In the current election the Liberal Democrats’ manifesto stated that they would apply zero-rating to children’s toothbrushes and toothpaste. Whether this impacts the money left by the tooth fairy remains to be seen…
Tag Archives: zero-rate
VAT: More on separate and single supplies. The KFC dip pot case
Latest from the courts
In the First-Tier tribunal case of Queenscourt Limited the issue was whether dip pots supplied as part of a takeaway meal deal are a separate zero-rated supply (of cold food) or whether they are part of a single VATable supply of hot food.
Background
The appellant had originally accounted for output tax on the basis that dip pots formed part of a single standard rated supply with other food. However, following advice, it then formed the view that zero-rating applied to these pots and submitted a claim for overpaid output tax. HMRC agreed to repay the VAT claimed.
Subsequently, a further claim as made on a similar basis for a later period. This was considered by a different officer who refused to make the repayment on the basis that there was no separate supply of the dip pots. This called into question whether the payment of the initial claim was correct. The officer considered the previous repayment to have been incorrect and issued assessments in order to recover the amount which had been repaid.
Queenscourt now appealed both against the decision to refuse the repayment claimed in the second error correction notice and also against the recovery assessment relating to the first error correction notice. Moreover, the recovery assessments are invalid as there has been no change in circumstances and no new facts have come to light since HMRC agreed to repay the tax. Alternatively, it argues that HMRC are prevented from recovering the tax, either on the basis of legitimate expectation or estoppel by convention, in each case arising as a result of HMRC’s original agreement that that tax should be repaid.
Decision
The appeal was dismissed.
- On the dip point issue, the FTT stated that it was unlikely the dip would be eaten on its own, or as an end in itself, unlike the coleslaw or cookie elements – It is a means of better enjoying the hot food. Consequently, it is an element of a standard rated single composite supply of hot takeaway food.
- Legitimate expectation – Whilst the Tribunal did have jurisdiction to consider arguments based on legitimate expectation in the context of an appeal against a recovery assessment, it is not in this case sufficiently unfair for HMRC to resile from their initial acceptance of the claim made in the first error correction notice and to apply the correct tax treatment.
- Estoppel – HMRC is not estopped from making or relying on their recovery assessments as there has been no detrimental reliance on the original position taken by HMRC in connection with any subsequent mutual dealings.
Commentary
It is difficult to see the end of single/multiple supply cases, as my previous articles consider:
Here, here, here, here, and how to categorise a supply here.
A VAT: Did you know?
Banana and strawberry flavoured Nesquik drinks are standard rated, but chocolate flavoured Nesquik is zero rated.
VAT – Charity Fundraising Exemption
Avoid adding VAT to fundraising income
There are very few VAT reliefs for charities (and it may be argued that an exemption is more than a burden than a relief) but there is an exemption for a charity which qualifies as undertaking a one-off fundraising event. The criteria are quite restrictive, and it is important that the correct treatment is applied. Furthermore, it may be in a charity’s interest to avoid the exemption if there is a lot of input tax attributable to the event, say; venue hire, entertainment, catering etc.
A qualifying event means that a charity (or its trading subsidiary) does not charge VAT on money paid for admittance to that event.
What is covered?
In order to be exempt, the event must be a one-off fundraising event which is “any event organised and promoted primarily to raise funds (monetary or otherwise) for a charity”. Consequently, we always advise clients to make it clear on tickets and advertising material (including online) that the event is for raiding funds and to use a statement; “all profits will be used to support the charitable aims of XYZ” or similar.
HMRC say that an event is an incident with an outcome or a result. This means that activities of a semi-regular or continuous nature, such as the operation of a shop or bar, cannot therefore be an event.
The following are examples of the kind of event which qualify:
- ball, dinner dance, disco or barn dance
- performance – concert, stage production and any other event which has a paying audience
- showing of a film
- fete, fair or festival
- horticultural show
- exhibition: art, history or science
- bazaar, jumble sale, car boot sale, or good-as-new sale
- sporting participation (including spectators): sponsored walk or swim
- sporting performance
- game of skill, contest or a quiz
- participation in an endurance event
- fireworks display
- dinner, lunch or barbecue
- an auction of bought in goods
Tip
Often there may be an auction of donated goods at a fundraising event. There is a specific and helpful relief for such sales. The sale of donated goods is zero rated which means any attributable input tax is recoverable. Consequently, if both exempt and zero rated supplies are made it is possible to apportion input tax to a charity’s benefit. Zero rating may also apply to sales such as: food (not catering) printed matter and children’s clothing
Limit to the number of events held
Eligible events are restricted to 15 events of the same kind in a charity’s financial year at any one location. The restriction prevents distortion of competition with other suppliers of similar events which do not benefit from the exemption. If a charity holds 16 or more events of the same kind at the same location during its financial year none of the events will qualify for exemption. However, the 15-event limit does not apply to fundraising events where the gross takings from all similar events, such as coffee mornings, are no more than £1,000 per week.
Clearly, the number of events needs to be monitored and planning will therefore be available should exemption be desired (or avoided as the relevant figures dictate).
What is a charity?
This seems to be a straightforward question in most cases, but can cause difficulties, so it is worthwhile looking at the VAT rules here.
Bodies have charitable status when they are:
- registered, excepted or exempted from registration with the Charity Commission in England and Wales
- registered by the Office of the Scottish Charity Regulator (OSCR) in Scotland
- invited to register by The Charity Commission for Northern Ireland which are treated by HMRC as charitable.
Not all non-profit making organisations are charities. The term ‘charity’ has no precise definition in any law. Its scope has been determined by case law. It is therefore necessary to establish whether an organisation is a charity using the following guidelines:
- charities are non-profit distributing bodies established to advance education, advance religion, relieve poverty, sickness or infirmity or carry out certain other activities beneficial to the community
- in England and Wales charities must normally register with Charity Commission- some very small charities don’t need to register with Charity Commission, there are also some other special cases where particular bodies do not need to register, if there is uncertainty regarding a position see the Charity Commission website
- in Scotland all charities must be registered with the OSCR – HMRC decides whether bodies in Northern Ireland are eligible.
Trading arm
It is worth noting that HMRC also accept that a body corporate which is wholly owned by a charity and whose profits are payable to a charity, will qualify and may therefore may apply the VAT exemption to fundraising events. This means that a charity’s own trading company can hold exempt fundraising events on behalf of the charity.
Further/alternative planning
If sales are not exempt as a fundraising event, there is a way to avoid VAT being chargeable on all income received. It is open to a charity to set a basic minimum charge which will be standard rated, and to invite those attending the event to supplement this with a voluntary donation.
The extra contributions will be outside the scope of VAT (not exempt) if all the following conditions are met:
- it is clearly stated on all publicity material, including tickets, that anyone paying only the minimum charge will be admitted without further payment
- the extra payment does not give any particular benefit (for example, admission to a better position in the stadium or auditorium)
- the extent of further contributions is ultimately left to ticket holders to decide, even if the organiser indicates a desired level of donation
- for film or theatre performances, concerts, sporting fixtures etc, the minimum charge is not less than the usual price of the particular seats at a normal commercial event of the same type
- for dances, and similar functions, the minimum total sum upon which the organisers are liable to account for VAT is not less than their total costs incurred in arranging the event
It should be noted that any other donations collected at an event are also outside the scope of VAT.
Partial exemption
A charity must recognise the impact of making exempt supplies (as well as carrying out non-business activity). These undertakings will have an impact on the amount of input tax a charity is able to recover. Details here
Summary
We find that charities are often confused about the rules and consequently fail to take advantage of the VAT position. This also extends to school academies which are all charities. It is usually worthwhile for charities to carry out a VAT review of its activities as quite often VAT savings can be identified.
A VAT: Did you know?
The sale of a dead horse is VAT free, but a live horse is standard-rated.
(This is not a recommended tax planning scheme).
A VAT Did you know?
Dead mice, rats and day-old chicks sold for feeding to exotic pets may be zero-rated.
Customs: Example declarations for exports from GB updated
This Guidance provides examples to help with the completion of declarations on the Customs Declarations Service for exports. It has been updated with the addition of a standard pre-lodged export declaration document.
VAT: Evidence for exports. The H Ripley case
Latest from the courts
In the H Ripley & Co Limited First Tier Tribunal (FTT) case the issue was whether the appellant had satisfactory evidence to support the zero rating of the export of goods (scrap metal).
Background
HMRC denied zero rating on the basis that the appellant did not provide satisfactory evidence to support the fact that the scrap metal was removed from the UK.
The requirements are set out in VAT Notice 725 para 5 and acceptable documentary evidence may include:
- the customer’s order – including customer’s name and delivery address
- inter-company correspondence
- copy sales invoice
- advice note
- packing list
- commercial transport documents from the carrier responsible for removing the goods from the UK, for example an International Consignment Note (CMR) fully completed by the consignor, the haulier and signed by receiving consignee
- details of insurance or freight charges
- bank statements as evidence of payment
- receipted copy of the consignment note as evidence of receipt of goods abroad
- a signed CMR document or note
- a bill of lading
- an airfreight invoice
- an invoice from the carrier of the goods
- official documents issued by a public authority, such as a notary, confirming the arrival of the goods
- any other documents relevant to the removal of the goods in question which you would normally get in the course of business
or a combination of the above.
HMRC advised the appellant that it had received an information request from the Belgian tax authorities in respect of certain transactions and consequently, HMRC required information on the company’s documents in connection with the supplies. On receipt of the information HMRC concluded that the evidence was insufficient to support zero-rating so the sales were treated as standard rated and the appellant’s repayment claim was reduced to reflect this.
In these circumstances the burden of proof is on the appellant to show that it has satisfied the conditions set out in Notice 725 to zero-rate its supplies and provide documentation to show that the goods were removed from the UK.
Decision
The court noted that it was not HMRC’s position that supplementary evidence could not be provided post the required three-months period but that it was entitled to decline the additional evidence when it was provided some 18 to 30 months after the three-month period. It was clear that the evidence of removal must be obtained within three months and not that the valid evidence is brought into existence within the three-month time limit and obtained at some future date.
Notice 725 sets out the conditions which attach to the entitlement to zero-rate supplies. The FTT considered it to be clear from paragraph 4.3 and 4.4 (which have the force of law) that the onus is on the exporter company claiming zero-rating to gather sufficient evidence of removal within three months of the date of the supply. If it does not do so, it is not entitled to zero-rate the supplies.
Specifically, the court considered:
- Sales Invoices – did not provide clear evidence that the goods were removed from the UK. Despite the invoices confirming the sale of scrap metal to a Belgium registered company it did not follow that the address of the purchaser is the same address as the destination that the goods were sent to.
- Bank Statements – simply provided proof of payment they did not confirm who received the goods nor where the goods were delivered.
- Weighbridge Tickets – merely confirm a consignment of scrap metal was sold to a Belgium based company and the goods were collected by a UK registered vehicle.
- CMRs – none of the CMRs were fully completed by the haulier and signed by the receiving consignee.
- P&O Boarding Cards –a taxpayer must have in its possession valid evidence of export within three months from the time of supply. The boarding cards were not provided to HMRC until 30 May 2018, some 18 to 30 months after the disputed consignments took place. It was not disproportionate for HMRC to state that the time limit for obtaining valid evidence of removal was three months and that the substantive requirements of Notice 725 had not been met. In any event, the court did not accept that the boarding cards evidence the exports of the scrap metal; none of the reference numbers on the boarding card match those used in any of the other documents and none of the lead names on the boarding cards match any of the other names in any other document. The boarding cards do not have any identifying features such that they may be matched with any of the disputed consignments.
- E-mails and WhatsApp messages –none of the messages evidence that the loads were exported. At best they evidence a request from the buyer to a carrier to collect goods from the supplier’s yard and the WhatsApp messages were silent on whether the loads were exported from the UK.
The appeal was dismissed, and the assessments were upheld because none of the documents either individually or taken as a whole, were sufficient evidence to support zero-rating.
Commentary
Yet another case illustrating the importance of insuring correct documentation is held. It is not sufficient that goods leave the UK, but the detailed evidence requirements must always be met.
A VAT Did you know?
Size matters Part III – Bay plants are VAT free – as long as they are no bigger than 50cm and they have not been clipped or shaped.
Extension of VAT energy-saving materials relief
HMRC have published a new Policy Paper on the extension of energy-saving materials (ESMs).
Installations of ESMs in residential accommodation currently benefit from a temporary VAT zero rate until 31 March 2027, after which they revert to the reduced rate of VAT at 5%.
This measure extends the relief to installations of ESMs in buildings used solely for relevant charitable purposes, such as village halls or similar recreational facilities for a local community.
It also expands the scope of the relief to the following technologies:
- electrical batteries that store electricity generated by certain ESMs and from the National Grid
- water-source heat pumps
- diverters that enable excess electricity from certain ESMs to be used within a building in which it is generated rather than exported to the grid
It also adds certain preparatory groundworks that are necessary for the installation of ground- and water-source heat pumps.
The changes apply from 1 February 2024
The policy objective is to incentivise the installation of ESMs across the UK to improve energy efficiency and reduce carbon emissions.
The measures are implemented by The Value Added Tax (Installation of Energy-Saving Materials) Order 2024.