Quarterly Updates

Quarterly VAT Update - Nov 2014

Digital Businesses: Are you ready?

1 January 2015 will herald the introduction of a major VAT change for businesses which supply digital content to non-business customers (‘B2C’) sales.

The change will affect the ‘retail’ sale of apps, games, music, books etc where these are delivered electronically.

From 1 January 2015 EU suppliers selling these services to EU customers will need to account for VAT (and at the prevailing rate applicable) in the customer’s EU member state.

UK suppliers will either have to do this by registering for VAT in each EU member state where they have customers or, by using the “Mini-One-Stop-Shop” online registration facility provided by HMRC.

There are pros and cons to both approaches.

There are also significant commercial and systems issues to be addressed here.

If you are affected by this change but have not taken action to deal with the registration requirements post-1 January, we would urge you to do so as a matter of urgency.

We are currently helping other clients through the process and have been working closely with UKTI to educate businesses operating in this sector.

Do get in touch if you need to know more – rhona.graham@rwvat.co.uk.

VAT Disputes

We have recently had considerable success in resolving a number of VAT dispute cases with HMRC.

In total, the VAT at stake in these cases was in excess of £1 million. This has now either been refunded to clients, or, assessments for the additional tax HMRC deemed to be payable have been withdrawn or substantially reduced.

Whilst this is obviously fantastic news, resolving these disputes has not been an easy process and getting HMRC to accept that their analysis of the position is incorrect has proved challenging.

We are strong advocates of the new Alternative Dispute Resolution (ADR) service HMRC now offer and have successfully concluded two of the first 100 cases to go through this process.

We would urge any business which is in dispute with HMRC to seek professional advice from an expert in tax dispute resolution before “throwing in the towel” as it may well be that a solution can be found.

Capital Goods Scheme issue

As you may be aware, where you incur expenditure of over £250k (plus VAT) on a property project, you are very likely to have what is called a ‘capital goods scheme item’. Very broadly, this means that recovery of VAT incurred on the project must be assessed over a 10 year period and adjusted to reflect any change of use over that time.

We recently had a case referred to us where the existence of a sitting tenant in a property which was scheduled for refurbishment caused significant difficulty in this area.

The existence of the sitting tenant (who was being charged a VAT exempt rent) meant that the owner had to obtain permission before opting to tax the property. Because permission was not obtained early enough in the process, HMRC have sought a clawback of around £50k of the VAT claimed on the refurbishment. We are working to try and mitigate the effects of this but it highlights how important it is to obtain detailed VAT advice when undertaking any major property project.

Quarterly VAT Update - Aug 2014

Tea-time treats triumph at tribunal!

We are delighted to report a tribunal success for two manufacturers of ‘snowballs’ – those soft, fluffy, chocolate covered mallows that look a bit like a chocolate teacake.

After a great deal of deliberation (and we suspect a bit of ‘test-eating’!) the tribunal found that these products are cakes not biscuits and therefore zero-rated for VAT purposes.

Needless to say, the case has been picked up by various sectors of the media as a bit of a ‘silly season’ story. It’s no joke though, as the VAT at stake amounted to almost £3 million. That’s a lot of teacakes!

Key message: It is still possible to win against the VAT man – even in cases which at first glance might seem unlikely to succeed.

VAT: Mail mayhem

VAT on postal services is something of a hot topic at the moment – and it’s not good news for the taxpayer.

The long-awaited tribunal decision in the case of Zipvit was very disappointing. Zipvit had contended that it had been charged VAT on certain services supplied to it by Royal Mail. However, Royal Mail had erroneously treated those services as VAT exempt. Royal Mail had, therefore, not accounted for VAT on these sales or issued VAT invoices in respect of them.

The Tribunal concluded that, whilst Zipvit did, in theory have the right to reclaim VAT on these supplies, it did not hold a VAT invoice or acceptable alternative evidence and was therefore precluded from reclaiming any VAT.

We expect that this decision will be appealed, so watch this space.

There has also been bad news for the charity sector. HMRC wrote to the direct mail association recently to advise advertising mail suppliers that they can no longer cut VAT bills for charities by combining postage and production costs together into a single zero-rated supply.  Some estimates suggest that this could increase costs for the charity sector by as much as £18 million.

Key message: Charities who use direct mailing need to consider their position and budget for potential additional VAT costs as a matter of urgency.

Stars on film

Another interesting case involving the British Film Institute has resulted in an excellent win for the taxpayer.

HMRC argued that the BFI’s sales of tickets to film screenings were not exempt under the special rules covering the provision of cultural services.

However, by focusing on the specific rules set out in the European Union VAT directive, the BFI was able to convince the tribunal of its entitlement to VAT exemption.

As a result, the BFI no longer has to charge VAT on tickets for film screenings.

Key messages: Always check out the EU position with regard to any VAT issue. Charities: are you sure you are getting the benefit of all available VAT reliefs?

Quarterly VAT Update - May 2014

Major VAT change only 10 months away: are you ready?

If your business supplies broadcasting, telecommunications or electronically supplied services to private consumers read on.

On 1 January 2015, major changes which radically alter the VAT position and compliance requirements for these supplies will come into effect.

From that date, if you make supplies of these services to EU customers who do not provide you with a valid VAT registration number, you will have to charge VAT at the rate due in the customer’s country and declare it to the VAT authorities there.

To do this, you will either need to obtain a VAT registration in the customer’s country or, opt to use the VAT “Mini One Stop Shop” (MOSS) online service.

If you apply to use VAT MOSS (which you would normally do in the country where your business is established), you will be able to submit a single return covering supplies of relevant services made to private consumers across the EU. The return will show the VAT due (at the local rate) in each EU country where you have made relevant sales.

Any business which is affected by this change should be taking action now to ensure that their invoicing procedures, accounting systems, pricing policies, marketing materials, website etc have been updated to cope with this change.

If you are in any doubt about how this change affects you, please give us a call for an informal chat.

Are you a tour operator? No? …Are you sure?

We have come across a number of cases recently where clients have found themselves having to account for VAT under the Tour Operators’ Margin Scheme (TOMS). At first glance, none of the businesses concerned look like tour operators.

Examples include:

• A private-sector provider of sports coaching who runs residential courses
• A software development company which ran a marketing event for an overseas associate company
• A company which promotes and hosts music festivals.

Where TOMS applies, it is not optional and all of the above businesses have had to apply the margin scheme.

In some cases, the effect has put them in a better position than they would have been under ‘normal’ VAT accounting. However, the calculations required under TOMS are complex and detailed.

Broadly, TOMS applies to any business that provides accommodation, passenger transport and certain other services for the benefit of a ‘traveller’.

If you buy in any of these supplies for resale to travellers, it is likely that you will have a requirement to account for VAT under TOMS. If in doubt, check it out!

Education, education, education

Over the last few months we have seen a significant number of VAT issues arising in relation to supplies made in the education sector.

The recent case of the Turkish belly dancer (whose dance classes were found not to qualify for VAT exemption) has received significant press coverage. However, there have been numerous other developments involving issues as diverse as:

- The treatment of student accommodation,

- The VAT liability of tuition packages which include the provision of printed matter,

- Whether education is a business or non-business activity,

- Whether or not an organisation is an “eligible body”, and,

- Changes to the Framework Agreement covering VAT recovery methods for Higher Education Institutions.

All of this highlights that there are many issues in relation to this sector where the VAT position is far from settled.

We work with a range of organisations which are involved in the education sector including Academy Schools, vocational training providers and private sector developers of student accommodation amongst others.

If you are involved in this sector, we strongly recommend reviewing your VAT position on a regular basis to ensure that you keep up to date with these and any other changes.

Quarterly VAT Update  - Nov 2013 Major change on the way: are you ready? Do you supply broadcasting, telecommunications or electronically supplied services to non-VAT registered customers (business to consumer ‘B2C’ sales) in other EU member states? If so, you need to start preparing for a significant change to the VAT rules which will come into effect on 1 January 2015. Under the current rules, the place where these supplies take place is determined by the supplier’s location. From 1 January 2015, this will shift to the customer’s location. The main consequence of this is that the supplier will have to charge and account for VAT at the prevailing rate in the customer’s member state and remit this VAT to the tax authorities in that member state. This change presents enormous challenges for business. There are now 28 member states in the EU and VAT rates vary widely across the union. As a result, the potential compliance obligations are significant. Ordinarily, there would be a requirement for suppliers to set up and operate a separate VAT registration in every EU member state where they make supplies affected by this change. However, there is some good news in the form of the VAT Mini One Stop Shop. Read on for further details. VAT Mini One Stop Shop (“VAT MOSS”) Under the VAT MOSS scheme, HMRC will offer businesses the option of registering online in the UK in order to account for relevant supplies made in other EU member states. Essentially, the VAT MOSS system will consist of a VAT return containing a separate box for each EU member state. Businesses will account for VAT on the value of relevant services supplied to customers in that member state at the VAT rate in force there. The business will make a single payment of VAT due to UK HMRC who, in turn, will remit the appropriate proportion of VAT declared to the tax authority in each member state. What should I do if this affects my business? This change will come into force in a little over 12 months’ time. In fact, registration under the VAT MOSS scheme will be possible from October 2014. If you make supplies of broadcasting, telecoms or e-services to non-registered customers elsewhere in the EU, it’s vital you take action now. Examples of the types of service affected are set out in the box below. The issues you will need to consider include: Ensuring your accounting system is able to cope with identifying and coding these supplies correctly Pricing (to take account of the need to pay VAT at different rates in different countries) Compliance issues including VAT MOSS registration if appropriate. Examples of services affected by the 2015 changes include: Transmission of radio and TV programmes over a network Live broadcasts over the internet Fixed and mobile telephone services Provision of access to the internet Sale of apps Music downloads Online gaming E-books Anti-virus software provided electronically Online auctions If you are unsure what this means for your business, we strongly recommend you seek appropriate advice in good time to allow you to prepare for the changes. We would be delighted to talk to you if you think your business might be affected. You can contact us on 01484 538351 for  an initial no-obligation chat. Quarterly VAT update - Aug 2013 How do you solve a problem like….a VAT dispute with HMRC? In our experience, most businesses generally try hard to comply with their VAT obligations – an approach we wholeheartedly recommend. When advising our clients on VAT issues we also always try to take a constructive approach and strive to maintain good relations with “the VAT man” (or woman!). If you do find yourself in disagreement with HMRC on a VAT issue, we highly recommend that you explore the following options to try and break the deadlock. What should you do if a dispute arises? HMRC Review In cases where HMRC make a formal decision on a VAT issue, they must make the offer of a review.  The taxpayer isn’t obliged to accept this and may decide instead to proceed directly to litigation and/or ADR (assuming the matter is suitable for either of those routes). Read the full special edition article... Litigation VAT litigation normally starts with a formal appeal being lodged at Tribunal (First Tier or Upper Tribunal depending on the nature of the specific case). Once the preparation is complete and a date is set, the appeal proceeds to a formal hearing in front of a Tribunal judge. Read the full special edition article... Alternative Dispute Resolution (ADR) There are two ADR schemes: one for Large and Complex cases, the other for Small and Medium Sized Enterprises. These are a fairly recent addition to the ‘armoury’ of dispute resolution strategies. Read the full special edition article... Quarterly VAT Update - May 2013

New VAT registrations – a change of emphasis HMRC have improved the time they take to process applications. However, the scrutiny continues... New VAT registrations.

VAT Disputes: the third way There have been two routes to take if you disagree with HMRC on a VAT matter: accept their decision or fight the matter through the formal process and, if necessary, appeal to the Tribunal/Courts... There is now a third way - Alternative Dispute Resolution

Is VAT now a tax on margin? VAT case law is full of unintended consequences. The latest example of this can be seen in the recent decision of the Supreme Court in the case of WHA Limited... Read more.

Quarterly VAT Update - Feb 2013

STOP PRESS: Are your VAT Returns up to date? HMRC are currently running an "Outstanding returns campaign" to encourage businesses with one or more outstanding VAT returns to bring their returns and payments up to date by 28 February 2013. Read more... Are your VAT returns up to date?

VAT Recovery on costs: the curious case of McAndrew The recent Tribunal case of McAndrew Utilities Limited has highlighted the importance of retaining good business records. The taxpayer claimed input tax totalling almost £90,000. However, on appeal, the tribunal was only prepared to allow £6,000 of this to be claimed. Read more... VAT recovery on costs.

Food for thought: latest news on takeaway products Following 2012's much-publicised 'pasty tax' story, VAT on takeaway food is in the news again. This time, the issue concerns toasted sandwiches and meatball marinaras sold by Subway outlets. Read more... Latest news on takeaway products.

Quarterly VAT Update - Nov 2012 VAT on motoring expenses: a crash course If Rhona had a pound for every question she'd ever had on VAT and motoring expenses...well, she'd probably be driving a much nicer car for a start! Almost every business incurs costs in relation to motoring, the rules are complex and are sometimes confusing. In this special edition of our VAT newsletter, we give you a refresher course on the main issues to look out for and how to deal with them.

I’m buying a new vehicle... can I claim back the VAT? As with any good question relating to VAT, the answer is “it depends”...click here.

I’ve had a major repair bill for one of the company vehicles, what do I do about the VAT? The good news is...click here.

Help! I’m confused about VAT on road fuel costs...

Quarterly VAT Update - August 2012 . VAT BAD Debt Relief – more scope for refunds As you may have seen in the national press, it has been reported that  HMRC and HM Treasury are currently in talks over the potential ramifications of a recent Tribunal case concerning VAT bad debt relief. For any businesses who do have the potential to make claims, it would be advisable to think about lodging these sooner rather than later. ... find out why!   Postal charges – reclaim opportunity The issue of VAT on postal charges has raised its head several times over the last few years. Is VAT ‘embedded’ in the price charged for services such as parcelforce and other mail services provided under individually negotiated contract terms? Read article, you may be able to make a claim! The lay of the land If you run a self storage facility or operate a 5-a-side football league or run a pub with residential accomodation. ...click here for more information. IFA's: an update The recent Tribunal case of Bloomsbury Financial Planning brings cause for optimism. ...click here for more information.

Quarterly VAT Update - May 2012

Preaching to the converted Taking proper VAT advice at an early stage, when converting property, can significantly reduce hassle, uncertainty and, in many cases, the bottom line cost. VAT tips for property conversions...click here.

When is a grant not a grant? Funding conundrums in the not for profit sector We are currently dealing with several cases for charity clients where the VAT status of new sources of income is uncertain. For tips on how to produce clear documentation...click here.

“Pasty tax” – a personal view This year’s Budget has yielded a surprising and unexpected number of VAT - related headlines – mostly (though not exclusively) relating to the so-called “pasty-tax” soon to be imposed on freshly baked hot takeaway foods. Will the VAT reliefs return...Rhona's view. .

Quarterly VAT Update - Feb 2012 Hello, this is our very first VAT newletter and we hope that you find it of interest, however if not we would really appreciate your feedback. You will receive these updates on a quarterly basis (or when there are hot topics we need to keep you updated on) and it will include, technical updates, case studies and latest HMRC guidance. If you do not wish to receive further electronic mailings from Revell Ward please unsubscribe.

An inspector calls When it comes to VAT inspections, clients often ask “why me?” What really happens during a VAT inspection....andwhat to do about it!

IFAs and VAT: a brief update on HMRC’s latest guidance, and what it means ‘in real life’ Historically, most IFAs have been remunerated by way of commission derived from sales of financial products. RDR will change that and, for most of their activities, IFAs will have to move towards a fee-charging structure. The basic question is: does this change an IFA’s status for VAT purposes?