HMRC have issued a new Business Brief 40/09 and are inviting claims from taxpayers who have overpaid output tax on what should now be treated as an exempt supply. However, HMRC point out that further bingo duty may be due. With regard to slot machines the High Court has yet to issues its judgment.

Any business with a bingo duty assessment may wish to seek further advice.

HMRC announce that they are changing their bank details

Taxpayers should make sure they use the correct bank details from July 2009.

Sort code – 08-32-00
Account – 11963155
Name – HMRC VAT

Revised interpretation of ‘occupation’ of property for VAT purposes

HMRC have issued Business Brief 33/09 which sets out their revised policy on the meaning of occupation. The House of Lords decided that ‘occupation’ requires not only physical presence but also permanence, control over the property and exclusivity. HMRC invites claims from taxpayers who have incorrectly been denied recovery of input tax.

Three year capping being extended to four

All VAT claims are now capped at four years or back to April 2006 whichever is shorter.

Adjustments of errors

Recently issued Public Notice 700/45 outlines the ins and outs of correcting errors and gives details of where to send notifications.

If you require further information regarding any of the points above please do contact us.

Elysian Associates
August 2009

Firstly the changes come into effect from 01 January 2010. Further changes come into effect in 2011, 2013 and 2015.

Secondly the changes apply to businesses supplying and receiving services from overseas businesses, businesses supplying goods to other EC countries and those businesses that want to reclaim VAT incurred in other EC country.

Thirdly the changes alter the Place of Supply rules

• Most services provided to business customers will be treated as supplied in the country where the business customer is established. The business customer will account for VAT under the ‘reverse charge’ mechanism.

• Services provided to non-business customers will still be liable to VAT in the country of the supplier.

New EC Sales Listings for services and changes to ESLs for Goods

UK VAT registered businesses that supply services to EU businesses, where the supply is the customers country, will have to complete ESLs for each calendar quarter and submit these within 14 days for paper returns and 21 days for electronic returns.

UK VAT registered businesses that supply goods to other EU countries already submit ESLs. From 01 January 2010 there will be new rules reducing the time limits in line with those above and anti fraud measures which reduce the threshold from £70,000 to £35,000 already introduced in January 2012.

Refunds of VAT from other EU member states

A new electronic VAT refund process will be introduced across the EU for all claims submitted after 01 January 2010 to replace the current paper based system. UK bases businesses will be able to submit claims on a standard form through the Government Gateway rather than to the Member State of Refund as at present.

What must be done now?

Businesses need to consider whether they will be affected by the changes and what changes to their accounting systems will be required to implement these new rules from 01 January 2010 to account for VAT under the reverse charge and/or to capture the information needed to submit ESLs. They should also consider obtaining the VAT Registration Numbers of regular business customers in other EU countries.

If you require further information regarding any of the points above please do contact us.

Elysian Associates
August 2009

Many charities import goods into the UK and can pay a significant amount of Customs Duty, which is a sticking cost, and import VAT that cannot be recovered if the goods are used by the charity in generating exempt or non-business income.
However, there are a range of reliefs that are available to charities which can enable them to mitigate the Import VAT or Customs Duty incurred on goods purchased from outside the EU.

If you are intending to import goods from outside the EU, or have imported goods and have incurred Import VAT and Customs Duty, please feel free to contact us so that one of our Customs specialists can discuss the potential opportunities further with you.

Elysian Associates
July 2010

What is the reverse charge?

Normally the supplier of the service is the person who must account, to the tax authorities, for any VAT due on the supply. With effect from 01 January 2010 it is the customer who must account for the VAT due on intra-EC taxable supplies. Although called reverse charge, the procedure may also be referred to as tax shift. Where it applies to services you receive, you, the customer must act as if you are both the supplier and the recipient of the services.

How do I account for reverse charge services on my VAT return?

You should credit your VAT account with an amount of output tax, calculated on the full value of intra-EC taxable supplies of services received from another Member State and at the same time debit your VAT account with the input tax to which you are entitled, in accordance with the normal rules.

The partial exemption implications for reverse charge services are explained in Public Notice 706 Partial Exemption.

You should then include in the following boxes of your VAT return:

• The amount of output tax in box 1 VAT due on sales

• The amount of input tax due in box 4 VAT reclaimed on purchases

• The full value of the supply in box 6 total value of sales

• The full value of the supply in box 7 total value of purchases

The value of supplies/acquisitions of services should not be included in boxes 8 and 9 of the VAT return.

If you require further information regarding any of the points above please do contact us.

Elysian Associates
August 2009

From 01 January 2010 businesses will have to provide EC Sales Lists for taxable supplies of services as well as goods, to which the reverse charge applies.

This does not apply to services that are

• exempt according to the rules of the Member State where the supply takes place,

• B2B supplies where the recipient is not VAT registered or

• B2C supplies.

Presently HMRC intend to use the same form that is used for reporting goods (VAT 101) and businesses will require the following data:-

• Country code

• Customers VAT registration number

• Total value of the supplies in Sterling

• An indicator will also be required to identify services

The form has to be submitted either electronically or in paper form, on a quarterly basis but there are anti-fraud measures being considered that may require the need to complete forms on a monthly basis.

Threshold for quarterly reporting periods for goods

During the period 01 January 2010 to 31 December 2011 quarterly ESLs can be submitted:

• If the total quarterly value of the intra-EC goods (excluding VAT) does not exceed £70,000 in the current quarter, or in any previous four quarters.

And from the 01 January 2012 onwards

• If the total quarterly value of supplies of intra-EC goods (excluding VAT) does not exceed £35,000 in the current quarter, or any of the previous four quarters.

If a client fails to submit an ESL by the due date daily penalties will be levied of £5, £10, £15 and so on and £100 if the ESL is incorrect. However, as long as a business can demonstrate that steps are being taken to comply with the legislation at the earliest opportunity HMRC will not levy penalties.

If you require further information regarding any of the points above please do contact us.

Elysian Associates
August 2009

A number of guidance documents have been released by HMRC’s website in anticipation of the standard rate reverting to 17.5% on 01 January 2010. The documents include a “Detailed guide for VAT registered businesses” and guidance on the application of the “anti-forestalling” legislation. All businesses should consider the impact of the increase in the standard rate to them and how best to deal with it, and should take the necessary preparatory steps as soon as possible.

The “Detailed guide for VAT-registered businesses” announces HMRC’s “light touch” policy when dealing with errors concerning the change of rate. This means that HMRC will not target change of rate errors when planning audit work that are unlikely to lead to any material net revenue loss, will not seek to adjust errors unless there is reason to suppose that there is an overall revenue loss, and will take into account the difficulties faced by the taxpayer when considering penalties. It also includes guidance on the following topics:

• the effect on taxpayers operating retail schemes (including bespoke schemes) and other special schemes;

• the correct issuing of invoices and procedures for correcting erroneous invoices;

• the treatment of deposits, prepayments, refunds and bad debts;

• supplies that span the rate change and the supplier’s option to disregard actual tax points;

• the meaning and treatment of ‘continuous’ supplies and supplies carried out over a period of time;

• changes that may be necessary to electronic till and accounting systems;

• increasing prices charged to customers;

• completing VAT returns which straddle the change of rate;

• recovering input VAT;

• the treatment of VAT invoices with annual payment schedules and self-billing arrangements;

• cross-border services and the ‘VAT’ Package changes to the time of supply rules (see also );

• the impact on partially exempt businesses;

• the effects of the change on those within the flat rate or margin schemes, and those making payments on account or on annual or cash accounting;

• the implications for particular types of business, including the construction sector and the legal profession;

• the treatment of particular types of transactions, including those through coin operated machines, hire purchase, conditional sales and credit sales, sales of tickets to events (including season tickets) and international trade in goods; and

• the anti-forestalling provisions (see below for more detail).

The detailed guide (which also includes annexes on HMRC’s “light touch” approach, the time of supply rules, and fuel scale charges) can be accessed on the HMRC website via this link.

The guidance document on the anti-forestalling provisions sets out HMRC’s views on the application of the new legislation. Salient points include:

• the scope of the legislation is such that it is likely to affect very few businesses;

• even if one of the relevant conditions is satisfied, the “supplementary charge” will only apply if the recipient of the supply cannot recover the VAT in full (NB the test is specific to the VAT on each transaction in question, rather than catching all supplies to partially exempt customers);

• clarification that the extension of the “connected party” test to cover series of supplies of substantially the same goods or services is intended to prevent the insertion of an unconnected intermediary customer into the supply chain;

• the definition of “providing funds” for a prepayment is very wide, and includes situations where part of the prepayment is lent back to the customer or a connected party;

• the “related supplies” provision is intended to catch situations where a business makes a series of supplies to the same customer, each of which is below the £100,000 limit but which exceed it in aggregate;

• the “normal commercial practice” test can be met where the business makes prepayments or issues VAT invoices as part of its own practice (established by evidencing similar transactions in the past) or where such practices are normal in the sector (in accordance with “the industry norms”);

• in HMRC’s view, transactions entered into by special purpose vehicles (SPVs) set up as part of forestalling arrangements are not in accordance with normal commercial practice;

• the supplementary charge of 2.5% is, in HMRC’s view, VAT and must be accounted for as output tax in the VAT return for the period including 1 January 2010 (or the subsequent date on which a relevant right to receive goods or services is exercised); and

• the supplementary charge can be passed on to customers (unless the contract specifies otherwise) and may be partly recoverable as input VAT and the supplier must issue a special “Supplementary charge” VAT invoice to the customer (secondary legislation requiring the supplier to do this will be laid before Parliament later this year).
The anti-forestalling guidance is available on the HMRC website via this link.

The guidance is a useful summary for businesses of the impact of the rate change in a number of different circumstances, and HMRC’s announcement of a “light touch” approach to compliance is particularly welcome. However, a number of legal, practical and systems issues remain unresolved. Businesses should consider how best to deal with the change and should start taking the necessary preparatory steps as a matter of urgency.

If you require further information regarding any of the points above please do contact us.

Elysian Associates
August 2009

HMRC has now published the final guidance, following recent consultations and an Open Day held in July. This guidance explains the duties of the SAO of qualifying companies liable to taxes and duties in the UK, in ensuring that they establish, maintain and certify appropriate tax accounting arrangements as required by Schedule 46 Finance Act 2009.

Qualifying companies

• Charities are within the scope of the provisions if they meet the qualifying conditions.

• Foreign branches of UK companies are within the scope. However, whilst HMRC would expect reasonable steps to include a check that foreign tax has actually been paid, an in-depth assessment of the branch’s foreign tax processes would not normally be expected provided these are carried out by suitably qualified and competent individuals.

• UK-incorporated but non-resident companies will only be in scope to the extent that they have taxable activity in the UK. Detailed consideration of their foreign tax processes is unlikely to be required.

• Dormant companies are in scope but are generally unlikely to have tax accounting arrangements that the SAO needs to consider.

• For companies in administration or insolvency, where there is no individual who meets the definition of the SAO, the legislation will not apply.

• Reflecting the importance of the CRM to the SAO process, HMRC has undertaken to assign a CRM to those companies which qualify but which do not currently have a CRM.

Qualifying test

• Confirmation that, for both the turnover and balance sheet asset tests, the amounts for UK entities are simply aggregated, with no adjustment for inter-company amounts.

• The turnover test considers only the amount shown as turnover or revenue on the face of the statutory accounts, so excludes adjustments made in tax computations.

• As banks and insurance companies do not normally show turnover on the face of the accounts, the asset test alone will be relevant in determining whether they fall within the measure.

• No formal notification to HMRC is required if a company or group ceases to meet the size criteria.

Taxes covered

• Air passenger duty is included as an excise duty.

• Where the qualifying company administers third party liabilities in respect of the in-scope taxes, the processes are covered by the legislation. For example, for stamp duty reserve tax (SDRT), this extends to brokerage activities.

Taxes excluded

• NIC and other employer responsibilities such as student loans and national minimum wage.

• Tax reporting under the construction industry scheme (CIS); and for income tax on forms such as CT61 or SX1 for manufactured overseas dividends.

• Environmental taxes – landfill tax, aggregates levy and climate change levy.

Commencement

• An SAO who starts a review in the first financial year will be treated as having taken “reasonable steps” in respect of that year and therefore any failure in the main duty would not attract a penalty.

• However, this concession is only available to companies which fall within the legislation for their first financial period starting after 21 July 2009.

Reasonable steps

• Where outsourcing arises intra-group, for example where tax is dealt with by a group tax director, the guidance suggests that the principles of what constitutes reasonable steps are similar to those for outsourcing to third parties. Thus, they would include an assessment of the qualifications and competency of the individual, but would be unlikely to require detailed checking of the work delegated.

• Where an SAO changes during a year, HMRC does not expect the new SAO to check the work of their predecessor where the tax accounting arrangements appear to be in order. If the arrangements turn out to be inappropriate, provided this could not have been known by the new SAO, no penalty would arise.

• The examples of “reasonable steps” have been extended to include two relating to customs duties.

Further information

The guidance, and other relevant information, is available from the SAO page on the HMRC website: click here.
If you require further information regarding any of the points above please do contact us.

Elysian Associates
August 2009

All VAT registered businesses will be expected to file their VAT returns electronically from April 2010. The sooner businesses are registered on the Government Gateway the better it will be for the smooth declarations of VAT. Don’t wait until April!

From 1 April 2010, all taxpayers with an annual turnover of £100,000 or more – and all newly-registered businesses (whatever their turnover) – will be required to submit their VAT returns online and pay electronically. Other taxpayers will continue to have the option of submitting paper returns but HMRC expects that the obligation to file electronically will be extended to all taxpayers in 2012. There are clear benefits to e-filing, including an extra seven days to submit returns and an extra three days to pay, together with providing immediate confirmation that the VAT return has been validly submitted.

In practice there are two ways in which businesses can e-file a VAT return. These are: 1) directly with the government gateway website; or 2) via an HMRC accredited third party product.

Using the government gateway provides a basic submission mechanism allowing business to input values that replicate a paper based VAT100, and simply submit. The use of an approved third party website to e-file a VAT return can bring added value to the process and include functionality over and above that which is available on the government gateway. Such functionality can include:

• permanent online electronic storage of all VAT100′s filed, so users can quickly and easily refer back to historical VAT100 submissions;

• the ability to compare and contrast current period values to historic periods, giving an extra level of assurance before final submission by using trend analysis;

• tracking voluntary disclosures – monitoring the value and status of disclosures;

• the ability to deal with multiple UK registrations and e-filings from one place, tracking submission deadlines and monitoring progress, final sign off and submission; and

• putting in place simple, but useful, electronic sign-off procedures.

If you require further information regarding any of the points above please do contact us.

Elysian Associates
September 2009

HMRC have issued a Press Release and Revenue and Customs Brief 68/09 announcing that retail businesses trading overnight on 31 December 2009 will be permitted to continue to account for VAT at 15% until the earlier of 6.00am and the close of trading.

The 15% rate will therefore apply to telecoms charges for calls and texts made and billed in the early hours of 01 January 2010. The 15% rate will not apply to businesses which account for VAT on an invoice basis, on-line or mail order sales, coin-operated machines, pre payments for supplies made after 6.00am on 01 January 2010 and supplies which could be caught by the anti-forstalling provisions. HMRC have stated that they will apply a ‘light touch’ to errors where there is no net VAT loss.

Elysian Associates
November 2009

HMRC have revised its policy on the VAT status of University trading subsidiaries.

The Policy changes are made with immediate effect and means that Universities will have to treat their subsidiaries as eligible bodies rather than taxable trading companies. There is a brief transitional period which ends on 31 July 2010.

This means that not only does it extend the scope of exemption for educational services and associated supplies of goods but also may have implications for recovery of input tax affecting the budgets of all such organisations.

Thus any educational services being provided by a University trading subsidiary should be carefully reviewed in light of the above.

Elysian Associates
March 2010