The European Commission has published the various VAT rates applied to different types of supply in all Member States (and the UK!) here.
This is a helpful and detailed document that also shows historic VAT rates.
Tag Archives: ec-vat
VAT: Post Brexit Import licences and certificates
From 1 January 2021 businesses importing (including bringing in from the EU which were previously acquisitions) certain goods will require licences and certificates. Additionally, there will be new rules for bringing goods into the UK. As the UK will be a third country post Brexit (third country refers to any country outside the EU, and in this case outside its economic structures – the single market and the customs union).
Licences and certificates
A business will need to obtain a licence or certificate to import some types of goods (below) into the UK and it may also need to pay an inspection fee for some goods before they’re allowed into the UK.
The Goods
The goods, with links to details, are as follows;
- live animals, animal products, high-risk food and feed
- fish for human consumption
- live fish and shellfish for aquaculture and ornamental purposes
- plant and plant products
- endangered animal and plant species, and products made from them
- veterinary medicines
- wood packaging
- timber
- chemicals
- controlled drugs
- drug precursors
- fluorinated gases (F gas) and ozone-depleting substances
- nuclear materials
- waste
Further GOV.UK information on importing goods from the EU to Great Britain from 1 January 2021 here.
VAT: Brexit latest
The European Commission (EC) has published an updated Notice to Stakeholders which covers the UK leaving the EU.
The original document which was published in 2018 has been amended to reflect the latest developments which mainly include the official Brexit on 1 February 2020 and the current transition period, which, as matters stand, will end on 31 December 2020. Until that date, EU law in its entirety applies to the UK
The Notice includes:
- The legal position from 1 January 2021
- VAT rules for cross-border services
- The VAT General Rule
- MOSS
- Refunds of VAT
- Separation provisions of the Withdrawal Agreement
- The supply of other services
- Refund requests relating to VAT paid before the end of the transition period
The Notice states that; “…during the transition period, the EU and the UK will negotiate an agreement on a new partnership, providing notably for a free trade area. However, it is not certain whether such an agreement will be concluded and will enter into force at the end of the transition period”. I think that this is likely to be a charitable conclusion!
The EC advises businesses:
- when they are established in the EU, to familiarise themselves with the rules applicable to services supplied to and received from third countries (which the UK will become from 1 January 2021)
- when they are established in the UK, to examine whether new liability rules will apply to them with regard to their services supplied in the EU
- to take the necessary steps in respect of services covered by MOSS
- consider the changes in the VAT refund request procedures
The Notice does not cover the supply of goods nor digital services themself.
General
After the end of the transition period, the EU rules on VAT for services no longer apply to, and in, the UK. This has, particular consequences for the treatment of taxable transactions in services and VAT.
Businesses need to understand the probable changes and make preparations for a No-Deal Brexit.
VAT: Additional time for zero rating exported goods due to the coronavirus
COVID-19 Update
HMRC has published concessions in VEXP30310 relating to the conditions for the zero rating of exports.
Background
Most exports of goods from the UK are subject to zero rating. However, in order for VAT free treatment to apply, certain conditions must be met, otherwise 20% VAT applies to the sale. One of the conditions is that the goods must be exported within specified time limits.
Time limits
Generally, goods can be zero rated provided that:
- they are exported within 3 months of the time of supply, and;
- valid evidence of export is obtained within 3 months of the time of supply
COVID-19
During the pandemic, it may not be possible for businesses to export goods within the prescribed time. HMRC recognises that some intended exports have been delayed due to circumstances outside a business’ control. Therefore, the guidance sets out the circumstances in which HMRC may agree to additional time for the export before any tax is collected.
Additional time
The time limits for the export of goods from the UK are set out in legislation. However, HMRC has discretion to permit non-observance of the conditions and time limits for export of goods – VAT Act 1994, Section 30(10). HMRC has said that it will use its discretion to temporarily waive the prescribed time limits for export on a case by case basis. The goods must, however, have either already been exported or will be as soon as is reasonably practicable after the date a business is notified that HMRC is temporarily waiving the tax. An application for HMRC to waive the time limits must be made in writing.
Conditions
HMRC will permit a temporary waiver of time limits if the following conditions are met:
- it has not been possible to export goods within the prescribed time limit due to the COVID-19 emergency
Examples include:
- the UK or another Government has imposed restrictions on the movement of goods or people due to COVID-19 that prevent the goods being exported to the intended destination
- cancellation of the intended mode of transport for reasons directly related to COVID-19
- a participant in the export is ill due to COVID-19 and a substitute cannot be found
This list is not exhaustive.
2. the goods have been/will be exported or removed at the earliest opportunity
3. all other conditions for zero rating exports or removals are met – exporters’ responsibilities here
Expiry
Any waiver will expire
- one month after any government-imposed restrictions are lifted or
- one month after any COVID-19 impediment to the export or removal ceases, or
- there ceases to be an intention to export or remove the goods from the UK (Information on intention here)
whichever is the earlier.
If a business considers there are extenuating circumstances that mean additional time is needed to export goods beyond that permitted by the extension, it should contact HMRC setting out the details in full.
Evidence
A business must retain evidence that supports its case for the waiver (eg; cancellation notes demonstrating that the transport intended to use to take goods out of the UK did not take place, or screen shots of government rules preventing the export or removal of the goods).
Please contact us if you require any further advice or assistance.
VAT: Intention is crucial – The Sonaecom case
We cannot control the future…
The Sonaecom case
In the opinion* of the CJEU AG (C-42/19) the importance of a taxpayer’s intention was of utmost importance, regardless of whether that intention was achieved.
Background
Sonaecom intended to acquire a telecoms provider company. As is usual in such cases, input tax was incurred on consultancy received, from, amongst others; accountants and legal service providers. The intention post acquisition was for Sonaecom to make certain charges to the acquired co. These would have been taxable supplies.
Unfortunately, the intended purchase was aborted.
The issue
The issue before the AG was; as no taxable supplies took place as the deal fell through – to what should the input tax incurred on advice be attributed?
Opinion
In the AG’s view the fact that the acquisition was aborted was no reason for the claim for input tax to denied. This was based on the fact that:
- Sonaecom was not a “pure holding company”
- There was a genuine intention to make taxable supplies (to the acquired co)
- There was a direct and immediate link between the costs and the intended supplies
- Although the acquisition costs would exceed the proposed management charges, this was not a reason to invalidate the claim
- The above analysis was not affected by the fact that the transaction did not take place
Commentary
There are often issues in relation to intentions of a taxpayer. It is clear, and was emphasised in this case, that intention is all important. Of course, intentions can change over a period of time and commercial and political events may thwart or cause intentions to be re-evaluated. There is often an issue about evidencing an intention. HMRC usually require comprehensive documentary evidence to demonstrate an objective. Such evidence is sometime not available for various reasons. Consequently, it is prudent for businesses to record (board meeting minutes etc at the very least) the commercial reasons for taking a certain course of action. This issue quite often arises in transactions in land and property – which can create additional technical issues.
There is legislation in place to cover situations when intentions, or actual events change and which affect the original input tax position: The Capital Goods Scheme (CGS) and The Value Added Tax Regulations 1995, Regs 108 and 109.
Other areas of VAT which often to raise issues are management charges and holding companies. HMRC apparently continue to be eager to attack taxpayers in these areas and I have looked at the role of holding companies and the VAT treatment here, here and here.
I think it is useful to bear in mind a question which, in itself does not evidence an intention, but provides commercial coherence – Why were the costs incurred if there was no intention to make the acquisition? This does leave aside the future management charges position but goes some way to provide business logic.
It will be interesting to see how this case proceeds, but I would find it very surprising if the court diverges from this AG opinion.
* AG’s Opinion
The Court of Justice of the European Union (CJEU) consists of one judge from each Member State, assisted by eleven Advocates General whose role is to consider the written and oral submissions to the court in every case that raises a new point of law, and deliver an impartial opinion to the court on the legal solution.
VAT: Where do I belong?
VAT: zero rating of e-publications brought forward – to tomorrow
Further to the history of objection to reduce rating e-publications, and the 2020 budget announcement which stated that e-publications will be zero rated from 1 December 2020, the Chancellor of the Exchequer has today announced that this date is brought forward and zero rating will now apply from 1 May 2020 – which is of course tomorrow.
Further details of the measure here.
Zero rating
This brings electronically supplied sales in line with traditional printed matter. The zero rate will apply to:
- books
- booklets
- brochures
- pamphlets
- leaflets
- newspapers
- journals and periodicals (which include magazines)
- children’s picture and painting books
What supplied electronically means
The term ‘supplied electronically’ is not defined in legislation. It falls to be interpreted in accordance with its generally accepted meaning and includes supplies made over the internet and by e-mail.
Excluded items
Items that are not entitled to the VAT zero rate:
- Advertising
If more than half of an e-publication is devoted to advertising, audio or video content, its supply will remain standard rated for VAT purposes.
- Audiobooks
The zero rating extension only applies to the supply of electronic versions of books already zero rated in UK law. As such, zero-rating is limited to electronic versions of books that can be read or looked at. Supplies of audiobooks remain taxable at the standard rate whether supplied in a physical or digital format.
- Intellectual property
- e-book readers
e-book readers are one form of hardware to which e-books can be downloaded before being read but are not in themselves e-books. Therefore, supplies of e-book readers are standard rated
- Software
Software, eg: an app is used to access e-publications but is not in itself an e-publication. Therefore, supplies of such software are standard rated.
Lending of electronic publications
The lending of any of the zero rated e-publications for a charge (for example, by a library) is zero rated.
Summary
Although welcome, as zero rating is VAT nirvana, the short lead in time could catch out some business which make such online supplies. Businesses which provide e-publications may want to consider making a retrospective claim as a result of the News Corp case.
VAT: Zero rated books? The Thorstein Gardarsson UT case
Latest from the courts
In The Thorstein Gardarsson T/A Action Day A Islandi Upper Tribunal (UT) case the issue was whether supplies of an “Action Day Planner” (ADP) were zero-rated as supplies of a book.
Legislation
The VAT Act 1994, Schedule 8, Group 3, item 1 zero rates – “Books, booklets, brochures, pamphlets and leaflets.” The words in Group 3 are used in their ordinary, everyday sense.
Background
The Appellants (HMRC) appealed against a decision of the First Tier Tribunal (FTT) which determined that the ADP is a “book” with the result that supplies of it made by Thorstein Gardarsson (TG) were zero-rated for VAT purposes. TG belonged outside the EU but sold its products B2C via the Amazon platform to consumers in the UK.
HMRC argued that the ADP was properly to be considered a ‘diary’ and thereby stationery which is standard rated. Predictably, TG asserted that the ADP is not a diary and despite it having space in which the ‘student’ seeking to master skills of time management may enter information, doing so is merely part of the learning taught through the narrative sections of the book.
The FTT allowed TG’s earlier appeal and considered the judgment of the High Court in Colour Offset Ltd. [1995] BVC 31 to be binding. The FTT concluded that the main function of the ADP is to teach the user how to better or more effectively manage time. The writing space was no different from a student filling out answers to practice papers or someone completing a crossword puzzle. The ADP was therefore a book and zero rated.
Appeal
In this UT case HMRC appealed the FTT decision on the grounds that whilst Colour Offset was binding on the FTT, it failed to:
- identify the correct test set out in Colour Offset
- apply the test correctly to the facts it had found
The Product
The external appearance if the ADP is that of a black leather covered book. It had an elastic strap attached to the inside of the back cover that can be wrapped around the front to hold it closed. Inside it has 115 pages. The ADP is described as a time management tool developed to “help people to grow; to teach and instruct people time management skills”. The first 16 pages contain text setting out a narrative of the ethos articulated by the appellant for effective time management. The remainder of the ADP is taken up with 52 double page planners. At the back is a cardboard slip pocket.
Decision
The UT noted that the FTT had quoted from VAT Notice 701/10 and this had led the FTT into error. In the Notice ‘crossword books, exam study guides etc.’ are considered books although the statutory provisions do not mention these at all. The Notice only records HMRC’s practice in this regard and does not have force of law. However, the FTT concluded that because crossword books and exam study guides are referred to as books, it should follow that any item with the necessary physical characteristics ‘which has as its main function informing/educating or recreational enjoyment’ is also a book. The tests in Colour Offset do not refer at all to whether the main function of an item is to inform or educate; nor does it refer to recreational enjoyment.
The UT considered that the FTT approached its task by applying a test that was different from that articulated in Colour Offset and this had the ability to produce a different outcome from the correct test. In doing so, he FTT made an error of law. It also concluded that the ADP is not a book as its main function is to be written in (as distinct from being read or looked at) and that the comparison to crossword puzzles or revision guides is irrelevant. Therefore, ADPs were standard rated and output tax was due on the sale of them.
HMRC’s appeal was allowed, the FTT decision is set aside and directed the matter back to the FTT for reconsideration. It was directed that the FTT makes a decision predicated on the basis that the ADP is not a book.
Commentary
The zero rating of printed matter has long been a moot point in VAT and the amount of detail that the guidance goes into demonstrates this. It should be noted that HMRC guidance set out in Public Notice 701/10 is purely that, and does not have the force of law. This logic extends to all HMRC published guidance unless the narrative specifically states that it has the force of law. A lot of the guidance is based on case law, but certain definitions are unhelpful.
Even the FTT can get it wrong and apply the wrong tests, so if you or your clients have any doubts about the VAT liabilities of supplies made, it is worthwhile having these reviewed by a specialist.
VAT and Duty on exports and imports post Brexit – a guide
Exports and Imports – post Brexit
VAT and Duty on exports and imports
With Brexit soon to become a reality, it is important that UK business understand the importance of exporting and importing goods. As matters stand, the UK will become a “third country” and as such will need to go through all the processes that apply to non-EU countries when goods cross borders to sales and purchases to/from existing EU countries. This mainly means customs duties applying to goods that have, to date, been duty free as the EU is a single market.
Whether importing or exporting, there are important VAT and duty rules and procedures. A business must ensure that it charges and pays the right amount of VAT and duty. The first step for moving goods into, or out of, the UK will be to obtain an EORI number. Details here.
Responsibilities for importers
- the importer is normally responsible for clearing the goods through UK customs and paying any taxes
- the supplier needs to provide the documentation an importer needs to clear the goods through customs (and to make payment to the supplier)
- now, if you are importing (even from EU countries) you are likely to have to pay import duty. This cannot be reclaimed from HMRC
- a business’ responsibilities depend on what it has agreed in the contract. To minimise the risk of disputes, your contract should use one of the internationally recognised Incoterms. These are explained here
- check what import duty applies – import duty is based on the type of goods you are importing, the country they originate from and their value
- HMRC’s Integrated Tariff sets out the classification of goods and the rates of duty in detail. Your Trade Association or your import agent may be able to assist with classification. You can find reputable freight forwarders through the British International Freight Association here
- an importer may need proof of the origin of the goods to claim reduced import duty for goods from certain countries
- a valuation document is also normally required for imports above a set value
- complete an import declaration. This is normally done using the Single Administrative Document (SAD)
- pay VAT and duty to get the goods released
- the VAT applicable is the normal UK rate for the imported goods when sold in the UK
- regular importers can defer payment of VAT and duty by opening a deferment account with HMRC. A security payment will need to be provided and payments must be via Direct Debit
- From 1 January 2021 Postponed Accounting for import VAT to be introduced for all goods including those from the EU
- account for VAT on returns
- HMRC will send a C79 certificate showing the import VAT you have paid
- VAT on imports (supported by C79 evidence) may be claimed in the same way as reclaims of input tax incurred on purchases in the UK
- import duty cannot be reclaimed
Responsibilities for exporters
-
- the exporter is normally responsible for clearing goods outwards through UK customs
- the customer is normally responsible for overseas customs clearance and taxes (depending on the Incoterms). Further details on how other countries handle import duties and taxes are available from the Department for International Trade
- the exporter will need to provide its customer with the documentation they need to clear goods into their country (and to pay you)
- the exporter’s responsibilities depend on what it has agreed in the contract (see Incoterms above)
- the exporter will need to provide its customer with the documents they need to import the goods into their country. These documents can also be part of the process of getting paid
- as a minimum, the seller will need documents recording details of the:
-
- exporter
- customer
- goods and their value
- export destination
- how the goods will be transported
- route they will take
- keep copies of all documents giving details of all the sales which have been made.
- record the value of your exports on your VAT return
- consider any responsibility you have for overseas customs clearance and taxes. Normally, as an exporter, you will have agreed that your customer handles this. However, take specialist advice, or use an expert agent, if you are responsible – this will depend on Incoterms
Tips
- freight forwarders can handle customs clearance as well as transport
- exporting can be simpler if you choose to sell to a single agent or distributor in an overseas country. However, this may not suit your export strategy
- exports are usually zero-rated. However, exporters must keep proof that the goods have been physically exported along with normal commercial documentation
- the exporter must declare the export. This is usually done by completing a Single Administrative Document (SAD), also known as form C88
Excise duty
- check whether any goods being purchased are subject to excise duty
- excise duty is payable on; fuel, alcohol and tobacco products
- if goods are subject to excise duty, it is paid at the same time as payments for VAT and import duty are made
- VAT is charged on the value of the goods plus excise duty
Customs warehouses
If you expect to store imports for a long time it will be worth considering using a Customs warehouse.
- goods stored in a customs warehouse, will not be subject to import duty and VAT until they are removed from the warehouse
- storage ‘in bond’ is often used for products subject to excise duty, such as wine and cigarettes, although it is not limited to these goods
Relief for re-exported goods
- it may be possible to take advantage of Inward Processing Relief (IPR) rules so that no import duty and VAT is payable
- IPR can apply to imports that you process before re-exporting them
If you import or export regularly, find out about alternative procedures
- For example, businesses that import regularly and in large volumes can use processes such as Customs Freight Simplified Procedures.
Summary
If you are new to acquisitions, importing or exporting, it may be worthwhile talking to an expert. This article only scratches the surface of the subject. There can be significant savings made by accurately classifying goods, and applying the correct procedures and rates will avoid assessments and penalties being levied. Planning may also be available to defer when tax is paid on imports and acquisitions.
Budget 2020 – VAT implications
A summary of how the 2020 budget changes VAT rules:
e-publications
Zero rating will apply to e-publications from 1 December 2020. This brings e-publications in line with traditional printed matter. The zero rate will apply to:
- e-books
- e-newspapers
- e-magazines
- academic e-journals
Presumably, this brings an end to HMRC’s arguments set out in the News Corp case.
Postponed Accounting
From 1 January 2021 postponed accounting will apply to all imports of goods, including those from the EU. This will provide an important boost to those VAT registered UK businesses which are integrated in international supply chains as they adapt to the UK’s position post Brexit.
Sanitary products
From 1 January 2021 the zero rate will apply to women’s sanitary products. This is calculated to save the average women £40 over her life.
Consultation
A consultation paper will be published to gather views on the potential approach to duty and tax-free goods policy post Brexit.
Cross-border goods policy
An informal consultation process will be launched in spring 2020 on the VAT and Excise treatment of goods crossing UK borders after Brexit.
Fund management
As announced on 4 March 2020 the government is legislating to clarify when fund management services are exempt from VAT.
Financial services
An industry working group will be set up to review how financial services are treated for VAT purposes. Presumably how Brexit will affect such services.
“Quick Fixes” Directive
Legislation will be introduced to simplify rules for the VAT treatment of intra-EU movements of call-off stock, allowing businesses to delay accounting for VAT until the goods are called-off.
Partial Exemption
Following the recent call for evidence on the simplification of the VAT rules on Partial Exemption and the Capital Goods Scheme, the government has said it will continue to engage with businesses in relation to their responses and will publish a response in due course.
Commentary
These proposed measures will be broadly be welcomed by business. Especially those in relation to e-publications and Postponed Accounting. It was widely expected that HMRC would lose its argument that e-publications and hard copy publications should be treated differently in any case. Postponed Accounting takes us back to the pre-1990s era. It looks very much like this means a “No-Deal” and although Postponed Accounting may be an easement for some aspects, it remains unnecessary if an agreement with the EU can be reached. However, there appears to be no political will nor appetite to reach such an agreement, so business suffers.