Children’s clothing is zero rated. But where a child has one foot larger than the other, the pair of shoes can be zero-rated if the smaller shoe qualifies as a child’s size (boys 6 1/2 and girls; generally, size 3).
Tag Archives: latest-vat-news
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: Chatbots failure
Further to our article on HMRC using chatbots, reports have emerged that they are working less than 50% of the time and that the resolution rate is only 21% even once a connection is established.
It is clear that the attempt to move services online has caused significant issues for taxpayers and advisers.
A recent survey by the Association of Chartered Certified Accountants discovered that nearly 9 in 10 business owners (89%) said poor levels of service at HMRC is having a negative impact and causing a ‘huge roadblock’.
This is even more infuriating for people wishing to contact HMRC because the issue has been exacerbated by the restricted access to HMRC telephone helplines and the closure of the VAT registration helpline used by taxpayers and accountants.
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)
New HMRC publications: VAT on cladding remediation work
In the aftermath of the horrific Grenfell fire, a lot of buildings require unsafe cladding to be replaced.
A new Brief clarifies HMRC’s policy on the deduction of VAT incurred on cladding remediation works which are carried out on existing residential buildings. It sets out:
- the reason VAT costs are incurred when carrying out remediation works to residential buildings with fire and safety defects
- the circumstances in which the VAT incurred in providing remediation works can be recovered
Broadly, the distinction is whether the work qualifies as snagging. If it does, the VAT treatment follows the liability of the original building work – zero rated if the original construction was of a zero-rated new residential building, ie; they are supplied in the course of construction of a qualifying building.
If not snagging, the remedial work will be standard rated.
If the work is standard rated, it may be recoverable by the recipient in certain circumstances.
Snagging
HMRC’s definition of snagging is “the carrying out of remedial works to correct faulty workmanship or replace faulty materials”. Normally, it is carried out by the original developer under the terms of the original contract. This means it is not seen as a separate supply of construction services. Snagging covers faults that are:
- found soon after the building is completed
- still covered by the building contract
More details on snagging here.
Furthermore, HMRC has published Guidelines for Compliance GfC11. This guidance covers HMRC’s existing policy on the VAT treatment of remedial works and includes:
- the definition of snagging
- an explanation of when you can recover input tax
- examples to help you work out the VAT treatment of remedial works
- examples of documents and evidence you should keep
- information about correcting a submitted return
HMRC state that its policy has not changed.
How to apply for a VAT Partial Exemption Special Method
Partial Exemption
Businesses which makes exempt supplies may be partially exempt (depending on the de minimis limits). A partially exempt business will be prohibited from claiming all of its input tax. A calculation is required to determine the amount of a claim which is blocked. The majority of businesses use what is known as “the standard method” with an annual adjustment.
Partial Exemption Special Method (PESM)
However, use of the standard method is not mandatory and a business can use a “special method” (a Partial Exemption Special Method, or PESM) that suits a business’ activities better. Any PESM has to be “fair and reasonable” and it has to be agreed with HMRC in advance. When using a PESM no rounding of the percentage is permitted and it has to be applied to two decimal places.
HMRC says fair and reasonable means it must be:
- robust, in that it can cope with reasonably foreseeable changes in business
- unambiguous, in that it can deal, definitively with all input tax likely to be incurred
- operable, in that the business can apply it without undue difficulty
- auditable, in that HMRC can check it without undue difficulty
- fair, in that it reflects the economic use of costs in making taxable and exempt supplies
Types of PESMs
The following are examples of special methods:
- sectors and sub-sectors
- multi pot
- time spent
- headcount
- values
- number of transactions
- floor space
- cost accounting system
- pro-rata
- combinations of the above methods
How to apply
You will need to provide documents with your application. These include:
- a proposal document
- a worked example of the proposal
- the latest annual adjustment calculation
- a declaration — check Appendix 1 of VAT Notice 706 for what to include in your declaration
- any additional documents
More information on the documentation a business needs provide is set out in Appendix 2 of PN706
Apply online
You will need to either:
- sign in with your Government Gateway user ID and password (if you do not have a user ID, you can create one when you first try to sign in)
- use your email address to get a confirmation code that you can use to sign in
This is done here
A glossary of partial exemption terms may be found here.
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.
A VAT Did you know?
In or out?
If a biscuit is covered, even partially, in chocolate the VAT is 20%, but if the chocolate is inside, say a choc chip cookie or a bourbon, it is VAT free.
VAT on private school fees – new webinar
HMRC have released a recorded webinar about VAT on private school fees — what you need to do, and when and how to register.
It covers:
- if you should register for VAT as an education provider
- when you should register for VAT
- how to register for VAT
- what you need to charge VAT on
- how and what to reclaim VAT on
VAT: New support for small businesses from HMRC
HMRC has launched new online guidance and interactive tools aimed at helping small business owners and those considering self-employment understand their tax responsibilities. It is aimed at supporting new and existing ‘sole traders’ and helping them to understand their responsibilities. The new interactive tool explains the records they need to keep, taxes that may apply to their business, and includes other useful information.
The resources include a step-by-step guide for registering as a sole trader and a newly developed VAT registration estimator tool to help businesses assess their VAT registration needs based on turnover.
The guidance and interactive tools are free and available directly from GOV.UK. They have been launched for information purposes only, and users will not be registered for any taxes as a result of using them. HMRC will not collect or store any information about the user.