August 19, 2010

VAT claims under ‘Fleming’

In 1996 the government reduced the time limit for claiming overpaid VAT to 3 years from the date of the overpayment. A similar 3 year time limit was also introduced for input tax claims in 1997. Both provisions had retrospective as well as prospective effect. Neither provisions contained transitional provisions to allow claims to be made for a limited time period under the old rules before the new time limits came into effect.

HM Revenue and Customs issued a Business Brief 07/2008 as a result of the House of Lords decision in both Fleming and Conde Nast cases. As you are probably aware, this Brief allows claims to be submitted to HMRC for output tax overpaid in accounting periods ending before 04 December 1996 and input tax under claimed in accounting periods ending before 01 May 1997.

There are 2 aspects to these refunds that may be of interest to yourselves and your clients.

Firstly there are those clients who may have submitted claims in the past and had them capped and those who would like to submit fresh claims.

If you wish to discuss this issue please do not hesitate to call.

Elysian Associates
October 2008

Changes to the VAT rate

We know that you will be very busy at the moment supporting your clients with all the new changes.

For retailers it is often easier to calculate a discount of 2.10% of any VAT inclusive retail selling price rather than re label all items. This discount equates to a 2.5% reduction to the VAT rate.

Flat Rate Scheme

Many of you assist your clients in the operation of their Flat Rate Schemes.

We understand that HMRC are visiting Flat Rate Schemers and using a newly developed piece of software to verify the Returns rendered. It collates the value in Box 6 of the Returns together with the Flat Rate VAT declared and then checks this against the total income generated by the business.

As often happens the incorrect value is shown in Box 6 (it should be the gross turnover for the period) so it is easy for HMRC to conclude that income has been under declared.

If any of your clients are challenged in this way we suggest you start by verifying the Box 6 figures are in fact correct.

Elysian Associates
December 2008

The interaction between the “Error Correction Procedure” and the new Penalty Regime

Since 01 July 2008 we have had in place the new rules for what was the ‘Voluntary Disclosure of Errors’ regime now renamed as the ‘Error Correction Procedure’ (ECP).

The term ‘Voluntary’ has been removed because there is in fact an obligation for tax payers to correct errors and this term was thought to be confusing.

The ECP rules seemed merely to increase the deminimis limits from £2,000 to £10,000 or 1% of the VAT returns Box 6 figure up to a £50,000 limit and this seemed to relieve businesses of some of the paperwork involved in correcting errors.

However, when we link the ECP rules to the new Penalty Regime the picture looks entirely different.

As we already know the new penalty system will try to take into account the behaviour of the tax payer that led to the error being made and HMRC state that no penalty will be due where a mistake is made taking reasonable care. However, those who have made an error through careless or deliberate behaviour will now be liable for a penalty.

If we look at how the penalty is calculated there is no penalty if the tax payer has taken reasonable care to get their tax right but a penalty of 30% is charged for careless mistakes and 70% for deliberate but not concealed and finally 100% for deliberate AND concealed mistakes.

The definition of a careless mistake is one that is not disclosed. There are 3 elements of disclosure, telling HMRC by phone or letter, helping them work out the tax liability and giving them access to the records.

So it would appear that if a taxpayer makes an error that is below the deminimis limits for disclosure, it may be necessary to make a disclosure to HMRC in order to mitigate a penalty or in fact to avoid a penalty altogether.

Elysian Associates
February 2009

Tribunal Reform Project

You may be aware that a review has been taking place to overhaul the tribunal procedures to make a simpler and less costly way to resolve disputes.

After 01 April 2009 Taxpayers will still be able to submit an Appeal direct to the Tribunal but if a request has been made to undergo an internal review an Appeal to the Tribunal cannot be made until the internal review has been completed. This means that costs will no longer be awarded from the earlier Appeals date.

There will be a 2 tier tribunal system – the first tier for basic cases and the Upper tribunal for more complex cases. All cases both Direct Tax and Indirect Taxes will be heard by the same Tax Chamber.

No costs will be awarded in the majority of cases. However, the tribunal will have the power to award costs where either party has behaved unreasonably and the tribunal will also award costs in complex cases unless the appellant indicates that they do not want costs to apply.

HMRC are hoping that by dealing with more cases by paper review rather than by oral hearing both time and money will be saved by the Tribunals service, HMRC and the taxpayer.

We are familiar with the paper review and are yet to be convinced that the new procedure will actually go in the favour of the taxpayer and we see it purely as a means of protracting discussions and delaying the Appeals procedure in order to reduce costs. HMRC are on record as saying that 60% of cases are conceded by paper review but when it is the Assessing Officer undertakes the actual review themselves it is not surprising that this was not evidenced in a straw poll of VAT advisors taken recently.

Elysian Associates
February 2009

Employment Taxes Specialist

I am pleased to let you all know that we have been joined at Elysian Associates by John Harling who is a leading employment taxes specialist.

John has more than 20 years’ experience of working with public sector bodies in all aspects of PAYE, National Insurance and benefits in kind. He previously worked as an Inland Revenue PAYE Auditor before spending 15 years working in the “Big 4”specialising in advising local authorities, housing associations, NHS bodies and the education sector. John has vast experience in employment tax and related areas, such as HMRC Employer Compliance reviews, PAYE/NIC health checks, employments status issues, termination payments, employment cost reduction and the Construction Industry Scheme. He has a BSc (Hons) in Economics from University College, Cardiff.

We can offer John’s services as an add-on to the VAT Helpline for an additional £25.00 plus VAT per quarter or he is available on an adhoc basis at an hourly or daily rate to be agreed.

Most of you will know that when HMRC now visit your clients they have the right to check on all taxes rather than in the old days a single tax per visit this obviously opens up the chances of queries being raised and errors being found.

If any of these queries give rise to the need for specialist advice please do not hesitate to contact us.

Elysian Associates
March 2009

Vat Package

The EC VAT Package will modernise and simplify the rules relating to cross-border supplies of services and recovery of input tax. The changes will come into effect in national legislation between 1 January 2010 and 1 January 2015. The Package includes:

• Changes to the rules on Place of Supply of Services for both Business-to- Business (B2B) and Business-to-Consumer (B2C) transactions;

• Requirement to complete EC Sales Lists for supplies of taxable services subject to the reverse charge;

• The introduction of an optional One Stop Scheme for accounting for B2C supplies of telecoms, broadcasting and electronically supplied services;

• The introduction of an electronic VAT Refund Scheme – this will be covered in a separate consultation process.;

• Enhanced Administrative Cooperation between Member States to support these changes

Place of supply of services

From 1 January 2010, the new basic rule (the ‘general rule’) for the place of supply of services will tax B2B supplies of services at the place where the customer is established and no longer at the place where the supplier is established.

For B2C supplies of services, the general rule for the place of supply will continue to be the place where the supplier is established. However, from 1 January 2015, the place of supply of intra-EC B2C supplies of telecoms, electronically supplied services and broadcasting will be where the customer is established or usually resides.

As now, there will be exceptions to the general rule for certain services, with a view to achieving taxation in the place of consumption. The position will be the same as with previous legislation, consider the exceptions first and then fallback on the general rule. In the main these will be implemented on 1 January 2010, with further changes to the ‘where performed’ rule from 1 January 2011 and for long-term hire of means of transport from 1 January 2013.

EC Sales List for Services

Currently EC Sales Lists are only required for intra-EC supplies of goods. From 1 January 2010, EC Sales Lists will also need to be completed for intra-EC taxable supplies of services which are subject to reverse charge arrangements in the customer’s Member State. They will not be required for intra-EC supplies of services which are exempt in the customer’s Member State.

One Stop Scheme

From 1 January 2015, businesses making intra-EC cross border B2C supplies of telecoms, broadcasting and electronically supplied services will be required to account for VAT due in the Member State where the customer belongs. They can do this either by registering for VAT in their customers’ Member State or opting to account for VAT on these supplies via the One Stop Scheme (OSS). The OSS will be optional for businesses. It will enable businesses making such supplies in a number of Member States (as a result of the changes to the place of supply rules) to register and declare VAT due on those supplies throughout the EC via a single Member State. The OSS will be based on the existing special scheme for non-EC businesses making B2C supplies of electronically supplied services (which will itself be extended from 2015 to include telecommunications and broadcasting services).

The OSS will only cover B2C supplies of telecoms, broadcasting and electronically supplied services. Normal registration and accounting rules will apply in relation to supplies of goods and other services.

Whilst some of these changes do not begin to come into effect until next January 2010 we need to be identifying those clients who may be affected so that they can be brought up to speed with the changes that will affect them.

Elysian Associates
April 2009

Changes to Partial Exemption – Standard Method – from 01 April 2009

HM revenue and Customs have announced changes in their Information Sheet 04/09 to the Standard Method for calculating partial exemption.

Basically businesses may now

• use the previous year’s percentage to determine the provisional recovery of residual input tax in each VAT return prior to the year end adjustment

• bring forward their annual adjustment to the last VAT return of the tax year


• for newly exempt businesses HMRC are allowing input tax to be recovered on a
use-based’ basis rather than the old complicated basis of the ‘Standard Method override’ in the registration period or during the first tax year depending on whether the conditions can be satisfied.

This all means that the correct amount of VAT is accounted for earlier than perhaps it once had been.

Elysian Associates
April 2009

Changes to the Tour Operators Margin Scheme (TOMS)

I am sure that TOMS puts fear into the hearts of most tax professionals and we are no exception but we do have access to the Country’s foremost expert on the subject and he can be made available to you if the need arises.

Changes are being forced by the European Commission because it considers that the UK’s operation of TOMS is not fully compatible with the Principal VAT Directive.

There are four areas of change

• Supplies to business customers for their own consumption – business to business (B2B)
• Supplies of educational school trips

Both of which could be excluded from TOMS and invoices could be raised in the normal way allowing VAT recovery if partial exemption allowed.

* There will be a number of clients who use travel agents to book hotel accommodation for their employees when undertaking business trips. In the future it may be preferable to book direct.

• Supplies to business customers for subsequent resale

Here the old rules allowed businesses to include these sales within TOMS because they were incidental but the Directive refers to the ‘traveller’ and a person who sells on to a third party is another B2B sale and must now be invoiced with Tour Operators having to change their accounting practices to account for VAT under the normal rules.

* Some may have to register in other Member States.

• Use of market values in respect of in house supplies

This aspect is for those businesses who currently undertake the TOMS calculation and needs to be studied in depth before advice can be given as each case needs to be considered separately.

Elysian Associates
April 2009

Car dealers – margin scheme

Since 1995 HMRC have allowed a concession where a car dealer has failed to maintain the necessary records in order to support the margin scheme. Under the concession even where a dealer did not hold the necessary information HMRC would still allow VAT to be accounted for on notional profit margins.

HMRC have announced that from 01 April 2010 this concession is to be withdrawn as it does not fit within European Law which means that where a dealer does not hold the necessary evidence to show the profit margin for each car VAT will be payable on the full selling price of each car.

You should ensure that any car dealer clients are aware of this important change and always obtain and keep the necessary documentary evidence to support the purchase and sale price of each car.

Elysian Associates
April 2009

New Series of VAT numbers

The current series of VAT numbers has been in use since the 01 April 1973 and not surprisingly the available numbers within the series will shortly be used up.

Over the next 12 months HMRC will introduce a new series of registration numbers and this means that the current means of checking the validity of a VAT number (referred to as the modulus 97 check) will not work with the new numbers.

A new modulus check has been devised by HMRC but at the moment they will not be making the information public although they will provide details of the new check to anyone who requests it!

It should be noted that in order to check whether a VAT registration number is valid it will be necessary to use both modulus checks. Having looked at the detail of the new modulus 9755 check it seems more complex and requires 2 mathematical calculations.

Thankfully HMRC’s Helpline will continue to provide the service of confirming the validity of a VAT number if you give them a call. However, they won’t tell you who it belongs to!

Elysian Associates
April 2009

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