Category Archives: EC

Taxpayer loses in “TNT” claims lead case.

By Marcus Ward 9 July 2014

In the recent FTT case of Zipvit the court considered retrospective claims by businesses in cases where Royal Mail (and Parcelforce) had treated individually negotiated supplies of postage etc as exempt. In the previous ECJ case of TNT it was ruled that these services should have been standard rated. The claims (said to be over £1billion in total stood behind Zipvit) were made on the basis that recipients of these services could reclaim the VAT as input tax that should properly have been charged by the Royal Mail.
The three salient points where:

1. Where the supplies taxable? – On this point the court agreed with the taxpayer, the UK legislation must be read with the same restrictions as in the relevant EC Directive.
2. Was VAT due from, or paid by, the appellant? – Curiously, the judge did not agree with either party and stated that both had been labouring under a misapprehension. No further submissions were requested however, and on this point the appeal failed.
3. Lack of VAT invoice – Although HMRC have the discretion to accept alternative evidence to support an input tax claim, it was not obliged to. The FTT supported HMRC’s refusal and noted that there would, in any event, be a windfall for the applicant. The appeal was dismissed.

The judge commented that it was likely that this case would be appealed to a higher court.
If you have an appeal stood behind Zipvit, or have previously received exempt supplies from Royal Mail or Parcelforce in respect of individually negotiated contracts – please contact us for further information.

Are e-books books?

By Marcus Ward 21 May 2014

Books are zero rated for VAT purposes, but only (currently) if they are of the traditional dead tree variety. The zero rating does not extend to e-books which are standard rated for VAT. There has been a long standing argument that similar content should not be taxed at different rates solely depending on the method of delivery. This argument is about to be tested in the courts. The UK is not permitted by the EC to extend its current zero rating for printed matter, however, it is expected that the contention in this case will be that the inclusion of new products will not extend the zero rating, but rather the development of technology has created a supply that should be covered by the existing zero rating legislation.

If it is accepted by the courts that all types of book should attract the same rate of VAT, it may mean that the rate will be equalised upwards. So, by the end of the year we could be looking at VAT of 5% being added to books, newspapers and other printed matter which was hitherto VAT free – A “tax on learning” as previous protests had it when there was a threat to tax free books.

VAT – Changes to the treatment of electronically-supplied services from 2015

By Marcus Ward 24 March 2014

Although it seems some time away, these changes, which come into effect on 1 January 2015, will have a significant impact on any business which provides e-services (wherever in the EC it is based). It is important for suppliers to understand and plan for the new rules; the sooner the better.

What are e-services for VAT purposes? – Broadly these are services usually obtained via the internet and may comprise; films, music, information, software for which the supplier makes a charge.

Are all of these services affected? – No, only B2C services (where the recipients are not in business, eg; an individual). The rules for B2B supplies will not change.

What are the changes? At present, suppliers based in the EC charge VAT at the rate applicable in the EC Member State in which the business is located. Currently, therefore, VAT planning insists that technology companies locate in countries with low VAT rates. However, to combat this, the EC will introduce a rule whereby the place of supply (where VAT is due) changes to where the customer is located (not where the supplier belongs). Consequently, a company currently based in Luxembourg supplying a service which is downloaded by an individual in the UK will charge VAT at 15% (the rate in Luxembourg). From 1 January 2015, the UK recipient will pay VAT at 20% (the UK rate).

Businesses will need to introduce these changes and manage budgets and forecasts to recognise what, on the whole, will be a significant increase in VAT payable. This will, for most businesses result in a reduction in profits or an increase in prices for customers.

As may be seen, this will add considerable complexity for businesses to deal with and with the current penalty regime care must be taken to avoid even further costs. Businesses affected must start to plan for these changes as soon as possible.

Are there any easements available? The new rules change would require EC suppliers to register and account for VAT in every EC Member State where their services are downloaded by non-business customers. In order to avoid this burden a “mini one stop shop” (MOSS) is also being introduced. This will allow suppliers to register just once in their own EU Member State. This single registration will then allow them to account for VAT due in other Member states. HMRC has indicated that businesses will be able to register under the MOSS from October 2014. How this will actually work in practice remains to be seen.

Good luck everybody!

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