VAT rates on different goods and services
The above includes a list of goods and services showing which rates of VAT apply and which items are exempt or outside the scope of VAT. It has now been updated to reflect that the VAT rate for energy-saving materials in residential buildings in Great Britain is now 0%.
Apply to use Simplified Import VAT Accounting
The above guidance sets out how to apply for Simplified Import VAT Accounting to lower financial guarantees required for duty deferment schemes.
From 1 October 2022, taxpayers will not be able to make import declarations on the Customs Handling of Import and Export Freight (CHIEF) system. Instead, if a taxpayer imports goods, they will need to use the Customs Declaration Service (CDS).
More information can be accessed on the guidance by clicking here.
How to apply for a repayment of import duty and VAT if you’ve overpaid (C285)
The above guidance sets out which service to use for import declarations made on the Customs Declaration Service (CDS) or Customs Handling of Import and Export Freight (CHIEF). It was updated to confirm that VAT registered importers cannot use form C285 to reclaim overpayments of import VAT.
Apply to receive non-financial VAT registration data from HMRC
Credit reference agencies and other qualifying applicants can apply for VAT registration data for use in making financial assessments. The application period to get non-financial VAT registration data is now from 1 April to 31 October. A new section about the ‘length of term’ has been added.
Funded pension schemes (VAT Notice 700/17)
The above provides guidance on how to claim input tax on funded pension scheme expenditure for both employers and trustees. A new section has been added which covers insolvent companies.
Register for VAT if supplying goods under certain directives
The above provides guidance regarding VAT registration if you’re making supplies of goods under Directive 2008/9 or 113th Directive using form VAT1C, the notes for the form have now been updated.
Since the end of the transitional period on 31 December 2020 European Court judgements are not binding on the UK in most cases. However, it is expected that UK courts will still take these judgements into consideration when reaching their own conclusions and there may be occasions where they have a more binding effect. If you are concerned about the impact of any matters raised in the following cases, please contact us.
This case concerned a company which the CJEU referred to as ‘X’ and the tax authorities of Netherlands. In 2006, Company B sold 10 plots of land to X. The intention was that Company B would carry out development work by building mobile homes and would receive 50% of the sale proceeds. At the time of the land sale, Company B invoiced VAT to X which X paid but did not deduct as input VAT. Due to economic circumstances the development was not carried out, X resold two plots to B, VAT was charged on the invoice but X neither declared or paid the VAT.
Consequently, the tax authorities sent X an adjustment notice relating to the VAT on the two plots of land and collected the VAT. X brought an appeal against the adjustment claiming that it should be reduced by the amount of VAT it originally paid in 2006 that it had not reclaimed at that time. X’s position was originally upheld but when the case was escalated to the Supreme Court of the Netherlands it referred the following question to the CJEU:
Must Article 184 and 185 of the VAT Directive be interpreted as precluding a taxable person who failed to exercise, before the expiry of the limitation period laid down by national law, the right to deduct VAT, from being denied the possibility of subsequently making that deduction, by way of an adjustment, at the time when those goods or services are first used for the purposes of taxed transactions, even where no abuse of rights, fraud or loss of tax revenue has been established.
The CJEU concluded that the adjustment mechanism is applicable only where there is a right of deduction. It followed that where a taxable person has lost the right to deduct VAT as a result of the expiry of a time limit, X cannot rely on Article 184 or 185 to reduce the VAT payable on its own supply.
Constable VAT comment – It would have been surprising had the CJEU reached a different conclusion. One can question whether the time limits on VAT deductions are fair. However, there were two distinct transactions and the fact that one had occurred several years before the second meant that by the time the second transaction occurred it was too late to deduct VAT on the first. A different decision would have undermined the effectiveness of the time limit applied to VAT deductions.
This case concerned VB, the owner of forest land in Romania. The Romanian tax authorities found that VB’s turnover exceeded the VAT registration threshold in 2011. The authorities have revised, retroactively, the calculation of the VAT due from 2011 applying the method which takes the view that sale prices also included VAT.
VB appealed this on the grounds that the sale of standing timber is subject to the reverse charge mechanism, the application of which is subject only to the fact that the two traders are taxable persons, but not necessarily to the existence of a VAT registration number on the part of the supplier.
The Romanian tax authorities rejected this view, stating that the reverse charge mechanism was subject to the condition that both the supplier and the purchaser were registered for VAT.
The CJEU confirmed that Article 199(2) of the VAT Directive allows Member States to define the categories of suppliers or recipients to whom the reverse charge procedure may apply. It then stated that the restricting the reverse charge to VAT registered traders only had precisely the effect of limiting the scope of reverse charge, which it found to be acceptable. In addition, there was a requirement to obtain the supplier’s VAT registration number which enabled customers to identify when to apply the reverse charge applied. The CJEU found this to be a proportionate measure which did not breach the principle of fiscal neutrality.
To conclude, the CJEU confirmed that Romania is entitled to require VB to account for VAT retrospectively and considered that limiting the application of the reverse charge to suppliers that are VAT registered (as compared to “liable to be VAT registered”) is a legitimate measure.
This case concerned the Lithuanian tax authorities ordering UAB Arvi (Arvi) to repay VAT, plus penalties and interest as a result of incorrectly treating the sale of a gym to UAB Fondas (Fondas) as taxable. Arvi had opted to tax the building and therefore recovered input VAT incurred on the basis that it related to a taxable sale.
In Lithuania, it is a condition of the option to tax that the buyer must be a VAT registered business and the seller is required to obtain the buyer’s VAT registration number before the sale. The Lithuanian authorities argued that although Fondas applied for a VAT registration, it was only issued with a VAT registration number a month after the sale took place, therefore Arvi could not correctly opt to tax, meaning it should have adjusted the amount of input VAT deducted in its VAT return.
The first question referred to the CJEU was whether the VAT directive and the principles of fiscal neutrality and effectiveness must be interpreted as precluding national legislation from making the right of opting to charge VAT on a property conditional on the buyer being VAT registered at the time of the transfer. The CJEU stated that Lithuania’s legislation merely laid down detailed rules around the option to tax and did not adversely affect a right to input tax deduction. It was confirmed that the condition laid down for the option to tax does not contravene the principles of fiscal neutrality. As a result, the CJEU concluded that the VAT directive does not prevent national legislation making the option to tax conditional.
The CJEU also confirmed that intention of taxable use of the property by Fondas cannot affect Arvi’s right to deduct the input VAT. The businesses are separate taxable persons each pursuing their own economic activity. Fondas business activities do not impact on Arvi’s VAT recovery rights. Therefore, although Fondas became VAT registered one month after the sale by Arvi the fact that its VAT number had not been issued at the time of the sale meant that Arvi’s option to tax did not apply to the sale.
Constable VAT comment – The VB and UAB Arvi cases both illustrate the importance of dealing with compliance measures in a timely way. It is a universal principle of VAT that “If something that should have been done at the time of a transaction has not been done, then it will usually be too late to rectify the resultant problem.” Both cases relate to fiscal neutrality and the outcomes supported by the CJEU involve a VAT cost in the supply chain that should not exist. However, natural justice and fiscal neutrality seem increasingly less important than compliance with rules. In the UAB Arvi case it seems unfair that the company had applied to be VAT registered at the time of the supply. The judgement seems to make the VAT liability of a supply potentially contingent on the efficiency of the VAT authorities in processing VAT registration applications and commercial transactions may be disrupted as a result of failings that a taxpayer has no control over.
This Upper Tribunal case concerned HMRC appealing the FTT’s decision regarding Netbuster’s supplies. Netbusters organised competitive football and netball leagues and also supplied the pitches for these matches to be played upon. The FTT concluded that the supply of league management services, which the appellant identified as 12.5% of the supply, was an additional ancillary service to the fundamental nature of the supply being the pitch hire, therefore exempt from VAT.
HMRC were granted permission to argue five grounds of appeal as follows:
- The FTT failed to have any proper regard to the relevant case law.
- The FTT failed to properly consider and apply the ‘passivity principle’.
- The FTT failed to properly consider the objective character/economic reality of the supplies made by Netbusters.
- The FTT erred in finding that 87.5% of the value of the Netbuster’s supply was attributable to pitch hire and 12.5% to league management services.
- The FTT failed to correctly analyse the true nature of the rights granted to Netbusters by third parties.
Regarding the first ground of appeal, despite HMRC having been granted permission to appeal on the point, the UT concluded that it was unarguable. HMRC failed to identify how the FTT have misinterpreted or misapplied the law. The FTT did consider the relevant case law.
Under the second ground of appeal, the ‘passivity principle’ considers whether there is significant added value by services in addition to the land. HMRC took the view that there was a provision of service rather than simply making available of property. HMRC relied on the Luc Varenne case for this argument. The UT rejected this on the grounds that the FTT correctly distinguished its conclusion from the facts of Luc Varenne as the additional services in that case were 80% of the total charge, whereas the league management services in this case accounted for only 12.5%.
On the third ground of appeal, HMRC argued that the provision of league competitions was the most important part of the supplies. The teams and individuals were seeking to play competitive and test themselves against other players, rather than simply hiring a pitch for a ‘kick around’. In addition, the key selling point of Netbusters was that a league structure was already in place, with customers only having to sign up and pay. The UT confirmed their view that the FTT correctly recognised that there were two elements, pitch hire and league administration. Each enhanced the enjoyment of the other but the league management services were of modest value and did not change the fundamental structure of the supply.
The fourth ground of appeal concerned HMRC rejecting that only 12.5% of the supply is attributable to league management services. However, there was no other evidence regarding this and HMRC did not challenge the point with the FTT. The UT agreed with the FTT’s conclusion that the value added was modest and therefore cannot change fundamental characterisation of the supply.
With regards to the final ground of appeal HMRC, argued that an agreement with King Solomon Academy (KSA) for the rent of a sports hall did not grant exclusive use of the sports hall to Netbusters and that there was a conceptual confusion between a supply of the right to use the facilities and the right to occupy land. The UT concluded that HMRC’s suggestion that Netbusters had no right to exclude others during the hiring is not a realistic reading of the agreement nor of the practical reality.
For the reasons set out above, each of the grounds of appeal failed and HMRC’s appeal was dismissed.
Constable Comment: HMRC’s policy in relation to what is or is not a supply of land has become increasingly confusing in recent years. HMRC seems to have litigated almost randomly on the point that services supplied alongside supplies of land change the nature of the supply. In this case HMRC’s position has been found to be wrong but there was at least a rationale for its position. However, increasingly taxpayers are left making judgements in the absence of easy to follow criteria. Most will never be challenged and it has almost become a lottery with some unfortunate taxpayers being told that what seems a minor additional service or entitlement (such as a licence to hold weddings) changes the VAT liability of their supplies. If there is ambiguity around what is actually being supplied, we would always recommend seeking professional advice and often a non-statutory clearance.
This case concerned the appellant was a building company who received supplies from a sub-contractor called Sword. Sword charged VAT on its invoice to the appellant. The appellant argued that the supply was zero rated as a construction of a new dwelling with the subsidiary argument that if it failed on that point the reduced rate of 5% applied.
The construction of a new dwelling can be zero rated for VAT purposes. However, there are strict rules to consider when deciding whether a replacement dwelling can be considered “new”. In this case there was already an existing building, but after lengthy planning procedures, planning permission was granted to demolish the existing building and construct a new dwelling. However, based on Note (18) of Group 5, Schedule 8, a building only ceases to be an existing building if it is demolished to ground level, which was not the case, or ‘the part remaining above ground level consist of no more than a single façade or where a corner site, a double façade, the retention of which is a condition or requirement of statutory planning consent or similar permission’. In this case, as part of the planning permission, the front elevation and part flank return walls together with a section of the front roof were protected and retained.
Initially, HMRC challenged zero rating on the grounds that the condition as to lawful development was not met. The Tribunal rejected this argument and confirmed it was satisfied that the works were carried out in accordance with the planning permission and did not present any breach of planning control.
However, the Tribunal took the view that what was retained, in accordance with the planning permission, was more than a single façade, hence the development was ineligible for zero-rating because the existing building did not cease to be a building. It arrived at this conclusion on the grounds that the façade does not include a roof slope. These are different structures, with different names, made of different materials and have different aspects. The Tribunal rejected the appellants argument that the roof was part of the façade simply because it can be seen by passers-by or approaching visitors. This was sufficient to dismiss the appeal with regards to zero rating.
The Tribunal went on to conclude that the supply was in the course of the renovation or alteration of a qualifying residential premises of qualifying services related to the renovation or alteration where the premises met the empty home condition, as it has been empty for a 2 year period ending with the commencement of the relevant works. As a result, the construction works carried on by Sword should have been subject to the reduced rate of VAT at 5%, instead of the standard rate.
Constable Comment: This case highlights the importance of meeting the conditions set out in the legislation regarding construction works in order to treat them as zero rated. Often a property owner’s hands will be tied by planning restrictions that cannot be removed. However, understanding the VAT impact in advance may allow a dialogue with planners that will allow the development proceed in a way that delivers VAT savings.
This case concerned a dispute between Maron Plant Limited (MPL) and HMRC regarding an assessment of VAT in the sum of £201,024. The assessment was raised on the basis that MPL had not provided sufficient evidence of removal of goods from the UK to allow it to zero rate the supplies for VAT purposes.
The goods included 29 items of plant and machinery allegedly sent to the Republic of Ireland (Ireland) on 16 occasions involving 20 invoices. The goods were sold to BSM, a company which MPL had no previous dealings with. There is an additional dispute between the parties concerning whether MPL knew or should have known it was involved with fraudulent evasion of VAT but this appeal only concerned the issue whether MPL held sufficient evidence of the removal of goods to Ireland to zero rate its supplies.
The FTT reviewed the evidence presented and stated it had problems with MPL’s evidence. Part of MPL’s argument was that it did not know proof or removal was required therefore it agreed to prepare ‘Confirmation of shipping’ documents. Unfortunately, these had no details on the consignee, carrier or route so did not comply with conditions set out in Notice 725 which has force of law.
In addition, MPL failed to produce any evidence of the route taken. The fact that the invoice stated there had been a shipment from the UK to Ireland did not prove anything. MPL produced no CMRs, no Bill of Lading or any other evidence of the goods being booked on a ship and no evidence regarding the mode of transport, route of movement nor the destination. The Tribunal concluded that MPL has not obtained or retained valid commercial evidence of export to support zero rating of the relevant transactions, MPL should have therefore charged VAT at the standard rate. The appeal was dismissed.
Constable Comment: The environment has changed since Brexit with only NI to EU shipments being equivalent to “intracommunity shipments” and shipments from the rest of the UK being “exports”. If the rules are complied with, the requirement for export and import declarations should result in businesses holding “export evidence”. Nevertheless, there are a variety of ways to export goods and we still see cases in which the export evidence is insufficient and in particular where it was not obtained and kept within the window of time available – for example while it can be downloaded from a courier’s systems. If evidence of a despatch or export is not available HMRC will raise an assessment for underdeclared VAT.
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.