These are a few of the cases which we have worked on:
Charity providing health and welfare services
A charity client was registered for VAT and, as a result of VAT review, it was discovered that there had been errors, both on part of the charity (registration should never have been applied for) and HMRC (since the charity should not have been registered and had no entitlement to be registered under VAT legislation). The charity reclaimed all input tax which it incurred; specifically on large charges made by a medical body on “salaries”. This input tax was not recoverable since the registration was incorrect. The issues were:
- How to avoid repayment of the VAT charged the “salaries” to HMRC.
- How to avoid repaying VAT claimed on all other costs.
- How to structure any corrections without adversely affecting either party’s position.
- How to unwind the current registration without incurring further VAT costs, penalties and interest.
After about a year of negotiations, arguments and discussions with HMRC, the other party, and its advisers, we managed to agree that the salary charges were exempt as medical services, rather than a taxable supply of staff. This enabled a credit note of significant value to be issued to our client which removed the majority of the input tax cost. We were also successful in negotiating the immediate deregistration of the charity without further cost and remarkably, obtaining HMRC’s agreement to not having to repay all other input tax claimed in error.
Additionally, we avoided any penalties and interest so that VAT did not represent a cost to the charity in any way. If the VAT was required to be repaid to HMRC it is likely that the charity would have been wound up.
On-line shop – cross border sales
A company runs a very successful on-line mail order company selling sporting goods. Its sales to individuals across all of the EC increased dramatically. UK VAT was charged on these sales. Unfortunately, they were unaware of the rules for Distance Selling.
We were able to:
- Negotiate with 27 different Member States.
- Apply for VAT registration using the language of each State.
- Obtain repayment of VAT incorrectly paid to HMRC on these sales.
- Manage and advise on record keeping and accounting.
- Assist with the submission of retrospective and current VAT returns in each Member State.
- Advise on practicalities such as website information and invoicing.
In addition, we were able to negotiate with each Member State to remove or mitigate late registration penalties. In most cases we were successful, which saved the client a substantial amount.
This case illustrates that extreme care should be exercised when considering the Place Of Supply (POS) of sales, and even if full VAT is being declared “somewhere” this can still lead to problems. I can vouch for the fact that dealing with different VAT regimes in 27 countries having to use many languages and attitudes towards tax is quite challenging!
More information on Distance Selling here; http://www.marcusward.co/vat-distance-selling-q-as/
Local Authority – input tax claim
A LA claimed input tax incurred on the rebuilding of an iconic and unique structure after a devastating fire. HMRC denied this claim (over £7 millions) because the impact of partial exemption had not been considered. The LA had a legal responsibility to reconstruct the building and it was used subsequently for both taxable and exempt activities.
We successfully argued at High Court that HMRC’s interpretation of (the then) partial exemption rules or Local Authorities permitted full VAT recovery. As a result, HMRC changed the rules for Local Authorities and their partial exemption de minimis limits.
Individual – carrying out work to her listed building home
We were asked to negotiate with contractors carrying out the work and HMRC who had formed an incorrect opinion on the work being carried out on the property. Because the homeowner could not recover any VAT charged to her, it was important that as much work as possible was zero rated by the contractor. We were able to minutely analyse all of the work done and contend that a “substantial reconstruction” of the dwelling had taken place (the work of which was VAT free). After over a year of disagreement with HMRC we eventually persuaded them that our contention was correct and the work should not have been subject to VAT. We were then able to use this to convince the contractor to credit VAT previously charged and to complete the remainder of the reconstruction without the addition of VAT.
This demonstrates that even individuals with no business interests may benefit from VAT advice.
University – construction of building to be used for student accommodation
This was a complex construction and VAT issue. We worked in tandem with the university’s architects and contractors to ensure, as far as possible, that the building work was zero rated. The complexity was added to by the location of the construction, its relationship to parts of an existing site, the rules for listed buildings, rules for fire escapes and other ingress and egress issues, historical use, the intended use of parts of the new building, shared areas and connection to other existing buildings.
We put together a detailed submission to HMRC in order to establish the VAT treatment. This was followed by a lot of negotiation, and some changes to the design being made to secure almost of all of the expenditure being zero rated which saved the university a significant amount of money which was able to be used to fund other projects.
Criminal case – intercompany transactions and insolvency
We were called in by an insurance company to act for an individual who had been accused of deliberately carrying out acts which resulted in VAT not being paid to HMRC. With accurate and timely presentation our case was fully prepared in good time for the hearing. Because of this we were able to put HMRC’s team under pressure and ask reasonable questions which were not responded to. As a result, the judge threw out the case at our request within ten minutes of the hearing beginning as HMRC’s prosecution was demonstrably incomplete and weak.
This involved a lot of time in preparation and the midnight oil was burned repeatedly, but it produced a very good result.
Sale of property
We were asked to advise after a property rental company received an assessment disallowing input tax incurred on the purchase of a commercial building in central London. The vendor had opted to tax the property and so charged VAT on the sale. The claim to recover the VAT charged was queried by HMRC. The purchaser had also opted to tax (as they said; in order to recover the input tax incurred) and the tenant remained in situ – pre and post sale. This meant that the sale qualified as a Transfer Of a Going Concern (TOGC) and was therefore properly VAT free.
We assisted with the documentation which was required to correct the position and negotiated with all parties to ensure that there was no VAT leakage. Practically, however, as the vendor was experiencing severe financial difficulties (and in fact the management had absented itself) it was very difficult for our client to obtain a repayment of the VAT incorrectly charged. We were also required to mitigate the penalties for the incorrect VAT return on which the claim was submitted. The VAT involved was £ several millions and this unfortunate position could have been avoided if advice had been sought at the appropriate time. It is rarely possible to carry out VAT planning retrospectively.
My client, a charity, received an assessment denying input tax relating to its non-business activities. This amounted to 15% of all its input tax. The assessment related to periods for which no charge was made for admittance and for certain categories of visitor. It was agreed that input tax relating to a charity’s non-business activities is irrecoverable. We successfully argued in court that whole of the input tax was recoverable as it related to the museum’s taxable supplies, even though it was not used exclusively for this purpose. We contended that there was a single business activity of running the exhibition area of the museum and this was accepted.
Success at court meant that the assessment was withdrawn – saving the museum multi-millions in VAT and avoiding significant penalties.
Retrospective claim – incomplete records
We assisted a single site chemist client who, for unfortunate reasons, had not been able to submit proper VAT returns for a number of years. We were able to reconstruct the VAT records which showed a repayment of circa £500,000 of VAT was due from HMRC. We negotiated with HMRC and assisted with the inspection which was generated by the claim.
This case was more about supporting the client personally and dealing with anxiety and expected repercussions from the authorities than technical matters. We were able to steer through the issues without adding to the client’s concerns and obtain a significant repayment which the client thought lost.