Category Archives: Latest VAT news

VAT – Retrospective input tax claim opportunity for charities and not for profit bodies.

By Marcus Ward 22 June 2015

The Upper Tribunal has decided In the University Of Cambridge case that costs incurred on running its endowment fund relate to the university’s overall economic activity in general and consequently it is possible to recover an element of it. The full judgement here

This will impact on all charities and similar bodies which have non-business activities that support their business activities.

Please contact us if your charity is in a similar position because if past input tax claims have been restricted as a result of HMRC’s interpretation (which is highly likely) it is possible to make a claim which covers the last four years’ VAT costs.

VAT on Crowdfunding?

By Marcus Ward 28 May 2015

The EC is has begun an investigation into whether VAT should apply to crowdfunding activities.

An alternative is for the Commission to consider whether crowdfunding should be covered by the exemption for financial services. In my view this seems unlikely.

So what could the outcome be if VAT is applicable to crowdfunding? Well, a large number of UK projects will face a 20% VAT liability on investor returns. This is especially relevant to the popular “rewards crowdfunding”, where payments by investors are made in return for products or services to be developed as a result of the fundraising. These rewards projects may include; films, albums, or software development, which are offered “free” or at a reduced rate. It would appear that in these cases, consideration is flowing in both directions.

The Commission may also decide that crowdfunding intermediary services offered by many platforms will become liable to VAT.

The current position is that the Commission has now referred the question of crowdfunding to the EU VAT Committee.

More on this subject as soon as we have it.

VAT – Compound interest now payable on retrospective claims. Littlewoods Court of Appeal decision

By Marcus Ward 21 May 2015

If your business have ever submitted a retrospective claim to HMRC on the basis of UK law being incompatible with EC legislation, it is possible to claim compound interest.

Full judgement here: https://emeia.ey-vx.com/730/28558/landing-pages/littlewoods-coa-judgment-21-may-2015.pdf

Please contact us if you require any further information or assistance.

VAT – The Future for the EC Digital Single Market

By Marcus Ward 11 May 2015

VAT – The Future for the EC Digital Single Market

The EC has announced its plans for its VAT digital single market in respect of online sales. Full details are here and here.

The highlights are:

• Extension of MOSS to intra-EC and third country online B2C sales of goods.

• Introduction of a new EC-wide VAT threshold to help start-up businesses.

• Ending current distance selling thresholds.

• Allowing for domestic controls, including a single audit of cross-border sales.

• Removal of the VAT exemption for the import of small consignments form third countries.

• Removal of barriers to cross-border sales eg; geo-blocking and costs.

This is likely to have a huge impact on the way businesses deal with VAT on sales of goods to individuals overseas. If the introduction of MOSS is anything to go by, we may be in for a bumpy ride.

VAT – Business Entertainment Flowchart. What input tax may I recover?

By Marcus Ward 11 May 2015

VAT – Recovery of input tax incurred on entertainment

One of the most common questions asked on “day-to-day” VAT is whether input tax incurred on entertainment is claimable. The answer to this seemingly straightforward question has become increasingly complex as a result of; HMRC policy, EC involvement and case law. Different rules apply to entertaining; clients, contacts, staff, partners and directors depending on the circumstances. It seems reasonable to treat entertaining costs as a valid business expense. After all, a business, amongst other things, aims to increase sales and reduce costs as a result of these meetings. However, HMRC sees things differently and there is a general block on business entertainment. It seems like HMRC does not like watching people enjoying themselves at the government’s expense!

If, like me, you think in pictures, then a flowchart may be useful for deciding whether to claim entertainment VAT. It covers all scenarios, but if you have a unique set of circumstances or require assistance with some of the definitions, please contact me.

I thank my friend and colleague Leila Ong for help with this, and also with the series of presentations we have recently carried out and which, amongst other subjects, covered business entertainment. Should you require VAT training or presentations, don’t forget our comprehensive service here which can be tailored to your needs.

VAT -Business Entertainment Flowchart

Download here: VAT Business Entertainment Input tax recovery flowchart

VAT- Is the Upper Tribunal bound by High Court decisions?

By Marcus Ward 6 May 2015

Upper Tribunal versus High Court

In the recent case of Meena Seddon Settlement which involved Inheritance Tax, the First Tier Tribunal (FTT) was required to decide whether the Upper Tribunal is bound by decisions made in the High Court. The FTT decision will doubtless affect VAT cases in the future.

It decided to follow a precedent set by the Upper Tribunal over an earlier decision by the High Court.

The taxpayer contended that the matter should be decided on the basis of a previous High Court decision. HMRC argued on the basis of a later Upper Tribunal decision. In normal circumstances, a later decision should take precedence over the earlier if both decisions have the same authority and have fully considered the previous judgments. However, if the taxpayer was correct to say that the Upper Tribunal was bound by precedents set by the High Court, the later decision could be disregarded as being wrong in law.

The FTT decided that it was the intention of Parliament that the Upper Tribunal was not bound to follow High Court precedents. This was notwithstanding the fact that a High Court could have a supervisory role over the Upper Tribunal in cases of judicial review. Therefore, it determined the case on the authority of the later Upper Tribunal decision in favour of HMRC.

VAT – Compound or multiple supplies? Latest from the courts

By Marcus Ward 17 March 2015

In Colaingrove Limited the Upper Tribunal (UT) this week was required to decide whether the supply of electricity to a mobile home was an independent supply, or just one element of part of an overall supply of holiday accommodation.

This is a notoriously difficult area of VAT as the recent case of WM Morrison Supermarket Limited (“Morrisons”) demonstrates. In this case disposable barbecues (standard rated) were sold with charcoal (reduced rated when sold independently) and the UT decided that it was not possible to carve out the reduced rated element form the overall supply so the whole supply was standard rated.

In Colaingrove a flat-rate charge was made to holidaymakers who paid it as part of the hire charge for self-catering accommodation in mobile homes. The appellant argued that the electricity charge was separately identifiable and quantifiable and should consequently be treated as a reduced rated (5% rather than 20%) independent supply.

The logic in Morrisons was applied in this case and the UT ruled that the charge for the electricity should properly be included in the price of the standard rated holiday accommodation. The charge should not be split out, so the entire charge for the accommodation was standard rated, including the specified sum charged for the electricity.

The judge acknowledged that this case was not an easy one to decide and that the arguments advanced on behalf of the taxpayer were both powerful and attractive. It would seem likely that an appeal to the Court of Appeal will be made.

This case further illustrates that care must be taken when analysing the VAT treatment of supplies. There is significant case law on this matter, but there still remains a certain overlap and sometimes conflicting opinions. The precise facts of the matter are very important when determining whether supplies are compound or multiple for VAT purposes.

Overview

Whether there is a compound or multiple supply is determined by the tests set out in the Card Protection Plan case, namely; firstly, whether there is a principal element of the supply to which all other parts are ancillary and, secondly, whether, in the eyes of the customer, the ancillary element provides a means of better enjoying the principal element. If the answer to both of these questions is yes, then there is a single supply.

VAT – Are e-books books? Update on ECJ’s decision 5 March 2015

By Marcus Ward 5 March 2015

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 between EC Member States (and between other interested parties) 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.

UPDATE

The European Court of Justice (ECJ) has today ruled that France and Luxembourg must raise their reduced VAT rates on sales of e-book. This will conclude ongoing disputes (see above) between EC countries over whether e-books may be treated similarly to printed books at the nil or reduced rates. The UK and Germany were the main protagonists in challenging those Member States where e-books have been treated the same as printed versions.

Initially, Luxembourg and France began reclassifying e-books at the same rate as printed books – 3% and 5.5% in 2012. Subsequently, Italy and Malta joined them at the start of 2015, reducing the rates to 4% and 5%.

These rates where challenged by the UK and Germany who asked the EC to impose rules to ensure that e-books could not take advantage of the printed book rates. Today, the ECJ published its ruling, stating that since e-books do not have the same physical characteristics as printed books and therefore cannot benefit from the printed book reduced VAT rules.

This decision does seem to go against common sense,but the ECJ’s hands were somewhat tied by the VAT rules which were introduced before e-books existed.

VAT – Domestic legislation versus EC law – a new case

By Marcus Ward 4 March 2015

In the recent case of VDP Dental Laboratory NV & ors (C-144/13) the ECJ has decided that a Dutch exemption for a supply which is ultra vires in respect of EC VAT legislation does not give a right to input tax deduction via EC legislation. The exemption precludes input VAT recovery, but has the effect of exempting imports and acquisitions into The Netherlands. The ECJ held that a taxable person who is not obliged to charge VAT on the supply of goods because national law (in contravention of Community law) provides for exemption, cannot however, rely on Community law to claim input tax deduction of VAT incurred on purchases incurred in respect of that supply. What this means though is that the exemption in Dutch domestic legislation means that the taxpayer will not be taxed on importations or acquisitions, irrespective of the VAT treatment in the Member State of an EU supplier.

Broadly, this means that a business cannot take advantage of domestic legislation and/or EC law in circumstances where it may benefit.

VAT on residential developments

By Marcus Ward 20 February 2015

Should work on existing residential property have the same VAT treatment as new build housing?

The UK cannot create a new zero rate, however, should, say, the reduced rate apply to extensions/redevelopment?

And if so, where should the line be drawn?

Article from Property Week here