Under one VAT scheme, zero-rated and exempt supplies are subject to VAT – as are those which are “Outside the scope of UK VAT”.
Which, or course, makes entire sense.
Category Archives: Law
VAT: When is a bar a bar? – The Anglia Ruskin Students’ Union case
Latest from the courts
A student union tried to argue that a bar is not a bar. It did not go well.
In the case of The Anglia Ruskin Students’ Union the High Court considered the appellant’s application for judicial review of HMRC’s decision that “92” which was operated on the university’s campus was a bar.
The importance of this description of the venue was that if it was indeed a bar, the supplies from it would be standard rated. This is because the supplies of catering to students by eligible bodies, including universities”, are exempt from VAT, on the basis that the supplies are closely related to exempt supplies of education, however, the exemption does not cover food and drink sold in bars.
The union contended that ‘bar’ means a place that does not supply catering, or, alternatively, predominantly or mainly serves alcohol.
HMRC, predictably argued that a bar is “somewhere where one can buy and drink alcoholic and other drinks, as well as food”, and that 92 met that definition.
The court agreed with HMRC that the bar was indeed a bar and did not grant permission to appeal.
So, now we know, a bar is a bar, not a café… or anything else really.
Technical
* Student unions often provide catering alongside universities. Since March 2002, HMRC has operated a published concession extending the exemption granted to supplies of catering made by universities to student unions.
VAT: e-invoicing consultation published
HMRC and the Department for Business and Trade have published their UK e-invoicing consultation paper.
Background to this development here and here.
E-invoicing is the digital exchange of invoice information directly between buyers’ and suppliers’ financial systems, even if these systems are different. The outcome is an invoice which is automatically written into the buyer’s financial system without manual processing.
E-invoicing automates the exchange of invoices between buyers and suppliers. The government says that increased e-invoicing uptake may support economic growth, business productivity, improve business cashflow and reduce errors in tax returns. It has the potential to both support businesses and tax administration.
The consultation aims to understand how e-invoicing aligns with businesses and their customers. Responses from businesses of all sizes – whether they use e-invoicing or not – as well as interest groups, representative bodies, industry bodies and individuals are encouraged.
The purpose of the consultation is to seek input on how the government can support the increased adoption of e-invoicing. The main points are:
- different models of e-invoicing
- whether to take a mandated or voluntary approach to e-invoicing
- what scope of mandate might be most appropriate in the UK and for businesses
- whether e-invoicing should be complemented by real time digital reporting
This would be a significant change to VAT and all businesses should understand the impact.
More on VAT in the Digital Age (ViDA), including Real-time digital reporting here.
VAT: Input tax claims – alternative evidence
What can be used to make a claim?
It is well known that in order to claim input tax on expenditure a business is required to have a valid tax invoice to support it. But what if there is no VAT invoice? Can HMRC accept any other evidence to support a claim? Well, the answer is yes… sometimes.
HMRC has discretion provided by legislation: VAT Regulations 1995/2518 Reg 29(2). Specifically, the wording most relevant here is “…such other documentary evidence of the charge to VAT as the Commissioners may direct.” Broadly, a business must hold the correct evidence before being able to exercise the right to deduct.
Where claims to deduct VAT are not supported by a valid VAT invoice HMRC staff are required to consider whether there is satisfactory alternative evidence of the taxable supply available to support deduction. HMRC staff should not simply refuse a claim without giving reasonable consideration to such evidence. HMRC has a duty to ensure that taxpayers pay no more tax than is properly due. However, this obligation is balanced against a duty to protect the public revenue.
Full details of tax invoices here.
What HMRC consider
HMRC staff are required to work through the following checklist:
- Does the business have alternative documentary evidence other than an invoice (for example a supplier statement)?
- Does the business have evidence of receipt of a taxable supply on which VAT has been charged?
- Does the business have evidence of payment?
- Does the business have evidence of how the goods/services have been consumed or evidence regarding their onward supply?
- How did the business know the supplier existed?
- How was the business relationship with the supplier established? For example: How was contact made?
- Does the business know where the supplier operates from (have staff visited?)
- How did the business contact them?
- How does the business know the supplier can supply the goods or services?
- If goods, how does the business know they are not stolen?
- How does the business return faulty supplies?
Outcome
If the responses to the above tests are credible, HMRC staff should exercise their discretion to allow the taxpayer to deduct the input tax. Overall, HMRC is required to be satisfied that sufficient evidence is held by the business which demonstrates that VAT has been paid on a taxable supply of goods or services received by that business and which were used by that business for its taxable activities
Challenge HMRC’s decision
A business may only challenge HMRC’s decision not to allow a claim (did not exercise its discretion) if it acted in an unfair or unreasonable way. In these cases, the onus is on the taxpayer to demonstrate that HMRC have been unreasonable in not using the available discretion. This is quite often a difficult thing to do.
Case law
Not surprisingly, there is significant case law on this subject. The most relevant and recent being the Upper Tribunal (UT) cases of James Boyce Scandico Ltdv and Wasteaway Shropshire Limited.
Tips
If possible, always obtain a proper tax invoice from a supplier, and don’t lose it! The level of evidence required when no invoice is held usually depends on the value of the claim. There would be a difference between persuading an inspector that £20 input tax on stationery is recoverable and the claiming of £200,000 VAT on a property purchase is permissible. As always in VAT, if you get it wrong and claim VAT without the appropriate evidence there is likely to be a penalty to pay.
If you, or your clients are in dispute with HMRC on input tax claims, please contact us.
VAT – Fuel and power guidance updated
HMRC has updated its notice Updated its Notice 701/19: Fuel and power.
The Notice explains how suppliers and users should treat supplies of fuel and power for VAT purposes and it sets out how to treat a number of other supplies connected with fuel and power.
The update provides more detail of supplies for domestic use.
Supplies of fuel and power for domestic use are eligible for the reduced rate of 5%.
The provider must be certain that the supply is to a dwelling or certain types of residential accommodation. Examples of allowed residential accommodation are:
- armed forces residential accommodation
- caravans
- children’s homes
- homes providing care for the elderly or disabled, people with a past or present dependence on alcohol or drugs or people with a past or present mental disorder
- houseboats
- houses, flats or other dwellings
- hospices
- institutions that are the sole or main residence of at least 90% of their residents
- monasteries, nunneries and similar religious communities
- school and university residential accommodation for students or pupils
- self catering holiday accommodation
The following buildings are not considered residential accommodation for the purposes of fuel and power:
- hospitals
- prisons or similar establishments
- hotels, inns or similar establishments
VAT penalties and surcharges – time limits for appeals. The Excel case
Latest from the courts
The recent Xcel Consult Limited First-Tier Tribunal (FTT) case serves as a reminder on the tight time limits for appealing against VAT penalties and surcharges.
The VAT Act 1994 Section 83G sets out a statutory time limit for bringing appeals in respect of VAT penalties and surcharges of the kind in question in this case. An appeal is to be made to the tribunal before the end of the period of 30 days beginning with the date of the document notifying the decision to which the appeal relates.
Section 83G(6) provides that an appeal may be made after the expiry of the statutory period if the Tribunal gives permission. In deciding whether to give permission to allow the late appeal, the three-stage test set out in Maitland is applied. These tests are:
(1) establish the length of the delay and whether it is serious and/or significant
(2) establish the reason or reasons why the delay occurred
(3) evaluate all the circumstances of the case, using a balancing exercise to assess the merits of the reason(s) given for the delay and the prejudice which would be caused to both parties by granting or refusing permission, and in doing so take into account “the particular importance of the need for litigation to be conducted efficiently and at proportionate cost, and for statutory time limits to be respected”.
Commentary
Our advice is to always respond within the 30 day limit, as relying on an out of time appeal can be risky. If that is not possible, an appeal should be submitted asap to ensure that test 1) above is not a reason to reject a submission.
VAT: Supply of self-contained apartments covered by TOMS? The Sonder UT case
Latest from the courts
In the Upper Tribunal (UT) case of Sonder Europe Limited (Sonder) the issue was whether apartments leased to Sonder and used to provide short-term accommodation to corporate and leisure travellers were supplies of a designated travel service via the Tour Operators’ Margin Scheme (TOMS) and whether the bought-in supply was used for the direct benefit of travellers (as required by TOMS).
Background
Sonder leased apartments from landlords on a medium to long-term basis and used them to provide accommodation to travellers on a short-term basis (one night to a month; the average stay being five nights). Sonder furnished some apartments as well as undertaking occasional decorating and maintenance.
The sole issue was whether these supplies are covered by TOMS. TOMS is not optional.
Initially in the FTT it was decided that output tax was due via TOMS. This was an appeal by HMRC against that First Tier Tribunal (FTT) decision.
The issue
Whether VAT was accountable using TOMS – on the margin, or on the full amount received from travellers by Sonder.
Legislation
TOMS is authorised by the VAT Act 1994, section 53 and via SI 1987/1806.
Arguments
Sonder contended that the supply was “for the direct benefit of the traveller” as required by the VAT (Tour Operators) Order 1987 and that the accommodation was provided “…without material alteration or further processing”. Consequently, TOMS applied. The FTT decided that Sonder did not materially alter or process the apartments.
HMRC maintained that the FTT decision was based on the physical alternations made rather than the actual characteristics of the supplies. Consequently, these were not supplies covered by the 1987 Order and output tax was due on the total income received for these services.
Decision
The UT upheld HMRC’s appeal and decided that TOMS did not apply n these circumstances The UT found that the FTT’s decision was in error in that it did not have regard to whether the services bought in were supplied to it for the direct benefit of travellers. Furthermore, the short-term leases to occupy property as holiday accommodation were materially altered from interests in land for a period of years supplied by the landlords.
The services received by Sonder from the landlords were not for the direct benefit of the travellers and Sonder’s supplies were not for the benefit of the users without material alteration and further processing. Consequently, there was not a supply of bought-in services, but rather an ‘in-house’ supply which was not covered by TOMS.
To the UT, the position was even clearer in relation to unfurnished apartments. Sonder acquired an interest in land for a term of years in an unfurnished apartment. It furnished the apartment and then supplied a short-term licence to a traveller to occupy as holiday accommodation. What was supplied to the traveller was materially different to what was supplied to Sonder.
Commentary
Another illustration of the complexities of TOMS and the significant impact on a business of getting the rules wrong. The fact that the UT remade the decision demonstrates that different interpretations are possible on similar facts. Moreover, even slight differences in business models can result in different VAT outcomes.
VAT: Digital platform reporting
VAT and digital platforms
Via section 349 of the Finance (No.2) Act 2023, measures were introduced which require certain UK digital platforms to report information to HMRC about the income of sellers of goods and services on their platform. HMRC then exchange this information with the other participating tax authorities for the jurisdictions where the sellers are tax resident.
Under the Organisation for Economic Co-operation and Development (OECD) rules, digital platforms in participating jurisdictions will be required to provide a copy of the information to the taxpayer to help them comply with their tax obligations.
Now HMRC have recently (last month) issued a new series of guidance , or updated guidance, on digital platform reporting, which are:
Selling goods or services on a digital platform
This Guidance explains the details a business needs to give to digital platforms when selling goods or services in the UK. A section on what information sellers will receive from online platforms has been added.
It covers:
- who is a seller
- information which must be provided
- reporting by platforms
- information to be received
- selling online and paying tax
Check if you need to carry out digital platform reporting
This guidance provides information on:
- what qualifies as a digital platform
- who should register
- how to register
- what needs to be reported
- information required for reporting
- carrying out due diligence
- when to report
- penalties
Register to carry out digital platform reporting
This sets out:
- who should register
- what you need to do
- how to register
- after you have registered
Managing digital platform reporting
This provides guidance on:
- submitting reports to HMRC
- ongoing account management
- when to report
- how to add or change a platform operator
- how to add or change a reporting notification to tell HMRC if you are a reporting or excluded platform operator
- how to add or change a reporting notification about the type of due diligence you choose
- changing contact details
- how to add team members
- how to inform HMRC that another platform operator will report for you (assumed reporting)
VAT: Updated HMRC guidance on exemption for healthcare supplies
HMRC has published new guidance in its internal manual VATHLT2035.
It covers the services of the medical and paramedical professions: Anaesthesia Associates and Physician Associates.
Regulation for Anaesthesia Associates (AAs) and Physician Associates (PAs) came into effect on 13 December 2024. A full registration is required by December 2026. The exemption will only apply to the AAs and PAs that have joined from the date of registration.
Anaesthesia Associates
AAs are specialised practitioners trained to perform certain medical procedures related to anaesthesia under the supervision of qualified medical personnel. They are not doctors but play a crucial role in the healthcare system by assisting in the administration of anaesthesia and monitoring patients during surgical procedures. AAs are authorised to perform specific procedures they are trained and approved for. They will be regulated by the General Medical Council (GMC). Their services will be exempt from VAT, provided they are carried out for the purpose of medical care.
Physician Associates
PAs are healthcare professionals who support doctors in diagnosing and managing patients. They are trained to perform various medical procedures and provide care under the supervision of doctors. PAs are not doctors but are essential members of the multidisciplinary healthcare team, enhancing the capacity of healthcare services. They are meant to supplement, not replace, the role of doctors. Their services will be exempt from VAT, provided they are carried out for the purpose of medical care.
The exemption is via The VAT Act 1994, Schedule 9, Group 7.
VAT in the Digital Age (ViDA)
EU Member States (MS) recently agreed the much-discussed ViDA package. Since Brexit, this does not directly affect the UK, however, it is an important pointer to the future and where we are all heading, so it will impact the UK in some ways.
The ViDA package (or a version of the finalised package) was first discussed in 2022 and has gone through a tortuous process before all MS agreed it.
What is ViDA?
ViDA aims to tackle what have been identified as three main challenges:
- Real-time digital reporting
The new system introduces real-time digital reporting for cross-border trade, based on e-invoicing. It will give MS the information they need to increase the fight against VAT fraud, especially carousel fraud. The VAT Gap – the difference between expected and actual VAT revenue, has been widening across the EU over a number of years.
It is said that the move to e-invoicing will help reduce VAT fraud by up to €11 billion a year and bring down administrative and compliance costs for EU businesses by over €4.1 billion per year over the next ten years. It should ensure that existing national systems converge across the EU, and this should pave the way for EU countries that wish to introduce national digital reporting systems for domestic trade.
More on e-invoicing here.
- Updated rules for the platform economy
Technological and business developments, especially in e-commerce, mean that VAT rules have struggled to keep pace. Under the new rules, platforms facilitating supplies in the passenger transport and short-term accommodation sectors will become responsible for collecting and remitting VAT to tax authorities when their users do not, for example because they are a small business or individual providers.
This will ensure a uniform approach across all MS and contribute to a level playing field between online and traditional short-term accommodation and transport services. It will also simplify life for SMEs who currently need to understand and comply with the VAT rules, often in different EU countries.
- Single VAT registration
Building on the already existing VAT One Stop Shop (OSS) model for e-commerce, the package allows more businesses selling to consumers in another MSs to fulfil their VAT obligations via an online portal in one EU country. Further measures to improve the collection of VAT include making the Import One Stop Shop (IOSS) mandatory for certain platforms facilitating sales by persons established outside the EU to consumers in the EU.
Commentary
Many countries worldwide already have versions of e-invoicing and real-time reporting or plan to introduce them. Businesses operating in the EU will need to consider how the new rules impact them and what changes are needed for; systems, procedures, tax declarations, along with the commercial implications.
ViDA should result in a more harmonised VAT system and the UK will need to keep in step in order to avoid becoming even more of a commercial outlier.
The UK has also confirmed a consultation on e-invoicing so lessons which can be taken from ViDA will undoubtably inform the UK process.