Lugworms and maggots are standard rated, unless they are also suitable for human consumption, in which case they may be zero-rated – Yum.
Tag Archives: zero-rate
VAT: Are poppadoms crisps? The Walkers Snack Foods case
Latest from the courts
In the Walkers Snack Foods Ltd Upper Tribunal (UT) case the issue was whether Sensations Poppadoms are similar to potato crisps and consequently excluded from the zero rating for food.
The First-Tier Tribunal (FTT) found that the product was similar to crisps and that it was to be treated as being excepted items from zero-rating and was therefore standard rated.
Background
The salient matter was whether the poppadoms were “made from the potato, or from potato flour, or from potato starch” and were “similar” to potato crisps via The VAT Act 1994, Schedule 8, Group 1, item 1, excepted item 5.
Value Added Tax – excepted item 5 to item 1, Group 1, Part II, Schedule 8 Value Added Tax Act 1994 – whether First-tier Tribunal erred in law in finding Sensations Poppadoms were “made from the potato, or from potato flour, or from potato starch” and were “similar” to potato crisps
This sets out that the following is excepted from the zero rate for “Food of a kind used for human consumption”.
“5. Any of the following when packaged for human consumption without further preparation, namely, potato crisps, potato sticks, potato puffs, and similar products made from the potato, or from potato flour, or from potato starch, and savoury food products obtained by the swelling of cereals or cereal products; and salted or roasted nuts other than nuts in shell.”
Contentions
The appellant argued that the poppadoms should be zero-rated for VAT purposes because they fall within Item 1 of Group 1 as they are food, and that they are not included in the list of exceptions.
HMRC contended that that the product fell within excepted item 5 of Group 1, because they are products similar to potato crisps…
Decision
- The UT agreed with the FTT that the words “made from the potato” can extend to products made from potato granules and was neither untenable nor a plain misapplication of the law to the facts.
- The UT recalled that the FTT had concluded that Sensations Poppadoms contained “more than enough potato content” for it to be reasonable to conclude that they were “made from the potato… or from potato starch”. Sensations Poppadoms have a combined potato content (potato granules and potato starch) of 39%-40%, so the potato content is significant. The question for the UT was whether the FTT reached a conclusion which no reasonable tribunal properly construing the statute could have reached. The UT answered “no”.
- The UT noted that the FTT determined that Sensations Poppadoms were similar to potato crisps based on a multifactorial assessment of various factors, including; packaging, appearance, texture and taste. The FTT noted that while the manufacturing processes differ, the statute allows for similarity among products made from potato starch and flour. The FTT found that the potato content in Sensations Poppadoms contributed to a neutral flavour, which did not significantly distinguish them from potato crisps. Broadly, the UT agreed with this determination.
Consequently, for the above reasons the UT dismissed the appeal and the product is subject to the standard rate.
Commentary
Yet another case on the liability of ‘snack foods’. So now we know that: Doritos, Monster Munch, Wotsits and Poppadums are standard rated, however Pringles, Skips and Twiglets are VAT free. This demonstrates the complexity of classifying food and these decisions throw up more complications for producers as this market develops quickly as the public’s taste moves on.
A VAT Did you know?
The sale of ostriches is zero rated, but kangaroos are standard rated. Both are sold as food.
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.
A VAT Did you know?
Grass seed is zero-rated, but turf is standard rated.
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: 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.
A VAT Did you know?
Oils and fats used for animal food is zero-rated, unless it is waste oil from a fish and chip shop – which is standard rated… even if it is used to feed animals.
A VAT Did you know?
Under one VAT scheme, zero-rated and exempt supplies are subject to VAT – as are those which are “Outside the scope of UK VAT”.
Which, or course, makes entire sense.
A VAT Did you know?
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).