Dance classes in some EU countries are subject to different VAT rates depending on whether the dance style is considered artistic or entertainment. In the UK, belly dancing and ceroc lessons are standard rated, but ballet is exempt.
Category Archives: International
VAT: eInvoicing Glossary
Further to my article on eInvoicing, I thought it may be helpful if I compiled a Glossary of terms used in connection with the subject. These definitions have been compiled from various sources and I have tried to keep them as “non-techy” as possible.
Accounts Payable Automation (APA)
An automated management of accounts payable by dealing with invoices received and payments sent. It requires integration of the invoicing process with accounting software.
Accounts Receivable Automation (ARA)
As APA but for accounts receivable (dealing with invoices sent and payments received).
Acknowledgement Of Receipt
The acknowledgement of receipt of an EDI message – the syntax and semantics are checked, and a corresponding acknowledgement is sent by the receiver.
Advanced Electronic Signature
A digital signature based on an advanced certificate uniquely identifying the signer. The signature keys are used with a high level of confidence by the signatory, who has sole control of the signing key.
Agreed Format
The electronic data format that businesses have agreed to treat as the data format of the original electronic invoice for tax purposes.
Audit Trail
The system which traces the detailed transactions relating to any item in an accounting record.
Authentication
The process of verifying a claim that a system entity or system resource has a certain attribute value.
Authenticity Of Origin
Assurance of the identity of the supplier or issuer of the invoice and that the document is the true original.
B2B
B2C
Biller Portal
Invoice providers’ web portal where invoice receivers can log on with a username/password to check and manage their invoices.
Billing Service Provider
A provider offering services to senders and receivers which involves the sending, collection and administrative processing of eInvoices.
Certification Service Provider
An entity which issues digital certificates or provides services related to electronic signatures.
Clearance
A tax authority approval being a precondition for the validity of a document.
Clearance Model
A tax authority is involved in the invoice data exchange between the vendor and the customer as a third party. It allows the tax authorities a real-time insight into the business transactions. The eInvoice must be approved by the tax authority before being sent to the recipient.
Continuous Transaction Controls (CTC Reporting)
Obligations requiring a taxpayer to submit relevant data to the relevant tax authority before, or shortly after, a transaction.
Data Integrity
Checks that data has not been changed, destroyed, or lost in an unauthorised or accidental manner.
Digital Certificate
A file or electronic password that proves the authenticity of a device, server, or user via cryptography and the public key infrastructure.
Digital Reporting Requirements (DRR)
The obligation for a taxable person to submit digital data on their transactions to HMRC.
Digital Signature
A technique used to validate the authenticity and integrity of a digital document, message or software.
eAccounting
The requirement for a taxable person to submit digital business records to a tax authority platform.
eArchiving
Storing electronic documents as evidence for a prescribed period of time according to the relevant HMRC regulations.
Electronic Data Interchange (EDI)
An intercompany communication of business documents in a standard format. EDI is a standard electronic format that replaces paper-based documents such as purchase orders or invoices.
eInvoice
Details here.
eReceipt
Electronically issued customer receipts.
EU eInvoicing
Details/how to here.
Format
The method of presentation of electronic data in an electronic document.
Four Corner Model
A process where suppliers and customers have one or several service providers that ensure the correct processing between them.
Invoicing Directive
The eInvoicing Directive which requires EU entities to receive and process all electronic invoices – compliant with the European standard.
Mandatory eInvoicing
The obligatory use of eInvoicing by business which is imposed by the country’s authorities. Around 80 countries mandate eInvoicing.
Pan-European Public Procurement On-Line (Peppol)
An EDI protocol, designed to simplify the purchase-to-pay process between government bodies and suppliers. It facilitates electronic ordering, invoicing and shipping between government organisations and businesses.
Periodical Transaction Reporting
An obligation for a taxpayer to submit transactional data on a monthly, quarterly or annual basis.
QR Code
eInvoice verification which allows users to verify the authenticity of an eInvoice based on the QR code appearing on it. The QR code is used to provide information related to a particular invoice.
Qualified Electronic Signature
An electronic signature which is compliant with EU Regulation 910/2014 for electronic transactions within the internal European market. It enables verification of the authorship of a declaration in electronic data exchange over long periods of time.
Post Audit eInvoicing
An invoice is sent to the tax authorities only after the transaction has been completed. The business must guarantee the authenticity and integrity of the invoice and archive the document to satisfy audit requirements. This is being overtaken by the Clearance Model (above).
Readability
The ability of a tax administration to interpret the content of an eInvoice.
Real-time reporting
An obligation for a taxpayer to submit fiscal data to a tax authority platform immediately, or shortly after, a transaction.
Transactional Data
Information that is captured from transactions. It records the time of the transaction, the place of supply, the value of the supply, the payment method, discounts if any, and other quantities and qualities associated with the transaction.
Three Corner Model
A process where invoice senders and receivers are connected via a single service provider for the sending and receiving of messages.
Two Corner Model
A process where invoice senders and receivers are connected directly for the sending and receiving of messages.
UN/CEFACT
The United Nations’ Centre for Trade Facilitation and Electronic Business has a global remit to secure the interoperability for the exchange of information between private and public sector entities.
Unstructured Invoice Document
An invoice that is created manually or automatically from a system and is not in a database. An Unstructured Document may contain data, but the data is not organised in a fixed format. Consequently, it is difficult to find and capture the data for use.
VAT Listing
An obligation for a business to submit VAT transactional data according to a domestic format. The data includes: information on values and recipients, as well as data which is required to be included on an invoice. The data are submitted on a periodic basis, often jointly with the VAT return.
Web Payment
An online service that manages the transfer of funds from a customer to the merchant of an e-commerce website.
Web Publication
A method of exchanging invoices with a buyer by placing an original electronic invoice on an agreed web site, in a secure closed environment operated by the supplier.
VAT – Tour Operators’ Margin Scheme (TOMS) A Brief Guide
Introduction
The tour operators’ margin scheme (TOMS) is a special scheme for businesses that buy in and re-sell travel, accommodation and certain other services as principals or undisclosed agents (ie; that act in their own name). In many cases, it enables VAT to be accounted for on travel supplies without businesses having to register and account for VAT in every country in which the services and goods are enjoyed. It does, however, apply to travel/accommodation services enjoyed within the UK and wholly outside the UK.
Under the scheme:
- VAT cannot be reclaimed on margin scheme supplies bought in for resale. VAT on overheads outside the TOMS can be reclaimed in the normal way.
- A UK-based tour operator need only account for VAT on the margin, ie; the difference between the amount received from customers and the amount paid to suppliers.
- There are special rules for determining the place, liability and time of margin scheme supplies.
- VAT invoices cannot be issued for margin scheme supplies.
- In-house supplies supplied on their own are not subject to the TOMS and are taxed under the normal VAT rules. But a mixture of in-house supplies and bought-in margin scheme supplies must all be accounted for within the TOMS.
- No UK VAT is due via TOMS on travel/accommodation/tours enjoyed outside the UK.
Who must use the TOMS?
TOMS does not only apply to ‘traditional’ tour operators. It applies to any business which is making the type of supplies set out below even if this is not its main business activity. For example, it must be used by
- Hoteliers who buy in coach passenger transport to collect their guests at the start and end of their stay
- Coach operators who buy in hotel accommodation in order to put together a package
- Companies that arrange conferences, including providing hotel accommodation for delegates
- Schools arranging school trips
- Clubs and associations
- Charities.
The CJEC has confirmed that to make the application of the TOMS depend upon whether a trader was formally classified as a travel agent or tour operator would create distortion of competition. Ancillary travel services which constitute ‘a small proportion of the package price compared to accommodation’ would not lead to a hotelier falling within the provisions, but where, in return for a package price, a hotelier habitually offers his customers travel to the hotel from distant pick-up points in addition to accommodation, such services cannot be treated as purely ancillary.
Supplies covered by the TOMS
The TOMS must be used by a person acting as a principal or undisclosed agent for
- ‘margin scheme supplies’; and
- ‘margin scheme packages’ ie single transactions which include one or more margin scheme supplies possibly with other types of supplies (eg in-house supplies).
‘Margin scheme supplies’ are those supplies which are
- bought in for the purpose of the business, and
- supplied for the benefit of a ‘traveller’ without material alteration or further processing
by a tour operator in an EU country in which he has established his business or has a fixed establishment.
A ‘traveller’ is a person, including a business or local authority, who receives supplies of transport and/or accommodation, other than for the purpose of re-supply.
Examples
If meeting the above conditions, the following are always treated as margin scheme supplies.
- Accommodation
- Passenger transport
- Hire of means of transport
- Use of special lounges at airports
- Trips or excursions
- Services of tour guides
Other supplies meeting the above conditions may be treated as margin scheme supplies but only if provided as part of a package with one or more of the supplies listed above. These include
- Catering
- Theatre tickets
- Sports facilities
This scheme is complex and specialist advice should always be sought before advising clients.
VAT: Land related services
Whether a service is “related to land” is important because there are distinct rules for this type of supply compared to the General Rule. The place of supply (POS) of land related services is where the land is located, regardless of where the supplier or recipient belong.
The rule applies only to services which relate directly to a specific site of land. This means a service where the land is a central and essential part of the service or where the service is intended to legally or physically alter a property.
It does not apply if a supply of services has only an indirect connection with land, or if the land related service is only an incidental component of a more comprehensive supply of services.
What is land?
For the purpose of determining the POS, land (also called immoveable property in legislation) means:
- a specific part of the earth, on, above or below its surface
- a building or structure fixed to, or in, the ground above or below sea level which cannot be easily dismantled or moved
- an item making up part of a building without which it is incomplete (such as doors, windows, roofs, staircases and lifts)
- items of equipment or machinery permanently installed in a building which cannot be moved without destroying or altering the building
What services directly relate to land?
HMRC provide the following examples:
- construction or demolition of a building or permanent structure
- surveying and assessing property
- valuing property
- providing accommodation in hotels, holiday camps, camping sites or timeshare accommodation
- maintenance, renovation and repair of a building
- property management services carried out on behalf of the owner
- arranging the sale or lease of land or property
- drawing up of plans for a building or part of a building designated for a particular site
- services relating to the obtaining of planning consent for a specific site
- on-site security services
- agricultural work on land
- installation and assembly of machines which, when installed, will form a fixture of the property that cannot be easily dismantled or moved
- the granting of rights to use all or part of a property (such as fishing or hunting rights and access to airport lounges)
- legal services such as conveyancing and drawing up of contracts of sale or leases, including title searches and other due diligence on a specific property
- bridge or tunnel toll fees
- the supply of space for the use of advertising billboards
- the supply of plant and equipment together with an operator
- the supply of specific stand space at an exhibition or fair without any related services
What services are only indirectly related to land?
The following HMRC examples are not deemed to be land related services:
- management of a property investment portfolio
- drawing up of plans for a building that do not relate to a particular site
- arranging the supply of hotel accommodation or similar services
- installation, assembly, repair or maintenance of machines or equipment which are not, and do not become, part of the building
- accountancy or tax advice, even when that relates to tax on rental income
- the supply of storage of goods in property without a right to a specific area for the exclusive use of the customer
- advertising services including those that involve the use of a billboard
- marketing, photography and public relations
- the supply of equipment with an operator, where it can be shown that the supplier has no responsibility for the performance of the work
- general legal advice on contractual terms
- legal services connected with fund raising for property acquisitions or in connection with the sale of shares in a company or units in a unit trust which owns land
- stand space at an exhibition or conference when supplied as part of a package with related services, eg; design, security, power, telecommunications, etc.
These examples are mainly derived from case law and the department’s understanding of the legislation and they are not exhaustive.
The Reverse Charge
If an overseas supplier provides land related services in GB, the POS is GB and the reverse charge applies if the recipient is GB VAT registered.
If a GB supplier provides services directly related to land where the land is located outside GB, the POS is not GB. This means that there is a supply in another country. VAT rules in different countries vary (even across the EU) – some countries use the reverse charge mechanism, but others require the GB supplier to VAT register in the country of the POS (where the land is physically located).
VAT: B2B and B2C – The distinction and importance
A key feature of the place of supply rules is the distinction between B2B (business to business) and B2C (business to consumer) supplies. The distinction is important because it determines, inter alia, whether GB VAT is applicable to a supply made by a GB supplier.
Status of the customer:
- B2C: A supply is B2C when the customer is a private individual, an organisation with only non-business activities or the supply is wholly for private use (eg for the private use of a business owner)
- B2B: A supply is B2B when the customer has any level of business activity (though if a supply is wholly for private use it remains B2C). It does not matter if the supply is for a non-business activity of the customer or if the customer is not VAT registered. All that matters is the customer has some level of business activity – this includes VAT exempt activity and taxable activity below the VAT registration threshold VAT place of supply.
To apply the B2B treatment a GB supplier must obtain evidence that the customer has business activities. If the supplier cannot obtain any evidence, they should apply B2C treatment.
- If the customer is VAT registered, the customer’s VAT number is evidence of status and it is good practice to quote this on the supplier’s invoice. A GB supplier should check the customer’s VAT registration number is in the correct format for the country concerned. This can be done via the EC Vies website. for EU customers. NB: Special evidence rules apply to electronically supplied services.
- If the customer is not VAT registered, a GB supplier should obtain and retain evidence that the customer has business activities. HMRC state “If your customer is unable to provide a VAT number, you can accept alternative evidence.This includes certificates from fiscal authorities, business letterheads or other commercial documents indicating the nature of the customer’s activities”.
A supplier needs to identify where his customer belongs in order to establish the place of supply.
VERY broadly, depending on the nature of the supply, the rule of thumb is that a B2B service is GB VAT free (it is subject to a reverse charge by the recipient as it is deemed to be “supplied where received”) but a B2C service is generally subject to GB VAT, regardless of the place of belonging of the recipient. There are exceptions to these rules however, such as the use and enjoyment provisions, land related services, hire of transport and admission to events.
VAT: How to characterise a supply – The tests
In the age-old matter of whether a supply is separate/composite/compound for VAT purposes which and what is the nature of that supply, the Court of Appeal case of Gray & Farrar International LLP has provided very helpful guidance. A background to facts of the initial hearing here (although this decision was overturned by both the UT and the CoA).
I have previously considered these types of supply here, here, here, here, and here. Although not specifically concerning composite/separate supplies, the case sets out a hierarchy of tests to be applied in characterising a single supply for VAT purposes which now sets the standard. These test are:
- The Mesto predominance test should be the primary test to be applied in characterising a supply for VAT purposes.
- The principal/ancillary test is an available, though not the primary, test. It is only capable of being applied in cases where it is possible to identify a principal element to which all the other elements are minor or ancillary. In cases where it can apply, it is likely to yield the same result as the predominance test.
- The “overarching” test is not clearly established in the ECJ jurisprudence, but as a consideration the point should at least be taken into account in deciding averments of predominance in relation to individual elements, and may well be a useful test in its own right.
Comments
The Mesto Test
CJEU Mesto Zamberk Financini (Case C-18/12)
The primary test to be applied when characterising a single supply for VAT purposes is to determine the predominant element from the point of view of the typical consumer with regard to the qualitative and not merely the quantitative importance of the constituent elements.
Principal/ancillary
If a distinct supply represents 50% or more of the overall cost, it can not be considered ancillary to the principal supply. In such cases an apportionment will usually be required.
Overarching
A generic description of the supply which is distinct from the individual elements. In many cases the tax treatment of that overarching single supply according to that description will be self-evident.
CPP
One must also have regard to the Card Protection Plan Ltd case. This has become a landmark case in determining the VAT treatment for single and multiple supplies. In this case the ECJ ruled that standard rated handling charges were not distinct from the supply of exempt insurance. It was noted that ‘a supply that comprises a single service from an economic point of view should not be artificially split’. Notably many subsequent court decisions have since followed this outcome thereby suggesting a general lean towards viewing cases as single supplies where there are reasonable grounds to do so.
Digital Euro introduction delayed
The European Commission’s proposal for the introduction of a digital Euro has been delayed.
What is digital Euro?
As a digital form of central bank money, the digital Euro will offer greater choice to consumers and businesses in situations where physical cash cannot be used. However, the digital euro would be a complement to cash, which should remain widely available and useable.
A digital Euro would offer an electronic means of payment that anyone could use in the euro area. It would be secure and user-friendly, like cash is today. As central bank money issued by the ECB, it would be different from “private money”, but you could also use a card or a phone app to pay with digital euro. It is intended to provide an anchor of stability for our money in the digital age.
Further details here.
VAT: Place of supply – The Sports Invest case
Latest from the courts
In the First-Tier Tribunal case of Sports Invest UK Ltd the issue was the place of supply (POS) of a football agent’s services (commission received for a player’s transfer).
The POS is often complex from a VAT perspective and depends on the place of belonging (POB) of the supplier and the recipient of the supply. These rules determine if VAT is charged, where VAT is charged and the rate of VAT applicable, additionally, they may impose requirements to register for VAT in different jurisdictions.
Background
Sports Invest was a football agent based in the UK. It received fees in respect of negotiating the transfer of a player: João Mário from a Portuguese club: Sporting Lisbon to an Italian club: Internazionale (Inter Milan). The appellant signed a representation contract with the player which entitled it to commission, and a separate agreement with Inter Milan entitling it to a fee because the player was permanently transferred.
The Issues
To whom did Sports Invest make a supply – club or player? What was the supply? Was there one or two separate supplies? What was the POS?
As appears normal for transactions in the world of football the contractual arrangements were complex, but, in essence as a matter of commercial and economic reality, Sports Invest had agreed the commission with the player in case it was excluded from the deal. However, this did not occur, and the deal was concluded as anticipated. Inter Milan paid The Appellant’s fee in full, but did this affect the agreement between Sports Invest and the player? That is, as HMRC contended, did Inter Milan pay Sports Invest on the player’s behalf (third party consideration) such that there were two supplies; one to the player and one to the cub?
The FTT stated that there was no suggestion that the contracts were “sham documents”.
VAT Liability
The arrangements mattered, as pre-Brexit, a supply of services by a business with a POB in the UK to an individual (B2C) in another EU Member State would have been subject to UK VAT; the POS being where the supplier belonged. HMRC assessed for an element of the fee that it saw related to the supply to the player. The remainder of the fee paid by the club was accepted to be consideration for a UK VAT free supply by the agent to the club (B2B).
Decision
The court found that there was one single supply by The Appellant to Inter Milan. This being the case, the supply was B2B and the POS was where the recipient belonged and so that the entire supply was UK VAT free. There was no (UK) supply to the individual player as that agreement was superseded by the contractual arrangements which were actually put in place and the player owed the agent nothing as the potential payment under that contract was waived.
The appeal against the assessment was upheld.
Commentary
The court’s decision appears to be logical as the supply was to the club who were receiving “something” (the employment contract with the player) and paying for it. The other “safeguarding” agreement appeared to be simple good commercial practice and was ultimately “not required”. This case highlights the often complex issues of; establishing the nature of transactions, the identity of the recipient(s), agency arrangements, the POS and the legal, commercial and economic reality of contracts.
VAT: Charging EVs ruled to be goods not services
Latest from the courts
In the Court of Justice of the European Union (CJEU) it was ruled that electric vehicle charging via public charging points, was a supply of goods, regardless that some elements of the supply were services, ie; access technical support, reservation of a charging point, and a parking space while charging. The overriding supply was the provision of electricity which is classified as goods.
The full P. In W. case here.
It is unlikely that the UK authorities will form a different view.
Although in most cases there is unlikely to be a significant difference, although there could be issues with the time of supply (tax point).
VAT – What records must be kept by a business?
I thought that it may be useful to round-up all the record-keeping requirements in one place and focus on what HMRC want to see. It is always good practice to carry out an ongoing review a business’ records to ensure that they comply with the rules.
General requirements
Every taxable person must keep such records as HMRC may require. Specifically, every taxable person must, for the purposes of accounting for VAT, keep the following records:
- business and accounting records
- VAT account
- copies of all VAT invoices issued
- VAT invoices received
- certificates issued under provisions relating to fiscal or other warehouse regimes
- copy documentation issued, and documentation received, relating to the transfer, dispatch or transport of goods overseas and/or imported
- credit notes, debit notes and other documents which evidence an increase or decrease in consideration that are received, and copies of such documents issued
- copy of any self-billing agreement to which the business is a party
- where the business is the customer party to a self-billing agreement, the name, address and VAT registration number of each supplier with whom the business has entered into a self-billing agreement
Additionally
HMRC may supplement the above provisions by a Notice published by them for that purpose. They supplement the statutory requirements and have legal force.
Business records include, in addition to specific items listed above, orders and delivery notes, relevant business correspondence, purchases and sales books, cash books and other account books, records of daily takings such as till rolls, annual accounts, including trading and profit and loss accounts and bank statements and paying-in slips.
Unless the business mainly involves the supply of goods and services direct to the public and less detailed VAT invoices are issued, all VAT invoices must also be retained. Cash and carry wholesalers must keep all till rolls and product code lists.
Records must be kept of all taxable goods and services received or supplied in the course of business (standard and zero-rated), together with any exempt supplies, gifts or loans of goods, taxable self-supplies and any goods acquired or produced in the course of business which are put to private or other non-business use.
All records must be kept up to date and be in sufficient detail to allow calculation of VAT. They do not have to be kept in any set way but must be in a form which will enable HMRC officers to check easily the figures on the VAT return. Records must be readily available to HMRC officers on request. If a taxable person has more than one place of business, a list of all branches must be kept at the principal place of business.
Comprehensive records
In addition, we always advise businesses to retain full information of certain calculations such as; partial exemption, the Capital Goods Scheme, margin schemes, TOMS, business/non-business, mileage and subsistence claims, promotional schemes, vouchers, discounts, location of overseas customers, and OSS, amongst other records. The aim is to ensure that any inspector is satisfied with the records and that any information required is readily available. This avoids delays, misunderstandings and unnecessary enquiries which may lead to assessments and penalties.
If you have any doubts that your business records are sufficient, please contact us.