Tag Archives: zero-rate

VAT – Residential Property Triggerpoints

By Marcus Ward 17 February 2016

VAT and property transactions are uneasy bedfellows at the best of times. Getting the tax wrong, or failing to consider it at all can result in a loss of income of 20% on a project, or forgoing all input tax incurred on a development. Even a simple matter of timing can affect a transaction to a seller’s detriment. Here I take a brief look at issues that can impact residential property transactions. It is important to recognise when VAT may affect a project so I hope that some of these triggerpoints may prove useful.

General points

The following are very general points on residential properties. No two cases are the same, so we strongly recommend that specific advice is obtained.

Refurbishing “old” residential properties

Broadly speaking, the VAT incurred on such work is not reclaimable as the end use of the property will be exempt (either sale or rent). There is no way round this as it is not possible to opt to tax residential dwellings. It may be possible to use the partial exemption de minimis limits if there are any other business activities in the same VAT registration. If this is the only activity of a business, it will not even be permitted to register for VAT. There are special rules if the number of dwellings change as a result of the work (see below).

New residential builds

The first sale (or the grant of a long lease 21 years plus) of a newly constructed dwelling by “the person constructing” is zero rated. This means that any VAT incurred on the construction is recoverable. Care should be taken if the new dwelling is let on a short term basis rather than/before being sold as this will materially affect input tax recovery. Advice should always be taken before such a decision is made as there is planning available to avoid such an outcome. VAT incurred on professional and legal costs of the development may also be recovered such as; architects, solicitors, advisers, agents etc. VAT registration is necessary in these cases and our advice is to VAT register at the earliest stage possible.

The construction of new dwellings is zero rated, along with any building materials supplied by the contractor carrying out the work. The zero rating also extends to sub-contractors. It is not necessary for a certificate to be provided in order to zero rate such building works.

Conversions

There are special rules for refurbishments which create a different number of dwellings (eg; dividing up a single house into flats, or changing the total number of flats in a block, or making one dwelling by amalgamating flats). Generally, it is possible for contractors to invoice for their building work at the reduced rate of 5%. This rate may also apply to conversions. A conversion is defined as work undertaken on a non-residential property, such as a barn, office or church, into one or more self-contained dwellings. Once converted the sale of the residential property will be zero rated and all of the input tax incurred on associated costs is recoverable (similar to a new build).

Renovation of empty residential premises

Reduced rating at 5% is also available for the renovation or alteration of empty residential premises. Such a premises is one that has not been lived in during the two years immediately before the work starts. HMRC will insist on documentary evidence that the property has been empty for that time.

Purchase of a commercial property intended for conversion

If it is intended to convert a commercial property into residential use and the vendor indicates that (s)he will charge VAT (as a result of the option to tax having been exercised) it is possible for the purchaser to disapply the option to tax by the issue of a certain document; form VAT 1614D. This means that the sale will become exempt. Advice should always be sought on this issue by parties on each side of the transaction as it very often creates difficulties and significant VAT and other costs (mainly for the vendor).

Mixed developments

If what is being constructed is a building that is only in part a zero-rated dwelling, a contractor can only zero-rate its work for the qualifying parts. For example, if a building containing a shop with a flat above is constructed, only the construction of the flat can be zero-rated. An apportionment must be made for common areas such as foundations and roof etc. The sale of the residential element when complete is zero rated and the sale of the commercial part will be standard rated if under three years since completion. If the commercial part is over three years old at the date of sale, or is rented rather than sold, the supply will be exempt with the option to tax available – details here. If an exempt supply is made, the recovery of input tax incurred on the development will be compromised and it is important that this recognised and planning put in place to avoid this outcome.

DIY building projects

There is a specific scheme for DIY Housebuilders to recover input tax incurred on the construction of a dwelling for the constructor to live in personally. Details here https://www.marcusward.co/?s=diy

Sale of an incomplete residential development

There are two possible routes to relief if a project is sold before dwellings have been completed (either new build or conversion). This can often be a complex area, however, there is some zero rating relief which may apply, and also it may be possible to apply TOGC (Transfer Of a Going Concern) treatment to the sale. In both cases, it is likely that input tax previously claimed by the developer should not be jeopardised.

Overview

There are VAT complications for the following types of transactions/developments and issues:

work on listed properties
definition of a dwelling
arrangements where consortiums or syndicates are used/profit share
transactions in connection with nursing or children’s homes or similar
“granny flats” in the garden of existing houses
work on charitable buildings/ for charities
converting specific commercial property into residential property – particularly ex-pubs
sales to Housing Associations
sales of “substantially reconstructed protected buildings”
buying VATable buildings
date of completion – zero rating cut off
supplies by members of VAT groups
definition of building materials
input tax on white goods and similar
alterations for people with disabilities
garages with dwellings
land supplied with a property
buying property with existing, continuing leases
beneficial owner versus legal owner supplies
change of intention (buying land/property with the intention of using it for one purpose, but the intention changes after purchase)
where professional/architect’s fees are incurred
planning gains
own use of a property
mobile homes
reverse premiums/surrenders/reverse surrenders re; leases
holiday lets
hotels
business use by purchaser/tenant
contract stage of a property purchase where VAT is potentially chargeable by vendor
timing of supplies
work re; schools, churches, village halls, hospitals, or any other “unusual” structures

This list is not exhaustive, but I hope it gives a broad idea of where VAT needs to be considered “before the event”. As always, I am available to assist.

VAT – Zero rating of charitable building; latest from the courts

By Marcus Ward 25 January 2016

A recent case at the Upper Tribunal (UT): Wakefield College here considered whether certain use of the property disqualified it from zero rating.

Background

In order to qualify for zero rating a building it has to be used for “relevant charitable purpose”

This means that it is used otherwise than in the course or furtherance of a business. In broad terms, where a charity has a building constructed which it can show it will use for wholly non business purposes then the construction work will be zero rated by the contractor. This is the case even if there is a small amount of business activity in the building as long as these can be shown to be insignificant (which is taken to be less than 5% of the activities in the whole building) This so called de-minimis of 5% can be of use to a charity. In order for zero rating to apply the charity must issue a certificate to the builder stating the building will be used for non-business purposes.

Although the UT supported HMRC’s appeal against the F-tT decision there was an interesting comment made by the UT. The fact that students paid towards the cost of their courses (albeit subsidised) meant that business supplies were made, and the quantum of these fees exceeded the 5% de minimis meant that the construction works were standard rated. This decision was hardly surprising, however, a comment made by the Tribunal chairman The Honourable Mr Justice Barling Judge Colin Bishopp may provide hope for charities in a similar position to the appellant: he stated that it believed that the relevant legislation should be reconsidered, suggesting that;

“… it cannot be impossible to relieve charities of an unintended tax burden while at the same time protecting commercial organisations from unfair competition and preventing abuse …”.

In my view, it is worth considering the summing up in its entirety as it helpfully summarises the current position and provides some much sought after common sense in this matter:

“We cannot leave this appeal without expressing some disquiet that it should have reached us at all. It is common ground that the College is a charity, and that the bulk of its income is derived from public funds. Because that public funding does not cover all of its costs it is compelled to seek income from other sources; but its doing so does not alter the fact that it remains a charity providing education for young people. If, by careful management or good fortune, it can earn its further income in one way rather than another, or can keep the extent of the income earned in particular ways below an arbitrary threshold, it can escape a tax burden on the construction of a building intended for its charitable purpose, but if it is unable to do so, even to a trivial extent, it is compelled to suffer not some but all of that tax burden. We think it unlikely that Parliament intended such a capricious system. We consider it unlikely, too, that Parliament would consider it a sensible use of public money for the parties to litigate this dispute twice before the FTT and now twice before this tribunal. We do not blame the parties; the College is obliged to maximise the resources available to it for the pursuit of its charitable activities, just as HMRC are obliged to collect tax which is due. Rather, we think the legislation should be reconsidered. It cannot be impossible to relieve 16 charities of an unintended tax burden while at the same time protecting commercial organisations from unfair competition and preventing abuse”.

Action

If any charities, or charity clients have been denied zero rating on a building project, it will be worthwhile monitoring this development. Please contact us if you require further information.

VAT – Building your new home. Claiming VAT on costs

By Marcus Ward 14 December 2015

Building your own home is becoming increasingly popular. There are many things to think about, and budgeting is one of the most important.

The recovery of VAT on the project has a huge impact on the budget and care must be taken to ensure that a claim is made properly and within the time limits. You don’t have to be VAT registered to make a claim, this is done via a mechanism known as The DIY Housebuilders’ Scheme. It has specific rules which must be adhered to otherwise the claim will be rejected.

If you buy a new house from a property developer, you will not be charged VAT. This is because the sale of the house to you will be zero-rated. This allows the developer to reclaim the VAT paid on building materials from HMRC. However, if you build a house yourself, you will not be able to benefit from the zero-rating. The DIY Housebuilder’ Scheme puts you in a similar position to a person who buys a zero-rated house built by a property developer.

Who can make a claim?

You can apply for a VAT refund on building materials and services if you are:

building a new home in which you will live
converting a building into a home
building a non-profit communal residence, eg; a hospice
building a property for a charity.

Eligibility

New homes

The house must:

be separate and self-contained (eg; not an extension)
be for you or your family to live or holiday in (not for sale when complete)
not be for business purposes (you can use one room as a work from home office)
not be prevented from sale independently to another building by planning permission or similar (eg; a granny annexe).

A claim may also be made for garages built at the same time as the house and to be used with the house.

Contractors working on new residential buildings should zero rate their supplies to you, so you won’t pay any VAT on these.

Conversions

The building being converted must usually be a non-residential building (eg; a barn conversion). Residential also buildings qualify if they haven’t been lived in for at least 10 years.

You may claim a refund for builders’ work on a conversion of non-residential building into home. These supplies will be charged at the reduced rate of 5% for conversion works. If the standard rate of 20% s charged incorrectly, you will not be able to claim the standard rated amount. Care should be taken that the contractor understands the VAT rules for conversions as these can be complex.

Communal and charity buildings

You may get a VAT refund if the building is for one of the following purposes:

non-business – you can’t charge a fee for the use of the building
charitable, eg; a hospice
residential, eg; a children’s home

What can you claim on?

Building materials

You may claim a VAT refund for building materials that are incorporated into the building and can’t be removed without tools or damaging the building.

What doesn’t qualify

You cannot claim for:

building projects outside the UK
materials or services that don’t have any VAT, eg; were zero-rated or exempt
professional or supervisory fees, eg architects and surveyors
the hire of plant, tools and equipment, eg; generators, scaffolding and skips
building materials that aren’t permanently attached to or part of the building itself
some fitted furniture, electrical and gas appliances, carpets or garden ornaments
supplies for which you do not have a VAT invoice

Examples of items you can, and cannot claim for are listed below.

How to claim

To claim a VAT refund, send form 431NB or 431C to HMRC

Local Compliance National DIY Team
SO987
Newcastle
NE98 1ZZ

What you need to know

You must claim within 3 months of the building work being completed.

You will usually get the refund in 30 working days of sending the claim.

You must include the following with your claim:

bank details
planning permission
proof the building work is finished – eg a letter from your local authority
a full set of building plans
invoices – including tenders or estimations if the invoice isn’t itemised
bills and any credit notes

VAT invoices must be valid and show the correct rate of VAT or they will not be accepted in the claim.

HMRC usually examine every claim closely and often query them, so it pays to ensure that the claim is as accurate as possible first time. We find a review by us before submission ensures the maximum amount is claimed and delays are avoided.

Payments made after completion of the house cannot be claimed, and only one claim can be made for the whole project, so cashflow may be an issue.

Examples of items that you can claim for

The items listed below are accepted as being ‘ordinarily’ incorporated in a building (or its site). This is not a complete list.

Air conditioning
Building materials that make up the fabric of the property (for example, bricks, cement, tiles, timber, etc)
Burglar and fire alarms
Curtain poles and rails
Fireplaces and surrounds
Fitted kitchen furniture, sinks, and work surfaces
Flooring materials (other than carpets and carpet tiles)
Some gas and electrical appliances when wired-in or plumbed-in
Heating and ventilation systems including solar panels
Light fittings (including chandeliers and outside lights)
Plumbing materials, including electric showers, ‘in line’ water softeners and sanitary ware
Saunas
Turf, plants, trees (to the extent that they are detailed on scheme approved by a Planning Permission) and fencing permanently erected around the boundary of the dwelling
TV aerials and satellite dishes

Examples of items that you cannot claim for

This is not a complete list.

- Aga/range cookers (Unless they are solid fuel, oil-fired or designed to heat space or water. Note: not all cookers are ‘space heaters’ because they incidentally radiate heat while operating. To be classified as such they must be fitted to a heating module or boiler)

- Free-standing and integrated appliances such as: cookers, fridges, freezers, dishwashers, microwaves, washing machines, dryers, coffee machines

- Audio equipment (including remote controls), built-in speakers, intelligent lighting systems, satellite boxes, Freeview boxes, CCTV, telephones

- Consumables (for example, sandpaper, white spirit)

- Electrical components for garage doors and gates (including remote controls)

- Bedroom furniture (unless they are basic wardrobes) bathroom furniture (for example, vanity units and free-standing units)

- Curtains, blinds (unless they are integral, that is, blinds inside sealed double-glazed window units),

- Carpets

Garden furniture and ornaments and sheds.

Please contact us if you require assistance with a DIY Housebuild project.

VAT – Well, it is christmas…

By Marcus Ward 7 December 2015

Dear Marcus

My business, if that is what it is, has become large enough for me to fear that HMRC might take an interest in my activities. May I explain what I do and then you can write to me with your advice? If you think a face to face meeting would be better I can be found in most decent sized department stores from mid September to 24 December.

First of all I am based in Greenland but I do bring a stock of goods, mainly toys, to the UK and I distribute them. Am I making supplies in the UK?

The toys are of course mainly for children and I wonder if zero rating might apply? I have heard that small T shirts are zero rated so what about a train set – it is small and intended for children. Does it matter if adults play with it?

My friend Rudolph has told me that there is a peculiar rule about gifts. He says that if I give them away regularly and they cost more than £150 I might have to account for VAT. Is that right?

My next question concerns barter transactions. Dads often leave me a food item such as a mince pie and a drink and there is an unwritten rule that I should then leave something in return. If I’m given Tesco’s own brand sherry I will leave polyester underpants but if I’m left a glass of Glenfiddich I will be more generous and leave best woollen socks. Have I made a supply and what is the value please? My feeling is that the food items are not solicited so VAT might not be due and, in any event; isn’t food zero-rated, or is it catering? Oh, and what if the food is hot?

Transport is a big worry for me. Lots of children ask me for a ride on my airborne transport. I suppose I could manage to fit 12 passengers in. Does that mean my services are zero-rated? If I do this free of charge will I need to charge air passenger duty? Does it matter if I stay within the UK? My transport is the equivalent of six horse power and if I refuel with fodder in the UK will I be liable for fuel scale charges? After dropping the passengers off I suppose I will be accused of using fuel for the private journey back home. Somebody has told me that if I buy hay labelled as animal food I can avoid VAT but if I buy the much cheaper bedding hay I will need to pay VAT. Please comment.

Can I also ask about VAT registration? I know the limit is £82,000 per annum but do blips count? If I do make supplies at all, I do nothing for 364 days and then, in one day (well night really) I blast through the limit and then drop back to nil turnover. May I be excused from registration? If I do need to register should I use AnNOEL Accounting? At least I can get only one penalty per annum if I get the sums wrong.

I would like to make a claim for input tax on clothing. I feel that my red clothing not only protects me from the extreme cold but it is akin to a uniform and should be allowable. These are not clothes that I would choose to wear except for my fairly unusual job. If lady barristers can claim for black skirts I think I should be able to claim for red dress. And what about my annual haircut? That costs a fortune. I only let my hair grow that long because it is expected of me.

Insurance worries me too. You know that I carry some very expensive goods on my transport. Play Stations, Mountain Bikes, i-pads and Accrington Stanley replica shirts for example. My parent company in Greenland takes out insurance there and they make a charge to me. If I am required to register for VAT in England will I need to apply the reverse charge? This seems to be a daft idea if I understand it correctly. Does it mean I have to charge myself VAT on something that is not VATable and then claim it back again?

Next you’ll be telling me that Father Christmas isn’t real……….

VAT – Where do I belong?!

By Marcus Ward 16 November 2015

The concept of “belonging” is very important in VAT as it determines where a supply takes place and thus the rate applicable and the country in which is due. (The so-called “Place Of Supply, or POS). It is necessary, for most supplies, to establish where both the supplier, and the recipient belongs. Because this is a complex area of VAT it is not difficult to be overpaying tax in one country, not paying tax where it is properly due, or missing the tax issue completely.

A relevant business person `belongs’ in the relevant country. A `relevant country’ means:

the country in which the person has a business establishment, or some other fixed establishment (if it has none in any other country);
if the person has a business establishment, or some other fixed establishment or establishments, in more than one country, the country of the relevant establishment (ie; the establishment most directly concerned with the supply); and
otherwise, the country of the person’s usual place of residence (in the case of a body corporate, where it is legally constituted).

A person who is not a relevant business person `belongs’ in the country of his usual place of residence. The `belonging’ definition applies equally to the recipient of a supply, where relevant.

Business establishment is not defined in the legislation but is taken by HMRC to mean the principal place of business. It is usually the head office, headquarters or ‘seat’ from which the business is run. There can only be one such place and it may take the form of an office, showroom or factory.

Fixed establishment is not defined in the legislation but is taken by HMRC to mean an establishment (other than the business establishment) which has both the technical and human resources necessary for providing and receiving services on a permanent basis. A business may therefore have several fixed establishments, including a branch of the business or an agency. A temporary presence of human and technical resources does not create a fixed establishment in the UK.

Usual place of residence. A body corporate has its usual place of residence where it is legally constituted. The usual place of residence of an individual is not defined in the legislation. HMRC interpret the phrase according to the ordinary usage of the words, ie; normally the country where the individual has set up home with his/her family and is in full-time employment. An individual is not resident in a country if only visiting as a tourist.

More than one establishment. Where the supplier/recipient has establishments in more than one country, the supplies made from/received at each establishment must be considered separately. For each supply of services, the establishment which is actually providing/receiving the services is normally the one most directly connected with the supply but all facts should be considered including

for suppliers, from which establishment the services are actually provided;
for recipients, at which establishment the services are actually consumed, effectively used or enjoyed;
which establishment appears on the contracts, correspondence and invoices;
where directors or others who entered into the contract are permanently based; and
at which establishment decisions are taken and controls are exercised over the performance of the contract.

However, where an establishment is actually providing/receiving the supply of services, it is normally that establishment which is most directly connected with the supply, even if the contractual position is different.

VAT groups

A VAT group is treated as a single entity. This also applies when applying the ‘place of belonging’. As a result, a group has establishments wherever any member of the group has establishments.

This is an area which often leads to uncertainty, and therefore VAT issues. It is also an area where VAT planning may; save time, resources and avoid unexpected VAT costs, either in the UK or another country.

For more on our International Services

VAT Flat Rate Scheme – beware the hidden costs

By Marcus Ward 5 November 2015

VAT Basics

Anything that makes VAT easier and that can even reduce the amount payable must be a good thing….right?

The Flat Rate Scheme (FRS) was introduced to simplify VAT accounting for small businesses (with an annual turnover under £150,000) and does away with the concept of input and output tax. Instead a flat rate is applied to a business’ VAT inclusive turnover. This means a business in the FRS cannot reclaim any VAT incurred on its purchases, but a lower (than 20%) rate of VAT is applied to its VAT inclusive income.

Additionally, there is an option to only account and pay VAT when the business itself has been paid by its customers; doing away with VAT bad debt issues and improving cashflow.

Now this certainly has its attractions in terms of reducing the administrative burden and some business find that it reduces the amount of VAT payable. However care should be taken to select the appropriate business category/rate. A simple exercise to compare VAT declared under the “normal” rules to that due under the FRS is clearly prudent. But, as with all things VAT, there can be a catch.

The two drawbacks to the scheme

1) If a business incurs a significant amount of input tax then, unless the flat rate percentage benefit outweighs the loss of input tax, then the FRS is not for them.

2) If a business makes any supplies at the zero rate, or that are exempt, or outside the scope of VAT this income is also included in the turnover for the FRS. The result is then that VAT has to be accounted for on sales that would be VAT free under the normal VAT rules.

This is a bad thing!

Examples of businesses which need to be particularly aware are ones which:

– Export goods or services

– Provide goods or services cross-border to other EC member States

– Sell books, food, or children’s clothes

– Build new homes

– Provide transport

– Let property

– Are charities or Not For Profit entities

– Provide financial or insurance services or brokerage

– Provide health and/or welfare services

– Provide education and/or training

– Offer subscriptions to membership organisations

– Provide sport services

– Are usually in a repayment position with HMRC

(This list is not exhaustive).

The FRS should certainly be considered for smaller businesses especially start-ups; since a first year discount is available for those that are in their first year of VAT registration. These get a one per cent reduction in the flat rate percentage until the day before their first anniversary of becoming VAT registered.

It is important for advisers to consider whether a client would benefit from being in the FRS, or indeed, whether continuation of the scheme remains advantageous to the business.

The VAT flat rates

The VAT flat rate you use depends on the type of business. If the rate changes, a business must apply the new rate from the date it changes. Also, if the nature of a taxpayer’s business changes it is important to review its FRS position.

The applicable rates here

The detailed rules of the FRS here

VAT – Proof of evidence of Intra-EC supplies

By Marcus Ward 23 September 2015

A B2B supply of goods from one Member State to another (a dispatch) is VAT free (with the recipient dealing with acquisition tax in the Member State of receipt). However, in order to VAT free treatment to apply evidence that the goods have moved cross-border must be provided and satisfy the authorities in the Member State of dispatch.

The level of evidence and type of documents required to support the right to VAT free treatment varies significantly between Member States. This has led to confusion and difficulties for businesses.

As a result the EC VAT Expert Group* have, this week, produced a paper (paper 46) named “‘Proof of evidence of Intra-EU supplies’” Here: 46 – Proof of IC Supplies

As well as identifying the wide discretion afforded to Member States as to the type of documents required, it notes that this discretion and lack of clarity often leads to disproportionate compliance burdens for businesses involved in the cross border supply of goods. This also results in the fundamental principle of fiscal neutrality and the free movements of goods being impaired.

In summary

The Group’s findings may be summarised:

Diversity of documentation

Most Member States rely on a myriad of documents which may not be listed in national legislation. Such diversity is a problem and may require businesses to provide documentary evidence that cannot be reasonably obtained. This practice does not reconcile with principles established by the ECJ. The paper adds that tax authorities tend to focus on certain formalities and not permit alternative evidence.

Local initiatives

The paper notes that based on Article 131 of the VAT Directive, and often in light of the fight against fraud, tax authorities are introducing local initiatives. The compatibility of these with the EC framework may be questioned and is causing increasing burdens and costs on legitimate taxpayers.

Importance given by tax authorities to the “knowledge test”

The paper considers that the level of demand from tax authorities to document intra-EC trade should not be upgraded because of fraud cases. Documentary evidence is of a type fraudsters would typically provide. The wide margin of interpretation left to tax authorities and judges regarding concepts such as “good faith” means that further guidance may be required. This, however, should not extend up to a requirement for suppliers to show evidence to authorities that their customers acted in good faith.

Diversity of practices; timing versus legal certainty

The diversity of approaches across EC Member States generates costs and increase risks for businesses operating in different Member States.

Conclusion

The paper considered some recent ECJ case law on cross-border transactions and concluded VAT free treatment should be granted to the supplier when:

1) It demonstrates that the transaction meets the substantive criteria of that provision, namely that it is entered into with another taxable person in a Member State other than that in which dispatch or transport of the goods begins. This would be done with the supplier holding at least three non-contradictory documents or elements certifying the transport or dispatch to another Member State.

2) In this context, a reasonable customer assessment could be expected from taxpayers when tax authorities audit whether the transactions are taking place in the context of fraud and/or abuse.

Next Steps

It is recommended that new guidance could be adopted in an Implementing Regulation or an explanatory note to the relevant Articles in the VAT Directive could be prepared by the Commission.

It will be interesting to see if these recommendations are adopted. It would make life a lot more straightforward for businesses who trade cross-border in the EC. Although the UK has one of the most practical regimes in this respect, even genuine movements of goods from the UK can result in an unexpected and unwelcome VAT charge because of a lack of specific documentation.

* The VAT Expert Group assists and advises the European Commission on VAT matters. Details here

VAT Reliefs for Charities. A brief guide.

By Marcus Ward 3 August 2015

Charity and Not For Profit entities – a list of VAT reliefs.

Unfortunately, charities have to contend with VAT in much the same way as any business. However, because of the nature of a charity’s activities, VAT is not usually “neutral” and becomes an additional cost. VAT for charities often creates complex and time consuming technical issues which a “normal” business does not have to consider.

There are only a relatively limited number of reliefs specifically for charities and not for profit bodies, so it is important that these are taken advantage of. These are broadly:

Advertising services received by charities;
Purchase of qualifying goods for medical research, treatment or diagnosis;
New buildings constructed for residential or non-business charitable activities;
Self-contained annexes constructed for non-business charitable activities;
Building work to provide disabled access in certain circumstances;
Building work to provide washrooms and lavatories for disabled persons;
Supplies of certain equipment designed to provide relief for disabled or chronically sick persons;

There are also special exemptions available for charities:

Income from fundraising events;
Admissions to certain cultural events and premises;
Relief from “Options to Tax” on the lease and acquisition of buildings put to non-business use.
Membership subscriptions to certain public interest bodies and philanthropic associations;
Sports facilities provided by non-profit making bodies;

The reduced VAT rate (5%) is also available for charities in certain circumstances:

Gas and electricity in premises used for residential or non-business use by a charity;
Renovation work on dwellings that have been unoccupied for over two years;
Conversion work on dwellings to create new dwellings or change the number of dwellings in a building;
Installation of mobility aids for persons aged over 60.

Although treating certain income as exempt from VAT may seem attractive to a charity, it nearly always creates an additional cost as a result of the amount of input tax which may be claimed being restricted. Partial exemption is a complex area of the tax, as are calculations on business/non-business activities which fundamentally affect a charity’s VAT position. I strongly advise that any charity seeks assistance on dealing with VAT to ensure that no more tax than necessary is paid. Charities have an important role in the world, and it is unfair that VAT should represent such a burden and cost to them.

VAT – Are e-books books? Update on ECJ’s decision 5 March 2015

By Marcus Ward 5 March 2015

Books are zero rated for VAT purposes, but only (currently) if they are of the traditional dead tree variety. The zero rating does not extend to e-books which are standard rated for VAT. There has been a long standing argument between EC Member States (and between other interested parties) that similar content should not be taxed at different rates solely depending on the method of delivery. This argument is about to be tested in the courts. The UK is not permitted by the EC to extend its current zero rating for printed matter, however, it is expected that the contention in this case will be that the inclusion of new products will not extend the zero rating, but rather the development of technology has created a supply that should be covered by the existing zero rating legislation.

If it is accepted by the courts that all types of book should attract the same rate of VAT, it may mean that the rate will be equalised upwards. So, by the end of the year we could be looking at VAT of 5% being added to books, newspapers and other printed matter which was hitherto VAT free – A “tax on learning” as previous protests had it when there was a threat to tax free books.

UPDATE

The European Court of Justice (ECJ) has today ruled that France and Luxembourg must raise their reduced VAT rates on sales of e-book. This will conclude ongoing disputes (see above) between EC countries over whether e-books may be treated similarly to printed books at the nil or reduced rates. The UK and Germany were the main protagonists in challenging those Member States where e-books have been treated the same as printed versions.

Initially, Luxembourg and France began reclassifying e-books at the same rate as printed books – 3% and 5.5% in 2012. Subsequently, Italy and Malta joined them at the start of 2015, reducing the rates to 4% and 5%.

These rates where challenged by the UK and Germany who asked the EC to impose rules to ensure that e-books could not take advantage of the printed book rates. Today, the ECJ published its ruling, stating that since e-books do not have the same physical characteristics as printed books and therefore cannot benefit from the printed book reduced VAT rules.

This decision does seem to go against common sense,but the ECJ’s hands were somewhat tied by the VAT rules which were introduced before e-books existed.

VAT on residential developments

By Marcus Ward 20 February 2015

Should work on existing residential property have the same VAT treatment as new build housing?

The UK cannot create a new zero rate, however, should, say, the reduced rate apply to extensions/redevelopment?

And if so, where should the line be drawn?

Article from Property Week here