Aphrodisiacs can be food and therefore VAT free. Capsules, drops, powders and sprays presented as aphrodisiacs that stimulate libido are intended for human consumption and are taken orally. The fact that consumption of the product may have positive effects on the sexual desire of the person ingesting it is irrelevant.
Access the updated VAT Fuel Scale Charges to apply from the 1 May 2022 here They will apply VAT periods starting on or after that date.
HMRC has published new VAT Road Fuel Scale Charges (RFSC) which apply from 1 May 2022 to 30 April 2023.
RFSC
If a business reclaims VAT incurred on road fuel, it will be required recognise the private use element of the fuel.
The RFSC simplifies accounting for VAT on the private use of fuel by motorists. The RFSC is calculated according to a car’s CO2 emissions and the fixed charge is added to output VAT, on the VAT return (in effect, the business supplies to fuel to the individual). The use of this charge is optional, the alternative is to keep detailed mileage records.
Details of these, and other motoring expenses here.
A quick RFSC calculator/ready-reckoner here.
When can Transfer Pricing (TP) adjustments affect the application of VAT?
There is a continuing potential conflict between the way sales are valued. For TP purposes value is determined via arm’s length (open market value) versus the subjective value, ie; the price actually paid, for VAT purposes.
More detail on VAT valuation/consideration here.
Transfer Pricing
The arm’s length principle is the international transfer pricing standard that the Organisation for Economic Co-operation and Development (OECD) member countries have agreed, and which should be used for tax purposes by Multinational Enterprise Group (“MNE group”) and tax administrations, including the price, match comparable market conditions and that profits are fairly divided between the jurisdictions in which MNE operates.
According to the OECD TP Guidelines, by seeking to adjust profits by reference to the conditions which would have been obtained between independent enterprises for comparable transactions and under comparable circumstances, ie; in “comparable uncontrolled transactions” the arm’s length principle treats the members of an MNE group as entities operating separately rather than as inseparable parts of a single unified business. Because the separate entity approach treats the members of an MNE group as if they were independent entities, attention is focused on the nature of the transactions between those members and on whether the conditions thereof differ from those that would be obtained in comparable uncontrolled transactions.
VAT
It is not generally required for VAT purposes that the consideration which must be present in order for a transaction to be qualified as taxable, has to reflect the market value of the goods or services supplied. In fact, as to the concept of “consideration”, it is settled case law of the CJEU that the taxable amount for the supply of goods or services is represented by the consideration actually received for them.
It is an important area of tax and I recommend reading the EC Working Paper for any business or adviser involved in international supplies. It is also an interesting read for students of the tax technical side of such supplies.
We have a strong global structure of skilled advisers which are able to assist if you have any queries.
Latest from the courts
The place of belonging of a business or other person is an important tenet of the tax. I have considered this issue at length here and recent case law here.
A recent CJEU case involved a situation where a business had a registered office in one country and, potentially (hence the appeal) a fixed establishment in another.
Background
“Berlin” used a “third party” to receive certain services. Does this entry represent a fixed establishment for Berlin if it has a sufficient degree of permanence and a suitable structure in terms of technical and human resources? If yes, is it is necessary for those human and technical resources to belong to the company receiving the services or whether it is sufficient for that company to have immediate and permanent access to such resources through a related company, of which it is major shareholder?
Technical
The wording of Article 44 of the VAT Directive and Article 11(1) of Implementing Regulation No 282/2011 do not provide any details as to whether human and technical resources must belong to the company that receives the services.
Decision
The CEUJ ruled that, simple control or ownership, of another entity is insufficient to create a fixed establishment for VAT purposes. Consequently, a third party location does not inevitably represent a fixed establishment by dint of control/ownership.
Having made that comment, the court impressed that the decision should be made “in the context of the economic and commercial reality”.
The analysis of the place of belonging should recognise that it is not necessary for the fixed establishment to own the resources, but there should be control over these resources in the same way as an “owner”. A fixed establishment is characterised by a suitable structure which enables a business to receive and use services supplied to them for their own needs and not by the decision power of a certain structure that businesses have put in place.
Commentary
Although an EU case, it could impact UK businesses who make supplies to EU recipients and particularly, if there is a “network” of offices or business locations in various EU Member States. Overseas suppliers to (potentially) UK business with various business premises and structures will need to recognise this ruling in order to establish the place of supply (and hence what country’s VAT and at what rate to apply).
This decision provides some helpful clarity, which may be summarised as: In principle, a subsidiary does not always create a fixed establishment.
VAT Basics
Nearly all businesses incur car motoring expenses, so here is a guide to the VAT impact:
Buying a car
A business cannot recover the VAT on a car purchase, unless it:
Leasing a car
If a business leases a ‘qualifying car’ for business purposes it will normally be unable to recover 50% of the VAT charged. The 50% block is to cover the private use of the car.
However, a 100% reclaim is possible if it is to be used for hire with a driver for carrying passengers or providing driving instruction.
The 50% block applies to all the VAT on charges paid for the rental of the car. This includes:
Fuel
The options for claiming input tax on road fuel are as follows:
Road Fuel Scale Charge
A scale charge is a way of accounting for output tax on road fuel bought by a business for cars which is then put to private use. If a business uses the scale charge, it can recover all the VAT charged on road fuel without having to split mileage between business and private use. The charge is calculated on a flat rate basis according to the carbon dioxide emissions of the car. The charges are set out in the fuel scale charge table.
Mileage records
HMRC calculation example:
Fuel paid for by employees
If a business reimburses its employees for fuel used it can treat the VAT they paid as its input tax. But the business must be able to show that it has reimbursed them for their actual expenditure on the fuel. If fuel bought by employees for business is put into private use, the business must account for output tax on the private use using the scale charges or the value.
Electric vehicles
Details of input tax recovery and output tax due here.
Input tax on repairs
If a vehicle is used for business purposes, there is a 100% reclaim of the VAT charged on repairs and maintenance as long as the business paid for the work and the vehicle is used for some business purposes. It does not matter if the vehicle is used for private motoring or if you have chosen not to reclaim VAT on road fuel (see below).
Other motoring expenses
Input tax incurred on all other business motoring expenses, eg; fleet management charges or parking charges is fully recoverable input tax.
Selling a car
If a car is sold on which input tax was recovered, eg; a driving school car, VAT is due on the full selling price. The supply of these vehicles are cannot be made under the second hand margin scheme.
If a car is sold where VAT was charged on purchase but could not be recovered there is no VAT due on the sale of it. Such a supply is exempt and must be consider in any partial exemption calculation. For most businesses this will not be an issue.
If a business sells a car where VAT was not charged when it was purchased, eg: from a private individual or from a dealer who sold it under the second-hand margin scheme, no VAT will be due unless the sale was at a higher value than the purchase price. In which case VAT will be due under the margin scheme.
NB: The VAT rules for commercial vehicles will differ.
Do you, or your clients, own property overseas which you let to third parties when you are not using it yourself?
It is important to understand the VAT consequences of owning property overseas.
The position of UK Holiday Lets
It may not be commonly known that the UK has the highest VAT threshold in the EC. This means that for many ‘sideline’ businesses such as; the rental of second or holiday properties in the UK, the owners, whether they are; individuals, businesses, or pension schemes, only have to consider VAT if income in relation to the property exceeds £85,000 pa, and this is only likely if a number of properties are owned.
It should be noted that, unlike other types of rental of homes, holiday lettings are always taxable for VAT purposes.
Overseas Holiday Lets
EU Member States have nil thresholds for foreign entrepreneurs. This means that if any rental income is received, VAT registration is likely to be compulsory. Consequently, a property owner that rents out a property abroad will probably have a liability to register for VAT in the country that the property is located. Failure to comply with the domestic legislation of the relevant Member State may mean; payment of back VAT and interest and fines being levied. VAT registration however, does mean that a property owner can recover input tax on expenditure in connection with the property, eg; agent’s fees, repair and maintenance and other professional costs. This may be restricted if the home is used for periodical own use.
Given that every country has differing rules and/or procedures to the UK, it is crucial to check all the consequences of letting property overseas. Additionally, if any other services are supplied, eg; transport, this gives rise to a whole new (and significantly more complex) set of VAT rules.
A final word of warning; I quite often hear the comment “I’m not going to bother – how will they ever find out?”
If an overseas property owner based in the UK is in competition with local letting businesses, those businesses generally do not have any compulsion in notifying the local authorities. In addition, I have heard of authorities carrying out very simple initiatives to see if owners are VAT registered. In many resorts, income from tourism is vital and this is a very important revenue stream for them so it is well policed.
Please contact us if you are affected by this matter; we have the resources to advise and act on a worldwide basis.