compound interest claims
  2. Local Healthwatch campaign by HMRC
  3. Partial exemption – whether VAT incurred on the refurbishment of a tennis club is recoverable
  4. Direction for HMRC to pay taxpayer costs
  5. Cost sharing exemption
  6. Autumn Budget 2017

 

  1. Compound interest claims

Many charities have lodged protective compound interest refund claims against HMRC stood behind the Littlewoods case. A number of charities submitted retrospective VAT refund claims which were outside of the current capping provisions (i.e. not limited to four years). These retrospective claims required submission to HMRC no later than 31 March 2009. Where claims were met these VAT repayments were often accompanied by simple interest payments.

The Supreme Court has decided unanimously that Littlewoods is not entitled to compound interest payments totalling £1.25bn. This contradicts the Court of Appeal’s earlier decision. Simple interest is calculated on the original sum of VAT repaid or refunded. Compound interest involves the addition of further interest to VAT refunded and simple interest paid. Compound interest is calculated on an ongoing basis.

The Supreme Court noted that, in accordance with the term “an adequate indemnity” in the Court of Justice of the European Union (CJEU) 2012 decision, the UK’s policy has been the charging of simple interest.

CVC comment: This may be a disappointing outcome for Littlewoods and other taxpayers (including charities) stood behind this lead case. It has been reported that, if HMRC had lost its case, the cost to HMRC could have been between £15bn – £20bn.

 

  1. Healthwatch campaign by HMRC

Readers may recall the recent First Tier Tribunal case concerning Healthwatch Hampshire C.I.C where it was concluded that its supplies to Hampshire County Council are taxable for VAT purposes.  It appears HMRC have been reviewing turnover generated by similar organisations from such services using the Charity Commission’s website. Local Healthwatch Organisations have been approached by HMRC questioning the VAT liability of their supplies. Local Healthwatch Organisations should consider the VAT liability of their activities in light of this decision and HMRC’s interest.

CVC comment: it is interesting to note that HMRC has dramatically decreased the number of Briefs issued in recent years. Revenue & Customs Briefs are used by the Commissioners to communicate any changes in policy and to comments on decisions of the Tribunals and Courts. HMRC has not commented on the Tribunal’s decision in Healthwatch Hampshire. In that case HMRC argued that supplies to the Council were outside the scope of VAT and current guidance reflects this.

 

  1. Partial exemption – whether VAT incurred on refurbishment of tennis club recoverable.

The Queen’s Club Limited makes exempt supplies of sporting services to its members and taxable supplies of food and drink in its bars and restaurants. The Club renovated its restaurant and bars and recovered VAT on the costs of renovation. HMRC argued that the VAT incurred on the renovation should be recovered using the Club’s partial exemption method. The Club believed that VAT incurred on renovation work related to its taxable supplies and could be recovered in full. Although members benefitted from the renovation, the Tribunal decided that there was not a direct link between the renovation costs and VAT exempt supplies. There was a direct link between the renovation costs and taxable supplies that the Club made. The appeal was allowed.

CVC comment: this case emphasises a fine line in determining whether input tax can be attributed solely to taxable supplies. The key test is to determine if a ‘direct and immediate link’ between an input (cost) and output (supply) exists. In this case the Tribunal found that expenditure incurred on a restaurant refurbishment did not have a direct link to the Club’s exempt supplies to its members but rather its taxable supplies of catering.

 

  1. Direction for HMRC to pay taxpayer’s costs

HMRC raised VAT assessments in the sum of approximately £1.4million in February 2014. Sussex Cars Association (Sussex Cars) appealed this decision in July 2015 alongside an application to enter Alternative Dispute Resolution (ADR). ADR was ultimately unsuccessful. In November 2016 Sussex Cars submitted a claim for judicial review on the basis of legitimate expectation. HMRC withdrew its defence of the appeal on 14 December 2016. It appears that the reason for HMRC’s withdrawal was that recovering VAT from Sussex Cars was likely to be VAT neutral (Sussex Cars may be able to re-charge VAT to its customer on its supplies; its customers could then reclaim the VAT it incurred from HMRC).

The Tribunal found that HMRC could have withdrawn its appeal much earlier in the appeal process if it had sought legal advice earlier. The Tribunal commented that in a case of this size and complexity it was unreasonable for HMRC to have failed to take legal advice sooner in the appeals process. Therefore, costs were awarded to Sussex Cars.

CVC comment: the Tribunal also commented that the failure by HMRC to send officers to the ADR meeting who were able to engage in the technical subject matter of the case or vary the position of HMRC effectively meant that HMRC failed to engage in the ADR process. This is not reasonable behaviour.

 

  1. Cost sharing exemption

The CJEU recently released three judgments concerning the cost sharing exemption: Aviva (C-605/15), DNB Banka (C-326/15) and Federal Republic of Germany (C-616/15).

Aviva planned to create a cost sharing group whose members are insurance businesses. The CJEU found that members must carry on activities in the public interest. Therefore, insurance businesses cannot be included in a cost sharing group and are not entitled to benefit from the cost sharing exemption.

DNB Banka supplies financial services. The CJEU found that activities which are not in the public interest cannot benefit from the cost sharing exemption. Therefore, financial services businesses cannot form a cost sharing group and benefit from VAT exemption.

The Federal Republic of Germany restricts the cost sharing exemption to the health sector. This is an incorrect interpretation of the EU VAT legislation.

CVC comment: the cost sharing exemption has been used by financial and insurance businesses in some member states. These judgments confirm that this is not allowed. The cost sharing exemption is for persons with activities in the public interest (charities, for example).

 

  1. Autumn Budget 2017

The Chancellor has announced Wednesday 22 November 2017 as the date for his Autumn Budget. CVC will update readers on any VAT announcements in its CVC Budget VAT Focus.

Constable VAT Consultancy LLP (CVC) is a specialist independent VAT practice with offices in London and East Anglia. We work together with many charities and not-for-profit bodies ranging from national charities, those working overseas, and regionally based local organisations. CVC has a nationwide client base.

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 Blog: Office of Tax Simplification – Proposals for simplifying VAT

10th November 2017

 Those readers familiar with VAT will be aware that the operation of the tax is seldom straightforward.  It is therefore no surprise that the first Office of Tax Simplification (OTS) review of VAT has found many areas where the system could be simplified or improved, even without considering Brexit and cross-border trade.

The report of the review can be read in full here.  However, the main points to come out are:

  • A recommendation that the UK’s high VAT threshold (£85,000 at present) is reviewed as it is seen as a significant disincentive to business and potentially economic growth. Options include a much lower or much higher threshold or introducing smoothing mechanisms.
  • HMRC should consider improving clarity of guidance and responsiveness to requests for rulings.
  • There should be a review of the reduced zero-rate and exemption schedules.
  • Partial exemption de minimis rules should be reviewed for ways to simplify calculations.

The report is an interesting read and brings out points recognised by many as causing issues in the operation of the tax alongside sensible suggestions as to solutions, not that any unregistered small businesses trading below the VAT registration threshold will be keen to see the registration threshold reduced in terms of the additional regulatory burdens this would impose upon them!  It will be interesting to see if any of these recommendations are addressed in the near future, particularly with the Autumn Budget approaching on 22 November 2017.

CVC VAT Focus 2 November 2017

2nd November 2017

We also issue specialist Land & Property and VAT & Charities newsletters. If you wish to subscribe to the Land & Property newsletter please email laura.beckett@ukvatadvice.com. If you wish to subscribe to the VAT & Charities newsletter please email sophie.cox@ukvatadvice.com.

HMRC NEWS 

VAT Notice 707: Personal Export Scheme
This Notice has updated the telephone and fax numbers for the Personal Transport Unit

VAT Notice 714: Zero-rating young children’s clothing and footwear
The guidance in paragraph 4.2.1. has been changed to clarify that both bullet points need to be met for zero rate to apply where measurements are exceeded.

VAT Notice 747: VAT Notices having the force of the law
This notice updates and replaces the June 2003 edition. The contact information for comments and suggestions has been updated.

VAT Notice 998: refund scheme for museums and galleries
The list of museums and galleries eligible for VAT refunds has been updated due to an amendment to the VAT (Refund of Tax to Museums and Galleries) Order 2001

VAT Notice 741A: place of supply of services
This notice has been updated to reflect legislative changes coming into force on 1 November 2017.

CVC BLOG

Amazon and eBay traders may be targeted by HMRC

In CVC’s latest blog Helen Carey considers recent reports that MPs on the Public Accounts Committee (PAC) have criticised HMRC for being ‘too cautious’ in pursuing tax lost because a large number of third party sellers on Amazon and eBay are allegedly not charging VAT on sales they make in the UK.

CASE REVIEW 

Supreme Court

1. The Supreme Court dismisses Littlewoods’ claim for compound interest

The Supreme Court has ruled in favour of HMRC confirming that it should not have to pay Littlewoods’ compound interest worth £1.25 billion on overpaid VAT. In the period 1973 to 2005  Littlewoods overpaid £204 million in VAT to HMRC. HMRC repaid this sum, plus simple interest of £268 million. Littlewoods sought the additional interest calculated on a compound basis.

The Court of Appeal had previously upheld an earlier decision of the High Court in finding that simple interest is not adequate indemnity for losses incurred by incorrect over payments of VAT. However, the Supreme Court has held that the payment of simple interest “cannot realistically be regarded as having deprived Littlewoods of an adequate indemnity”. 

CVC comment: This was the lead case on the issue of compound interest. A further 5,000 claims for compound interest in connection with VAT and other taxes were stayed pending the resolution of this claim. The total amount involved in relation to VAT claim is estimated by HMRC at £17 billion.

 Court of Justice of European Union (CJEU)

2. Exemption for supplies of services closely linked to sport – definition of sport

In the case of The English Bridge Union Limited the CJEU has found that ‘Duplicate Bridge’ (a card game) is not covered by the concept of ‘sport’ for the purposes of the VAT exemption for supplies of services closely linked to sport.

CVC comment: the CJEU said that the concept of ‘sport’ must be determined by considering its usual meaning in everyday language. The Advocate General observed that ‘sport’ in everyday language refers to an activity of a physical nature. VAT exemptions must be interpreted strictly.

Upper Tribunal

3. Sale and lease back – Is this a disposal? 

We previously reported the FTT decision in the case of Balhousie Holdings Limited (Balhousie). Balhousie operates 25 care homes and forms part of a VAT group registration with Balhousie Care (BC) and three other subsidiaries.

The issue was whether Balhousie was liable to account for VAT on a self-supply that arose as a consequence of BC’s sale of the Huntly care home to a third party Target and the immediate leaseback from Target to BC. Huntly care home had been acquired by BC from a subsidiary of Balhousie not forming part of the BC VAT group. This purchase by BC had been treated as a VAT zero-rated first grant of a major interest in a relevant residential property. BC had entered into the sale and leaseback arrangement as a means of raising finance and HMRC considered that the onward sale had triggered a liability to a self-supply charge to VAT as a result of the change of use. BC argued that the transaction had not involved a disposal of its entire interest in the property and as such there was no VAT charge due.

The UT held that the FTT erred in law in its application of the relevant statutory provisions to the facts and a change of use VAT charge was triggered as a result of the sale and leaseback.

CVC comment: Whilst the FTT had decided that the sale and leaseback had not impacted on the actual use of the building, the UT concluded that this was not the case. BC no longer enjoys any rights flowing from the original zero-rated supply. BC may have a right of occupation but this flows from the lease not the original disposition.

 

CVC VAT Focus on Land and Property – October 2017

31st October 2017

The latest CVC VAT Focus on Land and Property is now available on our website. This newsletter is intended for readers with an interest in the Land and Property sector.  It summarises the latest HMRC news and cases relevant to the sector and is issued by email quarterly.

In this issue, we consider cases from the Courts concerning:

  • Third party property searches
  • VAT recovery of works carried out under planning gain agreements
  • DIY Claim – Whether property used other than in the course of business
  • Converted dwellings containing a former residential part
  • Prefabricated temporary classrooms
  • Guaranteed return rental schemes
  • Extension or annex?
  • Whether planning condition prohibited the separate use of a dwelling
  • Whether construction of cricket pavilion zero-rated
  • Construction of student accommodation

If you would like to subscribe to CVC’s VAT Focus on Land and Property please contact laura.beckett@ukvatadvice.com.

VAT Focus 20 October 2017

20th October 2017

The latest CVC VAT Focus is now available on our website.

This VAT newsletter includes HMRC News and comments on recent VAT cases including:

  1. The eligibility to use the Flat Rate Scheme for Farmers
  2. Legal services provided in connection with civil claims against a director
  3. DIY claim – Whether property used otherwise than in the course of business
  4. Whether FTT erred in finding HMRC entitled to disallow input tax recovery
  5. HMRC refusal to repay import VAT overpaid by agent
  6. Default surcharge appeals allowed
  7. Guaranteed return rental schemes

CVC VAT Focus 5 October 2017

5th October 2017

The latest CVC VAT Focus is now available on our website.

This VAT newsletter includes HMRC News and comments on recent VAT cases including:

  1. Cost Sharing Exemption
  2. Whether a leasing agreement with an option to purchase is a supply of goods
  3. Partial exemption – whether VAT incurred on refurbishment of tennis club is recoverable
  4. Single or multiple supplies? Supplies of admission to ice skating rink and hire of children’s ice skates
  5. Invalid Information Notice issued by HMRC – unreasonable request
  6. Direction for HMRC to pay taxpayer’s costs

CVC Blog: Senior Accounting Officer regime

25th September 2017

The first appeal by an individual Senior Accounting Officer (SAO) has been heard by the First Tier Tribunal (FTT). HMRC imposed penalties totalling £10,000 on the individual for failing to take reasonable steps to ensure that the company that employed them in the role established and maintained appropriate tax accounting arrangements. The SAO regime requires an SAO to be appointed in relation to each “qualifying company” and for the SAO to certify to HMRC whether the company had appropriate tax accounting arrangements in place for the relevant financial year.

Whilst the the size of the penalties were relatively modest, the FTT commented that their potential impact on the individual in terms of reputation and, potentially, employment prospects, could be more significant.

The individual was the Finance Director for a privately owned group of companies. One of the group  members was International Currency Exchange plc (“ICE”) whose activities included the provision of currency exchange and other financial services. ICE was the representative member of a VAT group.

HMRC contended that the individual  breached the “main duty” under the SAO regime. In this case, HMRC were of the view that the individual failed to conduct, or have in place any system of, selective or “thematic” testing or sampling of figures in the ICE VAT returns or of individual transactions to ensure that the figures in the returns were correct, and that he instead relied excessively on variation testing, i.e. simply comparing figures with those in previous returns. Given the complexity of the business carried on by ICE from a VAT perspective and the fact that group’s accountant undertook detailed work, including reviewing invoices and processes in order to agree the new PESM in June 2010, the FTT was not satisfied that HMRC established a breach of the main duty in failing to ensure selective testing. The FTT allowed the appeal and the cancelled the penalties imposed by HMRC.

HMRC’s approach to this case caused the Tribunal some concern; however, it highlights the importance of ensuring appropriate review processes are in place within larger corporate groups. It can often  be difficult for a business to determine its indirect tax needs and a forthcoming change in VAT law or in business structure may give rise to an immediate need for expert in house VAT support. CVC can offer regular in house support, at any level, to see a business through a difficult period, or on a continuing basis.

For further information please do not hesitate to contact us on 01206 321029 or info@ukvatadvice.com and one of our consultants will be happy to speak to you.

CVC VAT Focus 21 September 2017

21st September 2017

The latest CVC VAT Focus is now available on our website.

This newsletter includes HMRC VAT news and comments on recent VAT cases concerning:

  • Was the FTT entitled to make barring order?
  • VAT recovery on works carried out under planning gain agreements
  • Single or multiple supply?
  • Disbursements
  • Permission to make a late appeal
  • Extension or annex?
  • Default surcharge appeal allowed

CVC VAT Focus 8 September 2017

8th September 2017

The latest CVC VAT Focus is now available on our website.

This newsletter includes HMRC VAT news and comments on recent VAT cases concerning:

  • Supplies of goods and services between connected parties
  • Whether Bingo apportionments can be corrected under Regulation 38
  • Whether reasonable enquiries undertaken by HMRC
  • Senior Accounting Officer regime – whether main duty breached
  • VAT exemption for management of Special Investment Funds
  • Default Surcharge appeal allowed
  • Recovery of VAT on barristers fees where only future outputs contingent success fees

CVC VAT Focus 24 August 2017

24th August 2017

The latest CVC VAT Focus is now available on our website.

This newsletter includes HMRC VAT news and comments on recent VAT cases concerning:

  • VAT exemption of supplies of services closely linked to sports
  • Whether supplies made to allow input tax recovery
  • Whether planning condition prohibited the separate use of a dwelling
  • Whether prior agreement of method of apportionment between exempt dispensing and standard rated spectacles
  • Business/non-business apportionment
  • HMRC’s unreasonable conduct
  • Whether the construction of a cricket pavilion was zero-rated

CVC Blog: VAT for staff agencies in the nursing and care sector

18th August 2017

The VAT treatment of supplies made by staffing agencies has presented those businesses with ongoing difficulties for many years. The withdrawal of the staff hire concession in 2009 impacted on agencies generally with the full value of charges for staff becoming a supply from the staffing agency to the employer of staff hire rather than the margin being treated as commission. Prior to this it had been accepted that staff agencies need only consider ‘commission’ i.e. the difference between the amount charged to the employer and the amount paid to the temp, for VAT purposes, effectively acting as intermediaries. The recent case Adecco [UK UT 0113] refocussed employment businesses on this area but unfortunately arguments that VAT should be accounted for on ‘commission’ rather than staff charges were unsuccessful.

In addition, nursing and care agencies have a number of complexities around whether supplies are VAT exempt or standard-rated and it is fair to say that the approach taken regarding VAT accounting has varied quite considerably (it is also fair to say that historically, very different local approaches have been taken by HMRC).

VAT exempt or standard rate?
The first point to address is that, a supply of nursing or care staff by an agency  is a supply of staff rather than a supply of medical care or welfare, the result being that a staff supply is not in itself VAT exempt. However, there are two potential paths to VAT exemption:

  1. A supply of nursing staff by an agency under the nursing agencies concession. This may be to a hospital or care home institution as long as the individual supplied is providing medical care and certain other criteria are met. This concession allows the agency the option to look through to the end supply where otherwise this would simply be a standard-rate supply of staff.
  2. A supply of general domestic care services (welfare) or medical care, generally to an end user in their own home.

Both the areas above have their own complexities and there are a number of requirements for VAT exemption to apply. Additional considerations may be present such as whether it is desirable to apply the nursing agencies concession. Where a customer is able to recover VAT charged, making a supply of staff subject to VAT may improve an agency’s VAT recovery position under the partial exemption rules.

The supply of general care staff to nursing homes e.g. homes for the elderly, has probably been the area most misunderstood historically. The supply of general care by the care home to its residents will normally be VAT exempt. This means the care home will not be able to recover VAT on costs directly related to this such as VAT on staffing costs. The supply by the agency to the care home is a standard-rate supply of staff where those staff will be under the control and direction of the care home, producing an irrecoverable VAT cost for the home.

Umbrella organisations
Umbrella organisations may provide some efficiencies for tax purposes but can be problematic for VAT and nursing agencies in particular. It is doubtful that the nursing agencies concession would cover the supply from an umbrella organisation to a nursing staff agency (HMRC guidance does not cover the point). The wording of the nursing agencies concession and experience suggests that umbrella organisations are not covered by the concession.

This may lead to a position where VAT should be charged by an umbrella organisation supplying staff to a nursing agency but, if that nursing agency is choosing to use the nursing agencies concession for its onward supply of nursing staff, it is likely it will have no right to recover the VAT charged due to its VAT exempt supplies.

Again, confusion around the nursing agencies concession, the chargeability of VAT and the contractual agreements in place have produced a risk scenario that may equally affect both the umbrella organisation and the nursing staff agencies. If HMRC view VAT as due from the umbrella organisation and its contract allows the collection of VAT in addition to any fee, the umbrella organisation’s mistake may become the nursing agencies problem if contractually the agency can be charged VAT.

Locum doctors
Similar principles affect doctors working through locum agencies. This is potentially higher risk from a VAT perspective as there is no equivalent to the nursing agencies concession for doctors. Where a doctor is supplied to a hospital or GP surgery by an agency and will be under the control and direction of the hospital or surgery this is a standard-rated supply of staff and is subject to VAT. The doctor themselves also need to consider their position in relation to VAT registration depending on circumstances as HMRC may view them as making taxable supplies to the agency in a similar situation to that of umbrella organisations.

Approach
It is essential that agencies take steps to ensure that they are VAT compliant, understand their position for VAT purposes and have appropriate contracts in place. A systematic VAT liability error can quickly lead to large VAT debts and these may be subject to error penalties if HMRC believe the errors are careless and will certainly be issued if considered deliberate. There are a large number of businesses whom may be at risk from incorrect interpretation of the provisions and it is our expectation that HMRC will make this a focus area in the future.

 

CVC VAT Focus 11 August 2017

11th August 2017

The latest CVC VAT Focus is now available on our website.

This newsletter includes HMRC VAT news and comments on recent VAT cases concerning:

  1. Whether the supply of goods to a customer who intends to dispatch those goods can be zero-rated.
  2. Whether the grant of a major interest in a converted dwelling containing a former residential part can be zero-rated.
  3. Whether the letting of a pre-fabricated temporary classroom is VAT exempt.
  4. Penalty for understatement of VAT.
  5. Disallowing credit for input tax.
  6. Late VAT registration – misunderstanding regarding the VAT liability of supplies.
  7. VAT liability of supplies in the course of constructing student accommodation.

CVC VAT Focus on Land and Property – July 2017

24th July 2017

The latest CVC VAT Focus on Land and Property is now available on our website. This newsletter is intended for readers with an interest in the Land and Property sector.  It summarises the latest HMRC news and cases relevant to the sector and is issued by email quarterly.

In this issue, we consider cases from the Courts concerning:

  • Whether transfer of property in lieu of tax should be subject to VAT
  • AG Opinion – Whether VAT can be recovered on works carried out under planning gain agreements
  • Reduced rating of supplies of fuel
  • Separate supply by hotel of room for civil wedding ceremony
  • Whether FTT were correct to conclude existing building had ceased to exist
  • Whether zero-rated supply of caravan or standard rated supply of accommodation