April 11, 2011

Hot Take – Away Food

The European Court of Justice has heard a number of cases concerning hot take-away food. All of which were from Germany. It was held that the supply of hot take-away food should be subject to the lower rate of VAT. Here in the UK that should be zero rate. However, because there is no guarantee that UK Authorities will uphold the German cases so certain larger firms of accountants are bringing pressure to bear.

Various legal opinions are being sought and once the outcome of these is known we will be able to advise and assist with any retrospective claims thought to be worthwhile. Our fees would be on a no win – no fee basis. A fee would also be payable by us to yourselves.

You may wish to begin identifying clients who may be affected. These will include fish and chip shops, burger bars, pizza and kebab, Chinese and Indian take – aways.

We will keep you updated as to progress but in the meantime if you would like to discuss this please give us a call.

Elysian Associates
April 2011

March 2, 2011

Are Your Business Records Robust For Tax Purposes?


HM Revenue & Customs (‘HMRC’) have announced that they intend to introduce a programme of Business Record Checks that will review both the adequacy and accuracy of business records within the ‘small and medium enterprises’ (‘SME’) sector.  HMRC have produced a consultation document seeking views on how best to implement the programme to achieve a major improvement in the standard of record keeping in SMEs. It is important to note that, HMRC are not seeking views on whether to introduce the programme, it will happen, rather they are seeking views on how to implement.

No new legislation is required as HMRC will use existing law regarding both record keeping requirements and penalties for failure to comply with those requirements. HMRC state that penalties will be imposed for significant record keeping failures. However, significant is not, as yet, defined, this is part of the consultation process.

Who will be impacted?

Any SME defined as a business with a turnover of less than 50m Euros and less than 250 employees.

What has prompted this?

HMRC undertook a random enquiry programme which indicated that poor record keeping is a problem in around 40% of all 5 million UK SMEs. Research indicates that poor business record keeping typically leads to an under assessment of tax.

Objectives of the Checks

HMRC state that their objectives are as follows-

• To check business records in up to 50,000 cases;

• To impose penalties for significant record keeping failures;

• To bring about an improvement in record keeping where it is currently below standard;

• To reduce the tax losses to the Exchequer that result from poor business records.

How will the penalties be calculated?

The penalty regimes for failure to comply with record keeping obligations differ between Direct Tax and VAT.

For Direct Tax, the law states that failure to comply can lead to a penalty ‘not exceeding £3,000.’

For VAT, the penalty is an amount per record equal to the ‘prescribed rate’ multiplied by the number of days on which the failure continues (up to a maximum of 100 days) of £50, whichever is greater.

The prescribed rate is between £5 and £15 depending on the history of failures.

As there are different penalty regimes for each of the taxes, for both the record keeping requirements and the failure to comply, it is possible to receive more than one penalty. However, HMRC have stated that it would not be their intention to raise more than one penalty but instead will apply whichever penalty is higher.

The consultation period closes on 28 February 2011. The consultation document can be found on the HMRC website with details of the address to which you direct your response contained therein.

If you would like to discuss this or any other tax matter, please contact us.

Elysian Associates
January 2011

Are Joint Contracts of Employment VAT Efficient?


It is quite common for businesses or other organisations to loan staff to a third party company, which may be connected or unconnected. This is particularly the case in the charity and not-for-profit sector where trading subsidiaries are common.

In principle, the supply of staff is a business activity and so normally the recharged costs are subject to VAT at the standard rate (20% with effect from 4 January 2011), which can make these types of arrangement expensive.

By concession, HM Revenue & Customs (‘HMRC’) do not seek to tax the supply of staff between charities where the staff are engaged only in non-business activities. However, this concession does not cover the secondment of staff to trading companies.

Joint contracts of employment have historically been viewed as a solution to this problem. Where staff are jointly employed, any recharged salary costs are not deemed to be a supply between the entities and therefore no VAT is due. However, a recent tribunal case has high-lighted the limitations of this arrangement.

The Case

In CGI Group (Europe) Limited the Tribunal held that, despite the existence of joint contracts of employment, CGI was receiving payment for a supply of something other than staff (in this case IT services). The fact that the payment was based on the staff costs had no bearing on its VAT liability. As such, the supply was subject to VAT at the standard rate.

This case suggests that joint contracts of employment will not avoid a VAT charge if there is in fact no supply of staff from one employer to another but in reality there is a supply of something else.

If you would like to discuss this or any other tax matter, please contact us.

Elysian Associates
November 2010

March 1, 2011

Online Filing of Accounts – New Rules: Special Rules for Smaller Charities

With effect from 1 April 2011, new rules require all companies and organisations liable to Corporation Tax to file their Company Tax Return, accounts and computations online for any accounting period ending after 31 March 2010. This includes any charities required to file a Company Tax Return.

This would represent a significant burden for smaller charities. HM Revenue & Customs (‘HMRC’) has recognised that the accounting principles by which smaller charities prepare accounts mean that the accounts template included in the free software provided by HMRC may not be suitable for them. Until HMRC provides free software that is suitable for smaller charities, HMRC will continue to accept accounts from smaller charities in PDF format. Computations must be filed in iXBRL format but the free HMRC software should be suitable for these.

A ‘smaller charity’ is defined for these purposes as one where, together with any wholly owned subsidiaries, the combined income does not exceed £6.5 million for the accounting period.

Charities with a combined income above £6.5 million will, in almost all circumstances, need to use commercially available software to file their Company Tax Return, their accounts and any computations in iXBRL format.

Unincorporated associations and charities that are incorporated, for example by guarantee or shares, or in future are incorporated under the Charities Act, are required to submit computations in iXBRL format, but can continue to submit accounts as a PDF or in iXBRL format.

Subsidiary companies of charities are required to submit returns online with accounts and computations in iXBRL format.

All computations forming part of a Company Tax Return must be in iXBRL. However no computation is required where the Company Tax Return supplementary page CT600E is completed and confirms that all income and gains of the charity are exempt from tax and have been or will be applied for charitable purposes. These charities should attach a letter as a PDF file to their online return stating that no computation is required.

Charitable trusts are not affected by this announcement. This is because charitable trusts are liable to Income Tax and make tax returns, if required, under Income Tax Self-Assessment.

Elysian Associates
November 2010

October 18, 2010

Residential Accommodation

VAT law provides reliefs for dwellings, and for buildings for ‘a relevant residential purpose’, such as care homes and student accommodation, subject in each case to various conditions.

Problems have emerged with accommodation that, typically, falls between the two categories. This can mean, for example, that the construction is subject to standard rate VAT, and that this is irrecoverable and represents a cost. Examples so far have included ‘independent living’ units at care homes, staff flats included in student accommodation projects, and RSLs constructing flats where additional care is provided.

HMRC are becoming increasingly aggressive on this sort of point, and may actively look for reasons why a project does not qualify for relief. There is currently a particular focus on the terms of planning permission.

In view of this, please let us know if you are dealing with residential projects where you think this might be an issue. Please be aware that clients may well not have identified a problem, and be assuming that there will not be a substantial VAT cost. And, in view of HMRC’s emphasis on planning permission, it makes sense to consider the matter before this is applied for.

If you would like to discuss this or any other VAT matter, please do not hesitate to contact us.

Elysian Associates
October 2010

October 12, 2010

Pubs with flats

Where a pub is sold or leased, and the owner has opted to tax, the price may need to be split if the property includes a residential element. It is normal in these cases to allocate 90% of the price to the commercial premises, and to charge VAT on this, and to treat 10% as for the residential part, and VAT-exempt. This has been generally understood to follow from an agreement entered into some years ago between HMRC and the Brewers’ Society.

HMRC have indicated that in fact there is no formal agreement, and never was. Their view is that the 90/10 split is merely an ‘industry norm’ and should not be used if a split by actual values would give a significantly different result. It is possible that they will be issuing guidance.
In the meantime, where the seller has opted to tax:

• The 90/10 split should not be used anyway if the residential element is not going to remain residential for any time after the transaction, eg the purchaser intends to put the whole building to commercial use, or to demolish it. In this case, VAT should be charged on the whole price.

• It makes no difference whether the residential part is self-contained.

• If we are advising the buyer, we might want to challenge the 90/10 split and look for something based on actual values, at least if our client does not expect to recover the VAT. I can help in backing up this approach if need be.

• If we are advising the seller, we might want to look for VAT on more than 90% if this seems appropriate. In the probably more likely scenario that 90% seems too high, we would not suggest taking the initiative in suggesting a lower figure, but we might want to consider it at the buyer’s request.

There are various other issues in these cases. The VAT treatment of subsequent conversion projects is complex, and will also determine whether in fact the buyer can recover the VAT.

If you would like to discuss this or any other VAT matter, please do not hesitate to contact us.

Elysian Associates
October 2010

October 11, 2010

Transfers Of Going Concerns

On a Transfer of a Going Concern (TOGC), it is accepted that the buyer takes on any responsibility to adjust VAT originally incurred by the seller, and subject to the Capital Goods Scheme (CGS). TOGC clauses normally contain a warranty that, for example, the property is not subject to the CGS.

HMRC are now of the view that the point is not confined to the CGS, and that the buyer might also have to adjust VAT incurred by the seller on other expenditure, where this has not actually been used by the seller. One example would be a refurbishment below the £250k for the CGS, where the space has not yet been reoccupied following the work. Recent HMRC guidance says that the seller should provide the buyer with information about this, which would suggest that a further warranty is needed in TOGC clauses.

There is no apparent basis in law for any of this. We have asked HMRC about this, and they have said that there is no need for one, and that they are relying on general principles. Sometimes the point would benefit the buyer, and other times it would involve a cost. But in any case the point is a potential nuisance in transactions, particularly if, as is likely, the other side are not aware of it. We don’t recall ever seeing the point picked up in a sale agreement.

Unless there is a particular reason for thinking that the point would benefit your client, our suggestion would be to ignore it, at least for the time being.

But please let us know if you come across cases where either side tries to insert a clause to cover the point.

If you would like to discuss this or any other VAT matter, please do not hesitate to contact us.

Elysian Associates
October 2010

October 8, 2010

Incidental Parking

The provision of parking facilities is usually subject to VAT. But, where it is incidental to an exempt (un-opted or residential) property letting between the same landlord and tenant, HMRC have historically seen it as also being exempt.

It emerged last year that HMRC now thought that this point was subject to a further condition, that the lettings be entered into at the same time. This would mean, for example, that annual lettings of parking in conjunction with residential leases were subject to VAT after the first year.

Some of us persuaded them a year ago to think about this again, and they are still taking advice on the matter, but it is possible that there will be, at least, some widening of taxation in this area.

When acting for the landlord, we should therefore be ensuring that leases, licences etc, always allow for VAT to be charged on any parking facilities. This applies whether or not there is a separate agreement for the parking, and whether the property is commercial or residential.

If you would like to discuss this or any other VAT matter, please do not hesitate to contact us.

Elysian Associates
October 2010

What does the CRC Energy Efficiency Scheme mean for your business?


The Carbon Reduction Commitment Energy Efficiency Scheme (“CRC”) is a new UK mandatory emissions trading scheme, which started in April 2010 and applies to businesses and public sector organisations. CRC applies to businesses and organisations which procure electricity directly from an energy provider. Similar schemes are being implemented all across Europe.

If a business or organisation used in excess of 6,000 MWh of electricity during 2008 (an annual electricity bill of approximately £500,000 or over) then it is required to register for CRC and purchase allowances based on how much electricity it thinks that it will use during each year. At the end of the year participants will need to surrender enough allowances to the Administrator to cover the amount of CO2 emitted during the year.

In addition, if a business or organisation has at least one half hourly meter (“HHM”) it is required to provide the Administrator with information about itself and its energy use, an Information Disclosure, but does not yet have to participate in CRC.

Any business or organisation required to register as a participant of CRC, or required to make an information disclosure, should have done so by 30 September 2010. Failure to register or to disclose the required information by this deadline, may result in significant penalties.

VAT Implications

The ability to trade freely in emissions allowances is an important feature of the EU Emissions Trading Scheme. However, the existence of a strong secondary cross-border market in emissions allowances generates very high volume, value and speed of trade. This, combined with the fact that allowances are only surrendered once a year provides fraudsters with multiple opportunities to steal VAT following cross-border acquisitions.

The opportunity for Missing Trader Intra-Community (MTIC) VAT fraud arises where standard-rated goods or services can effectively be traded VAT free between EU Member States. Up to July 2009, most emissions allowances were standard-rated in UK to UK transactions and VAT free when purchased from outside the UK by a UK based company. This VAT free source provided the opportunity to perpetrate MTIC VAT fraud. In July 2009, an interim measure was introduced by HM Revenue & Customs (‘HMRC’) in the UK, zero rating supplies of the allowances, pending an EU wide solution.

A Directive providing an option for all Member States to introduce a reverse charge was adopted in March 2010. Under the reverse charge accounting mechanism, it is the responsibility of the customer, rather than the supplier, to account to HMRC for VAT on supplies of the specified emission allowances. The reverse charge it will only apply to business to business transactions in the UK. The requirement takes effect from 1 November 2010.

If you would like to discuss this or any other VAT matter, please do not hesitate to contact us.

Elysian Associates
October 2010

October 7, 2010

Service charges

TheUKtreats most service charges as following the VAT treatment of the rent – if the property is un-opted, or residential, service charges are generally exempt.

This was put in doubt by the ECJ judgment in Tellmer, a Czech case where charges for the cleaning of common areas in blocks of flats were found to be subject to VAT. HMRC have tried to differentiate this on the facts from the normalUK arrangements, but it is not clear how convincing this is.

Several appeals have been lodged with the Tribunal on this. The lead case is Field Fisher Waterhouse, and the others are stood over behind it.

This litigation may well mean that HMRC have to concede that service charges are, after all, generally subject to VAT. It seems likely that they would only seek to implement this from a current date, but that it will apply to existing leases.

When acting for the landlord, they should be checking that their leases, licences etc, allow for any VAT to be added to service charges, even for residential property. When advising tenants is the landlord able to charge them VAT?

If you would like to discuss this or any other VAT matter, please do not hesitate to contact us.

Elysian Associates
October 2010

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