Tag Archives: annexe

CVC VAT Focus 27 September 2018

27th September 2018

HMRC NEWS

Trading Goods Regulated Under the “New Approach” if There Is No Brexit

How trading in harmonised goods regulated under the New Approach would be affected if the UK leaves the EU with no deal.

Software Suppliers Supporting Making Tax Digital for VAT

Find out which software suppliers HMRC is working with to produce suitable Making Tax Digital for VAT software for businesses and their agents.

Customs Declaration Service

The Customs Handling of Import and Export Freight (CHIEF) process is being replaced by CDS, a modern and flexible system that can handle anticipated future import and export growth.

CHANGE OF WEBSITE AND EMAIL ADDRESSES

Constable VAT Consultancy is in the process of updating its website to make it easier to access information about our services and to keep you up to date all the upcoming changes in VAT. The first step in this process is a change in our website and email addresses from ukvatadvice.com to constablevat.com. You don’t need to do anything to continue to access our website or your usual contacts, all mail and website traffic will automatically be rerouted. However, you will notice that emails coming to you will show our new email addresses. If you are in any doubt at any time as to whether an email you receive from us is genuine please call our office on 01206 321029.

CASE REVIEW

Upper Tier Tribunal

1. Splitting Single Supplies

This appeal concerns whether the VAT legislation allows application of a reduced rate of VAT to a component of what is, for VAT purposes, otherwise regarded as a single, standard rated supply. The Appellant had received assessments from HMRC for underpaid output VAT owing to the fact that single supplies were being split between standard and reduced rates of VAT.

A N Checker supplied and installed boilers along with energy-saving materials in domestic properties. The question before the Tribunal was whether the supplies were single supplies subject to either one or two rates of VAT. A N Checker did not argue that the whole supply should benefit from the reduced rate because of the reduced-rated component of the supply but that the reduced-rated component should benefit from the reduced rate despite being part of a single, standard rated supply of the installation of boilers.

The Tribunal found that, in the absence of a legislative provision for apportionment, a component of a single supply does not benefit from a reduced rate when forming part of a single, standard rated supply. It was asserted that, despite ambiguity in the construction of the legislation, there is no presumption in favour of a more liberal application or interpretation of the reduced rating provisions. The appeal was dismissed.

Constable Comment: Whilst certain supplies may be clearly defined and their treatment definitively described in VAT legislation, there are businesses which may make complex supplies of combined goods and services. In light of this decision, these businesses may wish to refresh existing practices and seek professional advice around the VAT treatment of their supplies.

First Tier Tribunal

2. Alteration or Annexe

This decision concerned the VAT liability of construction works undertaken at a church building, the Roman Catholic Diocese of Westminster sought to argue that the construction of a new hall attached to the old building after the remodelling of the church constituted an annexe to an existing building and should qualify for zero-rating. HMRC argued that the new hall constituted an alteration, enlargement or extension and was excluded from the zero-rate.

Prior to the construction, the Church had been separated into two areas, a worship area and a hall. The two were distinct from each other. The new hall had its own doors and was kept separate from the Churches area of worship; the hall being used for social events such as whist drives. The Tribunal considered that the construction work had been carried out in order to expand worship space for the Church and therefore, that the hall was a supplementary structure and an annexe to an already existing building.

The FTT also considered that the annexe could operate separately from the main Church with its own doors, toilet facilities, kitchen and radiators. It is held that the costs incurred were correctly treated as zero-rated by the Diocese.

Constable Comment: This case will be of interest to anyone carrying out construction works. It is prudent to seek professional advice before works begin as if the incorrect rate of VAT is applied throughout a lengthy and expensive project, it is possible that HMRC will seek to recover any input VAT incorrectly claimed or issue VAT penalty assessments if a certificate is issued to a contractor claiming zero-rating in error.

3. DIY Housebuilder’s Scheme

This appeal is against a decision by HMRC to refuse a refund of VAT incurred on the construction of a building as a DIY Housebuilder.

The Appellant received planning permission in 2011 for a proposed building to be used for tourism purposes only. This was an explicit term in the permission and it was specifically stated that the property “…shall not be occupied on a permanent basis.” Following completion of the construction, the DIY VAT refund claim was submitted to HMRC seeking to recover the VAT incurred on the costs of the build.

The VAT repayment was denied on the grounds that the property was only for business purposes; one of the covenants attached to the planning permission being that the property be used for tourism purposes only. HMRC contended that this meant that the property had been constructed in the course of business and so the DIY housebuilders scheme was inapplicable.

Giving a reasonable amount of time to the Appellant’s submissions, the Tribunal found in favour of HMRC and upheld its refusal to repay VAT incurred on the grounds that the intention and planning permission for the development was specifically for business purposes and prohibited domestic use.

Constable Comment: The DIY Housebuilder’s scheme enables people wishing to build their own homes to put themselves on a level playing field with property developers who can recover their input tax provided that they intend to make taxable supplies. It can be a complex process and standards of proof can be very high. If you are considering submitting a DIY Housebuilder’s claim or beginning a project then please do not hesitate to contact Constable VAT. In this case the appellant could have VAT registered voluntarily, supplies of holiday accommodation being standard rated, and reclaimed VAT incurred. VAT would have to have been accounted for on supplies of holiday accommodation moving forward.

4. Personal Export Scheme

This is an appeal against a decision by HMRC to refuse to allow the personal export scheme to apply to the Appellant’s export of a vehicle.

Hofmanns Henley Limited (HHL) is a car dealership which agreed the sale of a car to a customer resident in Jersey. It was intended that the Personal Export Scheme be applied to export the car at the zero-rate of VAT. Having agreed the sale and sent the appropriate paperwork to HMRC, the car was supplied to the customer.

HMRC refused the application to use the scheme claiming that HHL did not have the necessary pre-approval to zero-rate the car’s export; whilst the forms had been sent off, they had not been approved prior to the car’s removal from the UK.

HHL conceded that it had made a mistake but asserted that it was, at least in part, the fault of HMRC’s misdirection given over the telephone. HMRC also concede that the incorrect information was given to the Appellant over the ‘phone but state that the complaints in relation to this had been handled separately through the formal grievance procedure.

The Tribunal held in favour of HMRC as the criteria for the application of the Personal Export Scheme had not been met.

Constable Comment: Whilst this case revealed mistakes by both sides it serves to prove an important point. HMRC telephone conversations and Public Notices are not to be relied on as the law. For any high value purchase or acquisition with a potentially complex cross-border transaction and application of a special scheme it is vital to seek professional advice to ensure the highest degree of compliance. In circumstances such as these, HMRC often state “the law is the law” even in cases of official error. Where doubt or ambiguity exists, submitting a non-statutory clearance application to HMRC is the safest approach because HMRC will be bound by this, provided full facts have been presented.

CVC VAT Focus 22 March 2018

22nd March 2018

PARTIAL EXEMPTION

It is around this time of year that those businesses that are partially exempt are required to calculate their annual adjustment. This adjustment must be made in the VAT return period ending June, July or August but can be made in the prior period (March/April/May) if a business wishes. CVC is able to calculate or check these annual adjustments for businesses if required.

HMRC NEWS

Revenue & Customs Brief 3 (2018): Changes to the VAT exemption for cost sharing groups.
This brief and the related VAT information sheet explain the immediate changes that are taking place in HMRC’s policy following recent judgments

VAT Notes 2018 Issue 1
HMRC has published its 2018 VAT Notes Issue 1.

VAT: businesses that sell goods in the UK using online marketplaces
Updated with changes announced in the Autumn 2017 Budget for sellers that use online marketplaces.

VAT returns and EC Sales Lists Online: VAT
How to use the test service: 4.1 guidance has been updated with version 4.2.

Draft legislation: The Value Added Tax (Amendment) Regulations 2018
Response to consultation has been published.

CVC BLOG

Spring Statement 2018 and VAT

In the Spring Statement, the Chancellor announced details of two consultations with implications for the future operation of VAT. Please see our news item for further information.

CASE REVIEW

Upper Tribunal

1.Planning Permission Post-Sale

Cavendish Green Limited (Cavendish) appealed against a previous decision that the sale of a building did not qualify for zero-rating as the structure present at the point of transfer did not have automatic statutory planning permission and had not received planning permission from elsewhere. In the absence of the necessary planning permission, the sale should have been treated as VAT exempt and Cavendish should not be able to claim back input VAT relating to the project.

The First Tier Tribunal made it clear that planning permission must be sufficient at the time of supply in order for the sale of a building to benefit from zero-rating. In the Upper Tribunal, Cavendish sought to introduce new evidence to show that the structure in question did in fact have statutory planning permission at the time of sale and was thus able to benefit from the zero-rate. The Tribunal refused to admit this evidence as it found the behaviour of Cavendish to be “most unsatisfactory” as it failed to make a formal written application with evidence to support its claims and the addition of new evidence would not be fair and just.

The appeal was dismissed as the taxpayer had no proof to demonstrate that the structure met the conditions for automatic statutory planning permission, this case may have had a different outcome had Cavendish approached the Tribunal differently.

First Tier Tribunal

2. Sales of properties; TOGCs?

In this case the Tribunal considered whether the sale of four properties by Clark Hill Limited satisfied the necessary criteria to be treated as transfers of going concerns and, therefore, be outside the scope of VAT as neither a supply of goods nor services. The main issue between the parties is the interpretation of “relevant date” in the VAT law.

The Tribunal issued four decisions, relating to one property each. In three from the four transactions before the court, the transfer was held not to be a TOGC as HMRC had not been informed of the exercising of the option to tax by the “relevant date” which is held to be the date on which the deposit is received by the seller’s solicitors. The fourth property transaction presented its own unique circumstances which led to a different conclusion. The deposit was paid to the auctioneers of the property on the 3^rd of December, the seller’s solicitors received the funds on the 16^th. The point on which this question turns is the capacity in which the auctioneers held the deposit; agent or stakeholder.

HMRC contend that the funds were held by the auctioneers as an agent for the seller and therefore that Clark Hill should be treated as having received the deposit when the auctioneers did, on the 3^rd December. Clark Hill refuted this, claiming that there is no evidence to support the claim that the auctioneers were agents. The Tribunal agreed and this transaction was treated as a TOGC.

3. Appealing an assessment out of time

In Homechoice Flooring Limited (HFL), the appellant’s director, Mr. Singh, sought permission to make a late appeal in respect of a VAT assessment. Mr. Singh was over two years late in making this appeal, his explanation being that he believed he had in fact, through his former accountants, lodged an appeal already. He sought to contend that as he believed HFL’s accountants were dealing with the appeal, he had no cause to believe any further action was required on his or HFL’s behalf.

In response, HMRC looked to whether or not there was a reasonable excuse for the delay, arguing that HFL’s contention that an appeal had been made is not supported by any documents and there is no record of an appeal at HMRC in relation to this matter. It was also put forward that as Mr. Singh had changed accountants twice since the assessment, he could reasonably have been expected to make enquiries into the status of the appeal he believed to be ongoing.

As Mr. Singh made no effort to check on the status of HFL’s appeal, the Tribunal found that his excuse could not be seen as reasonable and therefore dismissed his appeal. They also stated that poor trading results do not amount to a reasonable excuse.

4. Bridge between buildings: does it make an annexe?

St Brendan’s Sixth Form College (St. Brendan’s) appealed against a decision made by HMRC that certain construction works carried out for St Brendan’s were liable for VAT at the standard rate, not zero-rated as St Brendan’s believed. A new block was built in order to provide extra space for teaching, a café and a staff room. The question is whether the new building qualified for zero-rating under Item 2, Group 5, Schedule 8 Value Added Tax Act 1994.

HMRC argued that the new building was not a separate building because of a link bridge between the new building and a pre-existing building. It was also contended that as the activities that will take place in the building are similar to those already taking place on the site in other buildings, the new building is actually an extension of the existing buildings. To refute this, St Brendan’s contended that the building is a separate building with its own access and facilities and is a different type of building and constructed of different materials, and serving different purposes.

After considering all points and taking into account the relevant case law, the appeal was allowed on the grounds that the new building was a new building and was not merely an extension of, or annexe to, the pre-existing buildings on site.

5. Zero rating hot food

Pegasus (Manchester) Limited (Pegasus) appealed against a VAT assessment relating to food sales which HMRC deemed to be hot and therefore standard rated. The appellant sold takeaway food in spill-proof containers which were not intended to retain heat. Pegasus contend that the food served is not intended to be hot at all but is served warm as a result of storage at 56C in a bain-marie, in order to comply with the food safety and hygiene regulations 2013. Before being placed in the bain-marie the food is cooled to 19-20C which is below the ambient temperature of the restaurant which is claimed to be 28-30C.

HMRC submitted that as the cooked food is kept in a bain marie with a temperature of 56C, the food is hot as it is above the ambient temperature; “hot” does not need to mean piping hot. It is also submitted that the main purpose of the bain marie is to sell hot food and moreover that compliance the food safety and hygiene regulations 2013 is only required where food is to be sold as hot. The provision by the appellant of napkins and cutlery to customers imply that the food is to be consumed as it is sold and it is sold as hot food.

The Tribunal found in favour of HMRC in this instance as the food is kept hot before being served and is hot as defined in the relevant legislation when it is supplied. The supply should therefore be standard rated.

6. Default surcharge direct debit not taken

Crown Blinds Limited appeal against a VAT default surcharge relating to late payment of VAT. The appellant does not dispute that the VAT for the relevant time period was paid late but submits that he had a reasonable excuse as he had a direct debit instruction in place for the payment of VAT but HMRC had failed to process this.

The appellant had cancelled the direct debit and reinstated it several times between September 2016 and March 2017 and HMRC had contacted the appellant on each of these occasions to state that if payment of VAT is to be taken by direct debit then a new instruction must be set up online or by sending paper instruction. Despite an email from the appellant’s bank manager stating that the direct debit had been reinstated on 5^th June 2017, the payment was not processed as the instruction was not reinstated on HMRC’s systems. HMRC had already advised that a new mandate would be required in correspondence in March 2017 and submit that a prudent trader would have acknowledged the correspondence and used an alternative method to make payment for the relevant periods.

The Tribunal found in favour of HMRC, stating that the appellant should have paid closer attention to the correspondence from HMRC which made clear that the direct debit was not being processed. The appellant cannot be said to have a reasonable excuse so the penalties were confirmed in full.