So that’s what it’s called….. From HMRC guidance – “For the purposes of establishing the place of supply of services, stallion nominations (The right to nominate a mare to be covered by a stallion in one breeding season) and the covering of mares is treated as ‘work carried out on goods’.”
New 64-8 agent authorisation form
HMRC has issued a notice which states that, from 31 March 2022, businesses taking on new clients will need them to complete a new form 64-8 to give authorisation for them to deal with HMRC on their client’s behalf.
Existing clients do not need to re-authorise their current relationship.
Access
The new form will be available from 31 March 2022 and may be downloaded by searching for “Tax agents and advisers; authorising your agent” on GOV.UK. There is no direct link yet.
The new form is said to improve data protection and allows taxpayers to state which tax regime they want you to access. The form also includes new guidance for taxpayers and what data they are agreeing to share with their agent.
VAT Basics
Consideration – background
There is no definition of consideration in legislation. The meaning was originally taken from contract law, but after the European Court of Justice ruled that the term is to be given the Community meaning and is not to be variously interpreted by Member States the UK adopted that approach.
The expression “consideration” means everything received in return for the supply of goods or the provision of services, including incidental expenses (packing, transport, insurance etc). Consideration is a payment for the supply of goods or services. It is usually a payment in money, but can also be of a “non-monetary” nature, such as goods or services supplied in return.
The phrase “in return for the supply” is interpreted to mean that there must be a direct link between the supply and the consideration.
Therefore, in order that a supply for a consideration can be made, there must be at least two parties and a written or oral agreement between them under which something is done or supplied for the consideration. There is a direct link between the supply and the consideration because the supplier expects something in return for his supply and would not fulfil his obligation unless he thought that payment would be forthcoming.
Profit
It is important to recognise that the concept of consideration and profit are wholly different, and the fact that a business makes no profit on a supply does not mean that there is no consideration for it. Whether payment yields a profit or loss is immaterial and has no bearing on whether or not it is consideration for VAT purposes.
Importance
If consideration is not recognised, or undervalued, a business can expect HMRC assessments and penalties. Overstating consideration will result in an overpayment of tax.
if there is no consideration, there is no supply.
Consideration hallmarks
Consequently, if the provision of goods or services is incapable of being expressed in money, it is not consideration and is outside the scope of VAT.
Indicators of no consideration
Valuation of consideration
This may seem obvious, but as the amount of case law demonstrates, this is not always the case. The starting point is:
Monetary consideration
Monetary consideration includes cash and payment by cheque, credit card, bank transfer, contactless payment, deduction from pay, etc. This is set out in The VAT Act 1994, section 19(2).
Non-monetary consideration
Non-monetary consideration includes goods or services supplied as payment, for example in a “barter” (including part exchange) agreement. Services provided include the giving up of a right, refraining from doing something, agreeing to suffer some loss etc in return for the supply. At first sight these may appear to be merely conditions of an agreement, but are in fact consideration for a supply. If the supply is for a consideration not consisting or not wholly consisting of money, its value shall be taken to be such amount in money as, with the addition of the VAT chargeable, is equivalent to the consideration. Where a supply of any goods or services is not the only matter to which a consideration in money relates, the supply is deemed to be for such part of the consideration as is properly attributable to it.
In determining the taxable amount, the only advantages received by a supplier that are relevant are those obtained in return for making the supply should be recognised. Non-monetary consideration has the value of the alternative monetary payment that would normally have been given for the supply.
What is not consideration
Donations
If a monetary donation is freely given, it is not consideration for any supply and so is outside the scope of VAT. In this situation, the donation has to be unconditional, and the following points dictate whether this is the case.
Donations must be contrasted to sponsorship.
It is necessary to distinguish between donations and sponsorship payments. Whereas a donation means the donor does not expect anything in return, sponsorship involves the sponsor receiving identifiable benefits. These benefits may include advertising, publicity or use of facilities and any sponsorship payment is within the scope of VAT.
Open Market Value
The VAT Act 1994, section 19 (5) states that “…the open market value of a supply of goods or services shall be taken to be the amount that would fall to be taken as its value …if the supply were for such consideration in money as would be payable by a person standing in no such relationship with any person as would affect that consideration”.
Difficult areas
Commonly, areas which give rise to VAT consideration problems include, but are not limited to:
Further reading
For purposes of research or interest, the following cases on consideration are worth reading:
Staatssecretaries van Financien v Cooperatieve Aardapplenbewarr-plaats ((1981) ECR 445; (1981) – The Dutch Potato case for ease!
BAZ Bausystem Gmbh v Finanzamt Munchen Fur Korperschaften
Apple & Pear Development Council (APDC), (ECJ (1988) STC 221; (1988)2 CMLR 394)
Tolsma C-16/93 (1994 STC 509)
I have looked at the Default Surcharge regime in detail here but as statistics show more business to be in default (which is probably accurately attributable, inter alia, to the pandemic) I consider how a penalty may be mitigated, by the provision of a “Reasonable Excuse”. HMRC has updated its internal guidance on Reasonable Excuse this month.
Specifically: HMRC state that “…where a person has not been able to meet an obligation on time due to the impact of COVID-19, HMRC will usually accept that they will have a reasonable excuse.”
What is a Default Surcharge?
The Default Surcharge is a civil penalty issued by HMRC to encourage businesses to submit their VAT returns and pay the tax due on time.
A default occurs if HMRC has not received your return and all the VAT due by the due date. The relevant date is the date that cleared funds reach HMRC’s bank account. If the due date is not a working day, payment must be received on the last preceding working day.
More on late returns here and on late payments here.
New rules forthcoming
It is noted that there is a new regime for penalties, details here although these changes have been delayed until 1 January 2023
Reasonable Excuse
If a business has a reasonable excuse for failing to pay on time, and it remedies this failure without unreasonable delay after the excuse ends, it will not be liable to a surcharge. The onus is on a business to satisfy HMRC that it has a Reasonable Excuse.
Definition
There’s no statutory definition of Reasonable Excuse and it will depend on the particular circumstances of a case. A Reasonable Excuse is something that prevented the business meeting a tax obligation on time which it took reasonable care to meet. There is a great deal of case law on this particular issue. Please contact us should there be doubt about a Reasonable Excuse.
What may count as a Reasonable Excuse?
HMRC give the following examples:
This list is not exhaustive.
What is NOT a reasonable excuse
Statute identifies two specific situations that are not a reasonable excuse:
There can be exceptions to these two exclusions. For example, an insufficiency of funds may be a reasonable excuse where the insufficiency is a result of events outside the person’s control.
HMRC also states that these situations would not normally be accepted, on their own, as a reasonable excuse:
Facts
HMRC will establish what facts the business believes gave rise to a Reasonable Excuse. The facts may include:
Case Law
Although not a VAT issue, in the Upper Tribunal (UT) case of Christine Perrin [2018] UKUT 156 [TC], the judge provided guidance on how the Tribunal should approach a Reasonable Excuse defence. There are four steps:
Appeal
If HMRC refuse to accept an advance of a Reasonable Excuse and the Default Surcharge is maintained, there are two potential remedies:
If a business disagrees with a decision that it is liable to a surcharge or how the amount of surcharge has been calculated, it is possible to:
If you ask for a review of a case, a business will be required to write to HMRC within 30 days of the date the Surcharge Liability Notice Extension (SLNE) was sent. The letter should give the reasons why a business disagrees with the decision.
We are able to assist with all disputes with HMRC and have an enviable record of succeeding in having Default Surcharges removed.
HMRC has updated its VAT Notice 700/2 on VAT Group registrations. This is as a result of the unacceptable delays in dealing with applications to set up or amend VAT groups. The update adds Section 2.17 which is reproduced below:
Details on VAT groups here and here.
2.17 What to do while you wait for a response to your application
If you are waiting for a response to your VAT grouping application, you should treat the application as provisionally accepted on the day it is received by HMRC and account for VAT accordingly. For more information on accounting for VAT in a VAT group see section 5. The date of receipt should be treated as, if submitted online the date it was submitted, or if it was posted the date it should be received by HMRC through the ordinary course of post.
If you have not been issued with a group VAT registration number, you cannot charge or show VAT on your invoices until it has been assigned. However, you’ll still have to pay VAT to HMRC for this period. You should increase your prices to allow for this and tell your customers why. Once you’ve got your VAT number you can then reissue the invoice showing the VAT. Further guidance on this can be found in Who should register for VAT (VAT Notice 700/1) section 5.1.
If you had a VAT registration number prior to your grouping application you should not submit returns under this number, and should follow this guidance.
While you are waiting to receive your VAT grouping registration number, you may receive:
If you do, you will not be required to take any action in response to any of these notices because HMRC will automatically cancel them once your application is fully processed. HMRC will not take recovery action for any debts which come about as a result of you following this guidance, though other VAT debts may still subject to recovery actions.
Protein drinks are standard rated (they are not “food”) although they “deliver nutrition” to consumers and are derived from milk, which is itself zero rated.
The current late payment and repayment interest rates applied to the main taxes and duties that HMRC currently charges and pays interest on are:
Interest rates for all other taxes here.
Details of default surcharge here.
HMRC has issued updated guidance for businesses which need to check whether an entity which stores goods in the UK on its behalf is registered with the Fulfilment House Due Diligence Scheme (FHDDS).
The published list is alphabetical order by company name.
The list should be used if you are a business that is not established in the EU to see if the business that stores your goods in the UK is registered with the FHDDS.
If your business is outsourcing or considering outsourcing its fulfilment operations, then the fulfilment house you are using or intending to use of must be legally accredited by HMRC to do so.
Businesses that must be registered
Businesses are required to be registered if it stores any goods where all of the following apply:
It is illegal to operate outside of the scheme and any fulfilment company found doing so will be prevented operating a fulfilment business and may be subject to a £10,000 penalty and a criminal conviction.
Latest from the courts
In the Regency Factors plc Court Of Appeal (CoA) case the issue was the validity of the appellant’s claim for Bad Debt Relief (BDR) on amounts it had not received after the issue of an invoice.
Technical
BDR is a mechanism which goes some way to protect a business from payment defaulters. Under the normal rules of VAT, a supplier is required to account for output tax, even if the supply has not been paid for (however, the use of cash accounting or certain retail schemes removes the problem of VAT on bad debts from the supplier). The specific relief for unpaid VAT is via the BDR scheme.
A guide to BDR here.
Commentary on the Upper Tribunal (UT) hearing in this case here.
Background
In the CoA case the issue was whether the appellant met the conditions in The VAT General Regulations 1995, Reg 168 for claiming BDR via The VAT Act 1994, section 36.
Regency provided a factoring service to its clients for which it is paid a fee. VAT invoices for those fees were issued to clients when the invoices which are being factored are assigned to Regency for collection.
Regency appealed against a decision of the Upper Tribunal (UT) which dismissed Regency’s appeal against VAT assessments made by HMRC to withdraw BDR which Regency had claimed in its VAT returns.
The UT held that the BDR claim was not valid because
Regency appealed against the decision of the UT on the second point.
Decision
The CoA decided that as Regency’s record keeping was insufficient to support a BDR claim. Specifically, although it did keep the records required by Regulation 168 (2), it did not keep a single VAT BDR account which is required by Regulation 168 (3). The ruling commented that this requirement was a legitimate feature of the scheme as it enables an inspector to check the claim easily. It is not acceptable for a claimant to simply have a pile of unsorted documents which may, or may not, evidence a valid claim.
The court also said that it was possible for HMRC to allow a discretionary claim (clearly, they did not use that discretion in this case) and that the legal requirement was not a barrier to Regency making a proper BDR claim. The appeal was dismissed.
“In short, Regency had the opportunity to prove its claim for bad debt relief in the FTT… but it failed to do so. It is not entitled to a second opportunity”.
Commentary
As always with VAT, accurate record-keeping is essential. As the tax is transaction based, it is vital to keep comprehensive evidence of those transactions and associated payments. Failure to do so may result in:
If Regency had taken “one step further” with its record keeping, BDR would have been paid by HMRC.
Rabbits are zero-rated, even if sold as pets. Sales of pets are standard rated.