Constable VAT Focus 1 September 2023


Union Customs Code (UCC) Redraft
There has been a proposal to amend the UCC, the primary legislation for the EU’s customs regime. As part of this redraft, there are some proposed amendments to the VAT rules for E-commerce. COM(23)262 amends the principal VAT Directive to remove the EUR150 per consignment limit currently applying to the ‘deemed supplier’ (online marketplace liability rules) and related administrative provisions, from 1 March 2028.

This proposed change is linked to various other custom measures, with the intention that all e-commerce operator sales into the EU, regardless of value, will have both VAT and customs duty paid for by the e-commerce operator rather than the individual consumer.

This will also have implications for the application of the Import One Stop Shop (IOSS) in the EU widening the application of the scheme for cross border EU sales B2C.

Insurance (VAT Notice 701/36)
The above guidance has been updated to provide a new definition of ‘insurance’ at section 2.2. That updated definition is as follows:

“…the essentials of an insurance transaction are… that the insurer undertakes, in return for prior payment of a premium, to provide the insured, in the event of materialisation of the risk covered, with the service agreed when the contract was concluded.”


First-Tier Tribunal

1. Default surcharge: Payment allocation

This case considered whether the appellant, Dresser & Co Ltd (DCL) made payments of VAT late and therefore the default surcharges imposed by HMRC were due. The Tribunal established that payments were in fact made late and DCL did not have a reasonable excuse or a Time to Pay (TTP) agreement in place, therefore the surcharges were due.

Whilst the case was straightforward and the penalty mechanism now less relevant, as the default surcharge regime has been replaced by the new VAT penalty regime introduced from 1 January 2023, there was an important question considered.

DCL argued that VAT payments made should have been allocated to the specific VAT quarter the payment was intended for rather than to earlier liabilities. If HMRC allocated payments as DCL intended, the total surcharges payable would have been less. However HMRC argued that where no allocation has been made by DCL, HMRC is entitled to allocate payments to the oldest debts.

The Tribunal agreed with HMRC on this point concluding that as DCL failed to allocate payments, HMRC were at liberty to allocate the payments as they did. In addition, DCL had not even submitted the VAT return when those payments were made, therefore HMRC could not reasonably allocate it to that quarter as the net VAT liability was not even established yet. The appeal was dismissed and surcharges were properly due.

Constable Comment: This case is a useful reminder for all taxpayers that payment allocation must be made prior to making payment (HMRC must be notified of the taxpayers intended allocation). If this is not done in advance, HMRC will apply the normal rules that payments are allocated to the earliest debt first. If this is overlooked, it can potentially lead to a shortfall in more recent payments causing further implications.

Please note that this newsletter is intended to provide a general overview of the subject. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT 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 blog post. Specialist VAT advice should always be sought in relation to your particular circumstance.