In the Spearmint Rhino case it was ruled that there is no VAT on lap dances, however in Wilton Park Ltdthe decision was that VAT was due.
Monthly Archives: October 2022
VAT: Face masks deemed to be clothing
Via Revenue & Customs Brief 11 (2022) HMRC now accepts that face masks should properly be considered to be items of clothing.
This means that face masks designed and marketed as suitable for young children (under the age of 14) qualify for zero rating.(VAT Act 1994 Schedule 8 Group 16).
VAT Notice 714 – Young children’s clothing and footwear has been updated.
Businesses which have been treating these sales as standard rated will be due a refund, subject to the unjust enrichment rules.
VAT: Partial exemption de minimis relief
VAT Basics
The VAT a business incurs on running costs is called input tax. For most businesses this is reclaimed on VAT returns from HMRC if it relates to standard rated, reduced rated, zero rated or certain outside the scope sales that a business makes.
However, a business which makes exempt sales may not be in a position to recover all of the input tax which it incurred. This is because input tax which relates to exempt supplies is generally irrecoverable.
This may affect any business which is involved in:
- Property letting and sales – generally all types of supply of land
- Financial services
- Insurance
- Betting, gaming and lotteries
- Education
- Health and welfare
- Sport, sports competitions and physical education
- Cultural services
(This list is not exhaustive)
A business in this position is called partly exempt. (If a business is fully exempt, it can neither VAT register nor recover any VAT at all). Input tax which directly relates to exempt supplies is irrecoverable. In addition, an element of that business’ general overheads, eg; light, heat, telephone, computers, professional fees, etc are deemed to be, in part, attributable to exempt supplies and a calculation must be performed to establish the element which falls to be irrecoverable. Such apportionment is called a partial exemption standard method. There are a number of alternative methods that may be used (so called “special methods”) but these must be agreed with HMRC.
De Minimis
There is, however, a relief available for a business in the form of de minimis limits. Broadly, if the total of the irrecoverable directly attributable (to exempt suppliers) and the element of overhead input tax which has been established using a partial exemption method falls below de minimis, all of that input tax may be recovered in the normal way.
The de minimis limit is currently £7,500 per annum of input tax. As a result, after carrying out the partial exemption method should the result fall below £7,500 and half of the total input tax for a year it is recoverable in full. This calculation is required on a quarterly basis (for businesses which render returns on a quarterly basis) with a review of the year, called an annual adjustment carried out at the end of a business’ partial exemption year. The quarterly
VAT: Changes to the Option To Tax of land and buildings
Changes to the notification process
The Option To Tax (OTT) procedure generally turns an exempt supply of land and/or property into a taxable one. More details here.
HMRC have announced, following a recent trial, that its processing of OTTs has been amended to speed up the process.
Previously, when a business submitted an OTT (Form VAT1614A) HMRC would undertake certain checks to the notification before sending an acknowledgement. Now, HMRC will simply issue a receipt confirming that the OTT notification has been received without checking it.
It was, and remains, the taxpayer’s responsibility to ensure that the OTT is valid. The change removes the deemed uncertainty where taxpayers may have believed HMRC’s acceptance of the OTT confirmed that it was valid. Of course, it also reduces HMRC’s resources in processing the notifications and should result in quicker turnarounds. It is hoped that now HMRC will process notifications within 30 working days.
Changes to OTT forms
In addition to the changes to the process of notifying an OTT, HMRC has also removed the ‘print and post’ versions of the following forms:
VAT1614B: Stop being a relevant associate to an option to tax
VAT1614E: Notification of a real estate election
These can now only be completed online. Please note the online form can still be posted but it must be completed in full before it can be printed. The form can also be emailed to optiontotaxnationalunit@hmrc.gov.uk.
VAT: Trader Support Service extended to December 2023
HMRC has announced that the Trader Support Service for businesses moving goods between Great Britain and Northern Ireland has been extended until 31 December 2023.
This service is designed to assist businesses navigate changes to the way goods move under the Northern Ireland Protocol since Brexit.
The service provides support to manage digital declarations including completing import and safety and security declarations.
It also provides guidance and training to help businesses understand what the Protocol means for them, enables traders to complete declarations without the need to purchase specialist software saving time and money.
Businesses moving goods between Great Britain and Northern Ireland can sign up to the Trader Support Service and access free online courses and training materials.
A VAT Did you know? – Latest from the courts
A new Tribunal case ruled that marshmallows of an unusual size are zero rated, while normal sized marshmallows continue to be standard rated.
VAT: MTD reminder
HMRC have announced that the existing Making Tax Digital (MTD) online portal closes on 31 October 2022.
What businesses need to do now (or they could face a penalty)
If businesses haven not signed up to MTD and started using compatible software already, they must follow these steps now:
Step 1
Choose suitable MTD-compatible software they can find a list of software on GOV.UK.
Step 2
Check the permissions in their software – once they have allowed it to work with MTD, they can file their VAT returns easily. Go to GOV.UK and search ‘manage permissions for tax software’ for information on how businesses should do this.
Step 3
Keep digital records for their current and future VAT returns – a business can find out what records they need to keep on GOV.UK.
Step 4
Sign up for MTD and file their future VAT returns using MTD-compatible software – to find out how to do this, go to GOV.UK and search ‘record VAT’.
Businesses who file quarterly or monthly VAT returns must complete these steps in order to file their returns due after 1 November.
Exemption from MTD for VAT
There are exemptions from MTD and they my be applied for here.
VAT: Fuel and Power Notice updated
HMRC Guidance: Fuel and power (VAT Notice 701/19)
This Notice has recently been updated. It now covers the VAT Reverse Charge measures for wholesale gas and electricity and construction services (Section 2) . There is more information about wholesale gas and electricity and using the VAT domestic Reverse Charge at section 3 of Notice 735: Domestic reverse charge procedure (VAT Notice 735).
Sections 4.1 and 4.3 now include more detail about hydrogen gas.
Brief overview
The reduced rate of VAT of 5% applies to supplies of fuel and power for qualifying use.
Qualifying use means:
- fuel and power for domestic use
- fuel and power for charity non-business use
- fuel and power where the amount supplied does not exceed the small quantities, called the de minimis limits
- fuel and power partly for qualifying use and partly for other purposes, where 60% or more of the supply is for qualifying use
Other supplies of fuel and power in the UK are standard rated.