Tag Archives: VAT-5%

VAT: The importance of due diligence. The 50 Five (UK) Limited case

By   10 May 2022
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Latest from the courts

In the First Tier Tribunal (FTT) case of 50 Five (UK) Limited the issue was the VAT rate applicable to energy saving materials. An additional twist was that there was a sale of the business between the tax point of the relevant supplies and HMRC’s assessment.

Background

The appeal was brought in the name of the Appellant in respect of assessments raised by HMRC against the company prior to the date on which it was purchased by the present owners. The present owners were not made aware of the assessment at the time of purchase. It had not been disclosed to them as part of the due diligence which was undertaken.

The Appellant’s business was that of supply and installation of heating and hot water systems. The customers were supplied with fully installed systems. The Appellant did not ask the customers to separately source the parts for such systems and then simply fit them. These supplies were treated as those of energy saving materials and the reduced rate of 5% was applied.

HMRC raised an assessment after taking the view that the supply should have properly been standard rated at 20%.

Decision

The FTT decided that legislation which permits the sale of energy saving materials at the reduced rate of VAT apply only where the supply of those materials is independent of an installation service. In this case, as the Appellant was the provider of the goods, and also the installer, the supply to the end customer was standard rated (a composite supply).

It was noted that this outcome was counter intuitive and the result does indeed seem unfair to the taxpayer, but as there was no reasonable prospect of the appeal succeeding, it was struck out.  The assessment and interest was now payable by the new owners.

Commentary

An unfortunate outcome for the new owners, but it highlights three VAT issues:

  • always carry out appropriate due diligence when buying a business. VAT is often an issue and if the buyer had discovered the assessment, it could have either abandoned the purchase, or negotiated on the price
  • never assume that a lesser rate of VAT applies without carrying out appropriate research or seeking advice
  • always consider whether a supply is separate or composite. This is a difficult area of the tax as the amount of case law testifies

The only recourse the new owners have now is taking action against the sellers of the business.

New VAT rate for hospitality

By   13 August 2021
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A reminder that a new VAT rate of 12.5% comes into force on 1 October 2021.

This is the first time this rate has been used and affected businesses should ensure that they are prepared.

The government announced on 8 July 2020 that it intended to legislate to apply a temporary 5% reduced rate of VAT to certain supplies relating to certain hospitality, supplies.

The reduced rate was initially introduced to last for a temporary period between 15 July 2020 and 12 January 2021. This period was subsequently extended to 31 March 2021.

The government then announced at Budget 2021 that the temporary reduced rate will be extended for a further six-month period at 5% until 30 September 2021.

A new reduced rate of 12.5% will then be introduced which will end on 31 March 2022. The scope of the relief will remain unchanged.

From 1 April 2022 the usual 20% standard rate will apply, unless there are further government concessions.

The 12.5% applies to

  • hospitality: supplies in the course of catering including supplies of hot and cold food and drink to be consumed on the premises and supplies of hot takeaway food and drink to be consumed off the premises
  • accommodation: the provision of hotel and holiday accommodation, pitch fees for caravan parks and tents and related facilities
  • attractions: admission to attractions not covered by the cultural exemption.

The VAT Fractions

This is used to calculate the VAT element of a VAT inclusive figure.

5% = 1/21

12.5% = 1/9

20% = 1/6

Deposits

If a deposit is received, output tax will be calculated on the VAT rate in place at the time the deposit is received.

Other Issues

If a business supplies hospitality services and goods, but also makes sales not covered by the new rate, eg; alcohol, it must be able to identify the values at the different rates.

Does your accounting package have a defined 12.5% tax rate? It may be necessary to add this new rate to your software package.

VAT: Budget 2021 – hospitality, holiday accommodation and attractions

By   4 March 2021
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Further to my articles here and here the government have announced further measures for hospitality, holiday accommodation and tourist attractions.

These measures introduce

  • an extension to the temporary reduced rate of VAT (5%) for a further 6 month period until 30 September 2021. A new reduced rate of will then be introduced until 31 March 2022.
  • a new reduced rate of 12.5% will then be introduced which will end on 31 March 2022.

Aims

These changes are aimed at supporting the reopening of the economy following the outbreak of the coronavirus pandemic and help to re-establish habits such as eating out in restaurants.

The measures will help to protect an estimated 2.4 million jobs in these industries.

VAT: e-publications – New reduced rates

By   8 January 2020
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Background

Further to my article on the ongoing issue of e-books, in October 2018, the European Council (EC) agreed to allow Member States to apply reduced VAT rates to electronic publications (eg; e-books and e-newspapers) thereby allowing alignment of VAT rates for electronic and physical publications. The reasoning was for the EC to modernise VAT for the digital economy, and to keep pace with technological progress.

Under Directive 2006/112/EC, electronically supplied services are taxed at the standard VAT rate, whereas physical publications of the dead tree variety; books, newspapers and periodicals, benefit from non-standard rates in many Member States – these goods being zero rated in the UK and around 5% or below in other countries.

Amendments to the Directive allowed Member States to apply reduced VAT rates to electronic publications as well. Super-reduced and zero rates will only be allowed for Member States that currently apply them to physical publications.

The new rules will apply temporarily, pending the introduction of a new, ‘definitive’ VAT system. The EC has issued proposals for the new system, which would allow member states more flexibility than at present in setting VAT rates.

New rates

Some Member States have now introduced reduced rates:

Austria 10%, from 1 January 2020

Belgium 6%, from 1 April 2019

Croatia 5%, from 1 January 2019

Czech Republic new 10% rate from 1 May 2020

Finland: 10% from 1 July 2019

Germany 7%, from 1 January 2020

Ireland 9%, from 1 January 2019

Luxembourg 3%, from 1 May 2019

Malta 5%, from 1 January 2019

The Netherlands 9%, from 1 January 2020

Poland 5%, from 1 November 2019

Portugal 6%, from 1 January 2019

Slovenia 5% from 1 January 2020

Sweden: 6%, from 1 July 2019

It is anticipated that the remaining Member States are likely to introduce reduced rates in the future. The UK, being subject to Brexit, is in a more complicated position. If the UK brought e-publications in line with the VAT treatment of physical publications, it would apply the zero rate. However, the current EU legislation prevents any introduction of new zero rating. As matters stand, the UK may only apply the zero rate after an exit from the EU.

Watch this space…