VAT: Latest News & Developments Neil Owen BA CTA(Fellow) FBIAC AIIT
Brexit VAT law written in Brussels Little flexibility in UK E.g. no extension of zero rate But, European Court makes decisions favourable to UK taxpayers Independence in VAT policy a two-edged sword Practical effect in cross-border situations
The Brexit Effect Sale of goods to EU will be exports Evidential requirements Duty on imports to EU Purchases of goods from EU = imports Cash flow implications No boxes 2, 8 or 9 on VAT return No Intrastat Triangulation an issue MOSS an issue Benefit for tour operators (no TOMS?)
Pre-registration Input Tax Pre-registration VAT not input tax Recoverable as if it were Provided relates to making taxable supplies Six months for services Provided not absorbed into supplies made prior to registration E.g. car repairs, accountancy, phone bills, rent Services = all types of service Including intangible assets and building works
Pre-registration Input Tax Four years for goods Provided still on hand at date of registration HMRC began insisting on depreciation Controversial Conflicted with public notice Only came to HMRC’s attention in some cases Subject to challenge in tribunal Meanwhile full claims were still recommended Now HMRC have conceded R&C Brief 16(2016)
VAT Registration Letters from HMRC Reviewing tax return (personal or company) Turnover above threshold, no VAT number Prompted disclosure Infrequent in the past Now more frequent but not (yet?) routine Other desk- based “trawls” Charity Commission, Land Registry
Flat-Rate Scheme Changes 1 April 2017 New concept of “limited - cost trader” Flat rate of 16.5% “Flat rate” for normal VAT accounting is 16.67% Perceived abuse Change to prevent “aggressive abuse” Makes scheme pointless for most service- based businesses
FRS Changes 2 Triggered by increase in applications Marketing of scheme Purely to make money 30,000 additional applications Construction sector agencies Change will have wider effect HMRC say 30% of users Experience suggests possibly two-thirds
FRS Changes 3 “Limited - cost trader” is any registered person who spends on qualifying goods: less than 2% of FRS turnover, or less than £1,000 p.a., whichever is the greater “Goods” means goods, not services Physical, tangible items Test applied to every return
FRS Changes 4 Qualifying goods means goods that are not: food or drink for consumption by the trader and/or any employees vehicle-related costs – road fuel, car parts, etc – except for a transport business goods for resale or hire if not main activity goods for disposal – promotional items, gifts, etc “capital expenditure goods”
Qualifying Goods “Capital expenditure goods” Do not qualify “Any goods of a capital nature” unless consumed within one year or let to others Potentially qualifying Stationery, printer cartridges Gas and electricity (for business) Cleaning materials Goods purchased to supply services E.g. electrician
FRS Changes 5 Few service-based businesses will escape Most will need to apply 16.5% or leave scheme (notify HMRC if leaving) frsapplications.vrs@hmrc.gsi.gov.uk Consultants, engineers, actors, solicitors, technicians, accountants, etc, etc Only certain businesses will still benefit Those dealing in goods, e.g. retailers Selected service providers Consult Notice 733 when leaving Esp. cash basis to cash accounting
Colouring & Dot-to-Dot Books Zero-rating applies, inter alia, to “children’s picture and painting books” Zero- rating also applies to “books” HMRC say adult colouring books etc are neither Not “books” since they are not “designed to be read or looked at” Consequently, they are standard-rated
Adult Colouring Books Etc However, most also suitable for children Especially as this means up to 18 For clothing it is 14 th birthday of course! So zero-rated after all Well, except those which are marketed specifically for adults held out for sale with other adult-only books contain images reflecting profanity, pornography, violence or illegal acts
VAT Visits, Enquiries, Etc Reduced number of visits Risk-based approach Desk-based checks of single returns Unusual repayment likely to trigger Write to explain Details in letter Enclose copy invoices Enclose full purchase listing
VAT Return Enquiries New procedures Standard letter Edinburgh, Cardiff, Manchester, Newcastle Request for copious information Unfocused National database not checked Initial letter may help focus enquiries and limit documentation required
Error Correction Notifications Formerly voluntary disclosures VAT652 or letter Apparent £50,000 threshold for detailed checks Repayment and payment Occasional mention of penalties Supporting documentation essential Unless >£10,000?
Repayment Supplement Penalty on HMRC Failure to repay within 30 days VAT return claims only 5% of tax repayable Time for enquiries excluded Vogrie Farms 2 hours = 1 day
Alternative Dispute Resolution Opportunity for discussion and compromise Application required Best where middle ground But sometimes for technical issues Make case for acceptance Dispute must be live Tribunal appeal may be necessary
ADR 2 Mediation not arbitration HMRC trained staff, genuinely independent Open forum with breakout Two rooms needed Allow whole day Taxpayer and adviser HMRC caseworker and manager No records kept Aim is agreement on the day
Non-Business Activities 1 Yarburgh Children’s Trust St Paul’s Community Project Limited Nursery and/or crèche for local disadvantaged community Charges to parents Subsidised by other income sources Not in competition with commerce Not run on fully commercial lines
Non-Business Activities 2 High Court in England Intrinsic nature of enterprise Not carrying on a business Provision of social welfare In a manner lacking commerciality Consequently not in business Customs disagree but do not appeal Self-evidently a principle at stake Has taken years for another case
Non-Business Activities 3 Longridge on the Thames Activity centre Furtherance of charitable aims Reduced or waived fees High reliance on volunteer labour No resources for capital projects First-Tier and Upper Tribunal say not in business Overturned by CoA No Supreme Court appeal
Non-Business Activities 4 The charity is therefore in business On European criteria Economic activity Direct link Status quo ante Easier than the alternative Calls into question Yarburgh and St Paul’s
Antiques Fairs, Etc Pitch fees historically seen as exempt Shift of policy Now seen as provision of selling opportunity But no formal announcement or legal change IACF loses in FTT Craft Carnival wins in FTT but loses in UT Distinct from arcades Antiques Within Similar issue for bespoke wedding venues
Reduced Rate Conversions Contractors’ services Non-residential to dwelling(s) Dwellings to dwelling Dwelling to dwellings Different no of dwellings but not any part remaining unchanged Dwelling unoccupied > 2 years Relevant residential ditto Multiple occupancy ditto
Reduced Rate 2 Converting non-residential to relevant residential use multiple occupancy Converting between dwelling(s) multiple occupancy use relevant residential use Constructing a garage in connection with r/rated project
Reduced Rate 4 Applies to work on fabric of building Also some works in curtilage Bringing in utilities Providing drainage and Providing security Walls, fences, gates, etc Providing means of access Paths, drives, etc Other works in grounds standard-rated
Standard-rated Items Supply and installation Prefabricated furniture except kitchen units Electrical or gas appliances, except if part of heating, ventilation or alarm systems lifts and hoists Carpets and carpeting material Any item not ordinarily installed by a builder as a fixture in a new dwelling E.g. soft furnishings List in Notice 708
Reduced Rate Summary 5% rate, where, broadly change of use or > 2 years unoccupied, and resultant use residential, or change of number of dwellings within a building or part of a building Word of caution Definition of qualifying dwelling No prohibition on separate use or disposal Prohibition = no reduced-rating
And that’s it… Goodbye and thanks for listening
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