HMRC has published information on Tariffs.
You can use this service to check the UK Global Tariff that will apply to goods imported post-Brexit. It also shows the difference between what you pay now and what you’ll pay from 1 January 2021.
The UK Global Tariff will apply to all goods imported from 1 January 2021 – which will include bringing in goods from EU Member States. (currently acquisitions, not imports).
Latest from the courts
In the University Of Southampton Students’ Union (USSU) First Tier Tribunal (FTT) case the issue was the VAT treatment of supplies of hot food and coffee; whether the appellant was an eligible institution making principal supplies of education or vocational training and/or whether supplies of hot food and coffee closely related to such principal supplies.
Background
USSU argued that both the supply of hot food and coffee by the USSU shop are exempt via The VAT Act 1994 Schedule 9, group 6, Item 4(a) and note 1(e) as supplies made by an eligible body which makes principal supplies of vocational training, and which are closely related to the (exempt) principal supply of education by the University of Southampton or vocational training by USSU. In the alternative, exemption applies for matters closely related to supplies of education by a third party via a published HMRC concession (and its supplies were within HMRC’s conditions for such a concession).
HMRC disagreed and claimed that these supplies were not closely related to education and that USSU was not an eligible body (no ring fencing of the profits such that they were not necessarily reinvested in its own supplies of education). Therefore, the supplies were properly taxable, and they declined to pay the appellant’s claim of overpaid output tax. The respondent also cited the Loughborough Students’ UnionUpper Tribunal (UT) case.
Decision
The appeal was dismissed for the following reasons:
Commentary
Superficially, the claim seemed good. Para 5.5 of PN 709/1 states: “If you’re a student union and you’re supplying catering (including hot takeaway food) to students both on behalf, and with the agreement, of the parent institution, as a concession you can treat your supplies in the same way as the parent institution itself. This means that you can treat your supplies as exempt when made by unions at universities.. This means that most supplies of food and drink made by the union, where the food is sold for consumption in the course of catering will be exempt… For example, food and drink sold from canteens, refectories and other catering outlets (excluding bars), plus food and drink sold from vending machines situated in canteens and similar areas.”
However, the Notice then goes on to add “But it does not cover food and drink sold from campus shops, bars, tuck shops, other similar outlets and certain vending machines…”
This appeal looks a close-run thing, but it demonstrates that small differences in detail can produce different VAT outcomes. We urge all Student Unions and other entities “attached” to education providers to review their position.
HMRC has published guidance on a number of issues relating to duty and guarantee waivers:
We recommend any business importing goods checks all the requirements and puts plans in place to defer VAT, duties and customs payments wherever possible. Despite political promises, this significant additional red tape as a result of Brexit helps nobody and will be a costly burden. However, at least the government have put a structure in place which will aid cashflow.
Latest from the courts.
The rolls used in Subway’s hot sandwiches are not bread. According to a recent ruling by Ireland’s Supreme Court, because of the high level of sugar in the rolls, they cannot be taxed as bread, so the VAT zero rate cannot apply.
Further to my recent article on the Border Operating Model, we now know what Tariffs the UK will apply.
Currently, goods are able to move from country to country inside the EU completely Tariff free. This means that there is no need for import and export formalities which add delays and red tape. Unfortunately, as a result of Brexit, from 1 January 2021, EU/UK trade will be subject to Tariffs as the UK will be a “third country” (third country refers to any country outside the EU, and in this case outside its economic structures – the single market and the customs union).
Commercially, Tariffs add to the cost of importing goods into the UK by UK businesses and increase the price of exports to overseas customers. It is not possible to reclaim the cost of Tariffs (unlike VAT) so these will always represent a real cost to a buyer. The government has now announced what the UK Tariffs will be here.
Overview
The UK has broadly retained the existing Tariff for goods brought into the EU from third countries. However, there are some changes for; important industrial components (nuts, bolts, tubes and screws etc) some consumer products, the removal of Tariffs below 2% and the rounding of Tariffs with a decimal point.
Action
Businesses should review their exposure to these tariffs and what the related customs duty burden will be. They will also need to consider; budgets, pricing and alternative business structures – which may include manufacturing in the EU rather than the UK. We also recommend reviewing Commodity Codes, values for Customs Duties and the origin of the goods. Please also note that the use of incoterms will become increasingly important.
This month the government have issued new guidance: The Border with the European Union Importing and Exporting Goods on the Border Operating Model. This provides comprehensive guidance on the movement of goods from 1 January 2021 and adds to previous guidance.
This is important information for any business moving goods between GB, the EU and NI and needs to be considered for tax planning and general preparation for Brexit. These rules will likely come into force regardless of whether the UK has negotiated an agreement with the EU.
The introduction comes in three stages:
Stage One
Business will need to:
Stage Two
If businesses are importing Products of Animal Origin (POAO) or a regulated plant and plant product; they will need to:
Stage Three
Businesses must:
General
From 1 January 2021
Businesses will need to review their processes for dealing with cross-border goods, both between the EU and Northern Ireland. This includes; customs declarations, compliance, provision of data, obtaining a duty deferment account and GB/EU EORI numbers as necessary. We also advise liaising with suppliers and customers to ensure, as far as possible, that transactions are as seamless as possible in these challenging times.
1. Am I sure that a VAT inspection would not find any errors?
2. Am I sure that I am reclaiming as much VAT as possible?
3. Do I take full advantage all available VAT reliefs, customs exemptions and duty refund schemes?
4. Am I up to date on the indirect tax developments in my key markets?
5. Have I considered the impact of tax rate changes on my pricing and margin, and have I taken the necessary measures?
6. Do I collect all the data about my customers and transactions that could be required by tax authorities?
7. Do I comply with all indirect tax requirements in the jurisdictions where I operate or where my customers belong?
8. Do I have the tools to analyse my indirect tax flows and data?
9. Could changes in the way my business is structured or how transactions are organised improve my indirect tax position and/or reduce complexity?
10. Is my business using the right VAT scheme?
It is important to constantly monitor a business’ VAT position. The nature of trade changes, technology changes, case law changes and the VAT rules are constantly in a state of flux. It is easy to assume that everything is alright because it has always been done that way, but there may be significant exposures and missed opportunities out there. Things will also change once the terms of Brexit have been agreed (or not). We offer services from a basic healthcheck to a full technical review. A review will let you rest easy in your bed if nothing else!
Airbnb’s most recent accounts contain a statement that the company will share data on landlord’s income with HMRC. This information goes back to 2017.
If a property owner uses the Airbnb platform and has income over £85,000 in any twelve month period they will be required to VAT register if they have not also done so.
With the information HMRC will be able to target those business which have failed to register and, as always with VAT, if you have not, there is a penalty.
The amount of the penalty will depend on the amount of VAT due and how late the person letting property was in telling HMRC that the business should have registered (or when HMRC discovered the ‘error”).
The penalty is calculated as a percentage of the VAT due, from the date when the business should have registered to the date when HMRC either received the relevant notification, or became aware that it was required to be registered.
| If a business registered | Penalty rate is |
|---|---|
| not more than 9 months late | 5% |
| more than 9 months but not more than 18 months late | 10% |
| more than 18 months late. | 15% |
We advise that any business which is required to be VAT registered, but isn’t to contact HMRC – before they contact you…
What is a taxable supply and who is a taxable person?
A VAT Back To Basics
Taxable supply
It is sometimes useful when considering a transaction to “go back to basics” for VAT purposes. There are certain tests to determine whether a supply is taxable, and these are set out below. Broadly, the tests establish whether UK VAT is payable on a sale and they determine whether an entity is “in business”, that is; carrying on an economic activity.
A transaction is within the scope of UK VAT if all four of the following conditions are satisfied:
There is a distinction between the two types of supply as different VAT treatments may apply. Generally, everything that is not tangible goods is services. However, if no goods or services are actually provided, there is no supply. Indeed, if there is no consideration for a supply, in most cases it is not a taxable supply.
There are quite complex tests to consider when analysing the “place of supply”, especially where services are concerned. If the place of supply is outside the UK then usually no UK VAT is due, however, the supply may be subject to VAT in another country.
A taxable person is any legal entity which is, or should be, registered for VAT in the UK.
Business
The term “business” is only used in UK legislation, The Principal VAT Directive refers to “economic activity” rather than “business” and since UK domestic legislation must conform to the Directive both terms must be seen as having the same meaning. Since the very first days of VAT there have been disagreements over what constitutes a “business”. I have only recently ended a dispute over this definition for a (as it turns out) very happy client. The tests were set out as long ago as 1981 and may be summarised as follows:
So, if these tests are passed a taxable supply exists. The next step is to establish which VAT rate applies. In an often quoted comment from the judge in the Morrison’s Academy Boarding Houses Association 1978 STC1 Court Of Session case “…In my opinion it will never be possible or desirable to define exhaustively ‘business’ ”. Which what it lacks in helpfulness, makes up for in candour.
There was something of a deviation from the Lord Fisher tests in the Longbridge Court of Appeal case, however, that appears to be a blip and HMRC seem to have reverted to Lord Fisher in subsequent hearings on the same topic. A bit of a: watch this space area of VAT.
Recent cases on business
Recent case law on this issue here and here and HMRC Internal guidance on the Lord Fisher tests here
Commentary
Tip: It is often easier to consider what isn’t a taxable supply to establish the correct VAT treatment. Specific examples of situations which are not taxable supplies are; donations, certain free supplies of services, certain grants or funding, some compensation and some transactions which are specifically excluded from the tax by legislation, eg; transfers of going concerns (TOGC).
I think that it is often the case that the basic building blocks of the tax are overlooked, especially in complex situations and I find it helps to “go back to the first page” sometimes.
Did you know…?
The sale of a horse is standard rated. However, the sale of a dead one (for horse meat) is zero rated. I wouldn’t really want to dwell on the VAT planning aspects of this…