The sale of ostriches is zero rated, but kangaroos are standard rated. Both are sold as food.
Tag Archives: output-tax
VAT annual statistics updated
HMRC has updated its publication on the VAT official statistics from 2023 to 2024. It covers information on VAT receipts in the UK, statistics on the trader population and VAT registrations. The tables and commentary have been updated to reflect recent receipts.
Headlines
- total VAT receipts in the financial year 2023 to 2024 increased by 7% to £168 billion compared to £158 billion in 2022 to 2023
- the VAT population in 2023 to 2024 was 2,178,950, with 238,176 new registrations and 273,768 de-registrations in-year
- total net VAT liability in 2023 to 2024 was £173 billion
- the wholesale and retail sector was the largest contributor to net VAT liability (32%) with a total of £55 billion
- traders with an annual turnover of greater than £10 million paid 75% of total net VAT liability (£130 billion).
VAT: Whether an online tool an ‘examination service’? The Generic Maths case.
Latest from the courts.
In the Generic Maths Limited First Tier Tribunal case the issue was whether the appellant’s product; ‘ConquerMaths’ amounted to examination services so to be exempt via The VATA 1994, Schedule 9, Group 6, Item 3.
Background
Generic Maths provided an online tool which was intended to be of benefit to students or their parents/teachers. The following facts concerning ConquerMaths were found:
- it does not lead to any qualifications
- users can drop in and out of the offering (unlike the way they might have to proceed if following a course leading to a qualification)
- it includes many hundreds of available diagnostic tests that test students’ knowledge of the principles that will be taught on the various subjects
- several short tutoring videos are included, although the number of videos is small in comparison to the number of diagnostic tests
- the average user spends 75 minutes on diagnostic tests compared to five minutes on videos
- the appellant’s witnesses described the product as diagnostic assessments, formative assessments, and summative assessments
- in addition to the diagnostic tests, the product includes worksheets in an exam format. Pupils are encouraged to complete these offline and then feed the results into the system
The issue
Simply put; was the product predominantly a tool that provides assessments enabling those using the product to determine what level of maths ability the student has reached and identify any gaps in knowledge and therefore an exempt supply since it falls into the category “examination services”? Or, as HMRC contended, was it an online mathematical tutorial tool which was standard rated as it was a composite supply the predominant element of which was education and that the supply was not one of examination services? (There was no argument that these were exempt educational services).
The tests
The FTT considered that the correct test for determining the nature of the appellant’s supplies was an objective test, based on how they would be characterised by the typical consumer. On that basis, ConquerMaths was a teaching product designed to improve maths understanding, not an examination service.
Additionally, if the correct test was rather a functional test, the result would be the similar.
Decision
The Tribunal did not consider that the product was a supply of examination services within Item 3. It found that the assessment had been made using best judgment by HMRC and accordingly that the appeal should be dismissed.
Commentary
This is probably the correct decision, although the examination and education exemptions are open to interpretation. Care should be taken by taxpayers that the exemption is correctly applied. Although the definition of examination services is wider than formal public examinations, it was not wide enough to encompass ConquerMaths.
VAT Planning: design and build
Planning
The construction of a new house, and the materials used by the contractor to build it, are zero-rated. However, architect and other building professional fees, eg; surveyors, supervisors, engineers, project or construction management and consultants, are always standard rated; even in respect of a new build.
This will represent an absolute VAT cost to:
- individuals
- entities which will rent the house(s) after completion
- housing associations (in some circumstances)
- certain entities which are not in business
- any entity which will use the building(s) for other exempt purposes
- entities which do not sell the house(s) – so onward zero-rating is not possible
- any entity which cannot recover all of its input tax for various reasons
Aims
If it is not possible to structure matters so that these fees can be recovered (there are a number ways to do this, but not all will be available to all parties) then advisers need to consider ways to remove the VAT charge – this may also be preferable for cashflow purposes even if full input tax recovery is possible.
VAT Planning
Design and build – the steps
- the housebuilder creates a separately VAT registered design and build company (newco)
- newco purchases the professional services and construction services and incurs the VAT on these (the construction element is zero-rated)
- these supplies are incorporated into a single onward supply of zero-rated design and build services to the housebuilder (a bundle) – the professional services are a cost component of the construction
- zero rating applies to the supply to the housebuilder as the predominant supply of the bundle is the construction of new dwellings
- newco recovers the input tax incurred on professional fees etc, as it relates to an onward taxable supply
- newco is in a repayment position and HMRC refunds the VAT incurred on the costs – often after a pre-cred query
It is also possible to use an independent design and build company, or engage a contractor to carry out both the design and construction elements of the project with a similar result.
Considerations
It is important to implement the planning correctly. This means that appropriate contracts must be in place, the operation is carried out on sound business principles (actual supplies are made and it is not simply the moving of money).
Arrangements
In order to evidence the proper commerciality of the structure, it is important to bear in mind that:
- appropriate contracts are in place
- proper invoicing is required
- the arrangements are at arm’s length
- a profit for newco would emphasise the commercial aspect
- all parties’ accounts reflect the transactions
- newco combines all of its costs (including overheads/admin etc) and supplies them to the housebuilder as part of a single package of zero-rated design and build services
- newco acts as principal and not agent (that the professional services are not disbursements)
- the newco and the housebuilder are not in the same VAT group
- care should be taken if loans are required (they may compromise arm’s length and genuine commercial contentions)
HMRC’s view
In HMRC’s Internal Guidance Manual VCONST02720 it states that:
“Zero-rating the construction of buildings: services excluded from zero rating: design and build
Architectural or design services supplied as part of a design and build contract can be treated as part of the zero-rated supply of construction services.
A typical design and build contract will require the contractor to complete the design for the works and complete the construction of the works.
In such circumstances HM Revenue & Customs (HMRC) sees the design element as a cost component of the construction and not as a separate supply of architectural services which would be liable to VAT at the standard rate”.
Consequently, this planning is recognised and accepted by HMRC, however, it is important that it is applied effectively so it is difficult for HMRC to challenge.
New VAT road fuel scale charges from 1 May 2025
HMRC has published new Road Fuel Scale Charges (RFSC) for the period 1 May 2025 to 30 April 2026.
RFSC
A scale charge is a way of accounting for output tax on road fuel bought by a business for cars which is then put to private use. If a business uses the scale charge, it can recover all the VAT charged on road fuel without having to identify specific business and private use. The charge is calculated on a flat rate basis according to the CO2 emissions of the car.
More on motoring expenses here.
A business will need to calculate the correct RFSC based on a car’s CO2 emissions, and the length of its VAT accounting period. This will be either one, three, or twelve months. The CO2 emissions figure may be found here if the information is not available in the log book.
Alternatives to using RFSC
- use detailed mileage records to separate business mileage from private mileage and only claim for the business element
- claim no input tax
Business/private mileage calculation example:
- Total mileage: 4,290
- Business mileage: 3,165
- Cost of fuel: £368.
- Business mileage: £368 × (3,165 ÷ 4,290) = £271.49
- Claimable input tax: £271.49 × VAT fraction = £45.25
A VAT Did you know?
Grass seed is zero-rated, but turf is standard rated.
VAT: Tribunal costs
Latest from the courts
In the First Tier Tribunal (FTT) case of Eurolaser IT Ltd regarding Kittel and Mecsek assessments and penalties:
- whether an agent knew or should have known of fraud in supply chain – yes
- whether such knowledge/means of knowledge to be attributed to Appellant – yes
- whether Mecsek requires HMRC to show reasonable steps not taken by Appellant – yes
- whether reasonable steps taken – no
- unsurprisingly, the appeal was refused
one interesting aspect was the award of costs.
Generally, in FTT cases the rule is that each party will usually bear its own costs.
However, it is worth recapping how the award of costs works via The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. In this instant case, the Appellant had not ‘opted out’ of the costs protection regime set out in rule 10(c)(ii) of the Rules. Consequently, the FTT ordered that Eurolaser must pay HMRC’s costs – a sting in the tail. So, what are the rules? (Where relevant here)
Orders for costs
“10.—(1) The Tribunal may only make an order in respect of costs (or, in Scotland, expenses)—
(a) under section 29(4) of the 2007 Act (wasted costs) [and costs incurred in applying for such costs];
(b) if the Tribunal considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings;
(c) if—
(i) the proceedings have been allocated as a Complex case under rule 23 (allocation of cases to categories); and
(ii) the taxpayer (or, where more than one party is a taxpayer, one of them) has not sent or delivered a written request to the Tribunal, within 28 days of receiving notice that the case had been allocated as a Complex case, that the proceedings be excluded from potential liability for costs or expenses under this sub-paragraph”
So, in “Complex” cases, an Appellant must submit a request that the case is excluded from the potential liability of costs being awarded, and HMRC must request repayment of its costs incurred in defending the case.
What are Complex cases?
These are complicated cases which:
- require lengthy or complex evidence
- require a lengthy hearing
- involve complex or important principles or issues
- involve large amounts or tax or penalties
such cases are allocated to a ‘track’ within the FTT system.
Other cost awards
It is also worth remembering that costs can be awarded if the appeal is brought unreasonably. This usually means that it is vexatious or frivolous, so proper advice should be sought when considering an appeal.
VAT Success Stories
Investment company
HMRC denied claims for input tax incurred on costs relating to the potential acquisition of an overseas business and threatened to deregister the plc as it was not, currently, making taxable supplies. Additionally, HMRC contended that even if VAT registration was appropriate, the input tax incurred did not relate to taxable supplies and was therefore blocked.
We were able to persuade HMRC that our client had a right to be VAT registered because it intended to make taxable supplies (supplies with a place of supply outside the UK which would have been taxable if made in the UK) and that the input tax was recoverable as it related to these intended taxable supplies (management charges to the acquired business). This is a hot topic at the moment, but we were able to eventually demonstrate, with considerable and detailed evidence that there was a true intention.
This meant that UK VAT registration was correct and input tax running into hundreds of thousands of pounds incurred in the UK was repaid to our client.
Restaurant
We identified and submitted a claim for a West End restaurant for nearly £300,000 overpaid output tax. We finally agreed the repayment with HMRC after dealing with issues such as the quantum of the claim and unjust enrichment.
Developer
Our property developing client specialises in very high-end residential projects in exclusive parts of London. They built a dwelling using an existing façade and part of a side elevation. We contended that it was a new build (zero rated sale and no VAT on construction costs and full input tax recovery on other costs). HMRC took the view that it was work on an existing dwelling so that 5% applied and input tax was not recoverable. After site visits, detailed plans, current and historical photograph evidence HMRC accepted the holy grail of new build. The overall cost of the project was tens of millions.
Charity
A charity client was supplying services to the NHS. The issue was whether they were standard rated supplies of staff or exempt medical services. We argued successfully that, despite previous rulings, the supplies were exempt, which benefited all parties. Our client was able to deregister from VAT, but not only that, we persuaded HMRC that input tax previously claimed could be kept. This was a rather pleasant surprise outcome. We also avoided any penalties and interest so that VAT did not represent a cost to the charity in any way. If the VAT was required to be repaid to HMRC it is likely that the charity would have been wound up.
Shoot
A group of friends met to shoot game as a hobby. They made financial contributions to the syndicate in order to take part. HMRC considered that this was a business activity and threatened to go back over 40 years and assess for output tax on the syndicate’s takings which amounted to many hundreds of thousands of pounds and would have meant the shoot could not continue. We appealed the decision to retrospectively register the syndicate.
After a four-year battle HMRC settled on the steps of the Tribunal. We were able to demonstrate that the syndicate was run on a cost sharing basis and is not “an activity likely to be carried out by a private undertaking on a market, organised within a professional framework and generally performed in the interest of generating a profit.” – A happy client.
Chemist
We assisted a chemist client who, for unfortunate reasons, had not been able to submit proper VAT returns for a number of years. We were able to reconstruct the VAT records which showed a repayment of circa £500,000 of VAT was due. We successfully negotiated with HMRC and assisted with the inspection which was generated by the claim.
The message? Never accept a HMRC decision, and seek good advice!
VAT: Types of legal entities
VAT Basics
What types of entities can be a ‘taxable person’?
The definition of a taxable person in the VAT Directive is any person or body “who, independently, carries out in any place any economic activity, whatever the purpose or results”. Economic activity in the UK broadly means any business activity. I consider this definition below.
So, what is a person or body?
In practice, a taxable person or body is generally a business, sole trader or professional. Examples of types of legal entities are a:
- Sole proprietor
- Partnership
- Limited Liability Partnership (LLP)
- Limited company (limited by shares)
- Private company (limited by guarantee)
- Public Limited Company (PLC) – a company registered under the Companies Act (1980)
- Community Interest Company (CIC)
- Charitable Incorporated Organisation (CIO)
- Private unlimited company
- Club or Association
- Unincorporated Association
- Co-operative Society (Co-Op)
- Community Benefit Society (BenCom)
- Trust
- Charity
- Not For Profit (NPF) entity
- Right To Manage company (RTM)
- Financial Mutual
- Societas Europaea (SE)
- Co-operative or community benefit society
- “Section 33” body, eg; Local Authorities, Fire and Rescue Authorities, Police, Lighthouses, the BBC etc – VAT Act 1995 s33. These bodies have different VAT rules, and they may not necessarily be a taxable person
Each type of entity or structure is subject to separate rules; from; governance, direct tax, reporting, accounting, risks, costs, benefits, responsibilities to legal rights and obligations etc. However, from a VAT perspective, the VAT legislation applies equally to all taxable persons.
Two or more corporate bodies may apply to register as a single taxable person (VAT group) if they can meet certain conditions.
A corporate body can apply to register each division separately if it:
- is organised in divisions
- carries on its business in divisions
- can meet certain conditions
What are not taxable persons?
Private individuals are not generally involved in business and will therefore not be classed as taxable persons.
What is business?
There is considerable case law on what constitutes ‘business’ for VAT purposes. I have written about this issue many times, as it is a fundamental issue in the tax.
The following articles consider such case law:
Wakefield College
Longbridge
Babylon Farm
A Shoot
Y4 Express
Lajvér Meliorációs Nonprofit Kft. And Lajvér Csapadékvízrendezési Nonprofit Kft
Healthwatch Hampshire CIC
Pertempts Limited
Northumbria Healthcare
Registration
A guide to VAT registration here.
VAT: EORI – What is it? Do I need one?
EORI is an acronym for Economic Operator Registration & Identification.
An EORI number is assigned to importers and exporters by HMRC (EOs) and is used in the process of customs entry declarations and customs clearance for both import and export shipments moving to or from the UK.
What is the EORI number for?
An EORI number is stored both nationally and on a central EU EORI database. The information it provides is used by customs authorities to exchange information, and to share information with government departments and agencies. It is used for statistical and security purposes.
A business may need to demonstrate to HMRC that it has carried out proper due diligence in certain cases.
Who needs an EORI number?
You will require an EORI number if you are planning to import or export goods. EOs can be sole proprietors, partnerships, UK incorporated companies, registered charities, and overseas companies. However, private individuals bringing their own possessions to or from the UK do not need an EORI number. An EO does not need to be VAT registered to have an EORI number.
For VAT groups, each member who imports or exports goods needs an EORI number.
Format of the EORI number
VAT registered companies will see the EORI as an extension of their VAT number. Your VAT nine digit VAT number will be prefixed with “GB” and suffixed with “000”.
How do I apply for an EORI Number?
Non VAT registered companies can apply using this link – FORM C220
VAT registered companies can apply using this link – FORM C220A
Once completed, your form should be emailed to: eori@hmrc.gsi.gov.uk
How long will my EORI application take?
The process is straightforward and EORI applications usually take up to three working days to process.
Please contact us if you have any issues with importing or exporting.
EORI checker
Gov.uk has provided a new tool to check a business’ EORI number. (This used to be an EU resource now not available due to Brexit).
Access
Who has access to an EORI number?
The general public can access limited data, When a business is notified of its EORI number, it will be asked whether it objects to this data being published on the site.