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

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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

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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

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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

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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

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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

Further to my note in May regarding the Disclosure of Errors, HM Revenue and Customs have issued a Business Brief 38/2008 regarding default interest on net errors of £2000 or less separately notified using the Voluntary Disclosure of Errors regime.

Customs have announced that their practice of not charging default interest on these notified errors is not lawful and will only continue until the end of August 2008.

From 01 September 2008 all notifications of errors requiring an Assessment may be subject to default interest charges from that date irrespective of the amount involved.

However, as mentioned previously deminimis net errors can continue to be corrected on a VAT return and will not attract interest.

Downturn in the economy and the construction industry

Many small and larger building companies are feeling the pinch at the moment particularly bespoke house builders who are unable to sell their newly built houses. We are finding that they are turning to the rental market in the hope of weathering the storm. Doing this however, means that they stand to lose all the VAT recovered on the materials etc used in the construction in addition to a possible Stamp Duty Land Tax charge.

You should be aware that it may be possible to restructure things so that it is possible to avoid the VAT hit.

Elysian Associates

August 2008

HMRC have at last increased the ridiculously low threshold at which you have to notify them of a VAT error, currently £2000.

With effect from 01 July 2008 adjustments of £10,000 or 1% of quarterly turnover can now be made on the VAT Return without having to consult HMRC.

This is subject to a maximum of £50,000.

Adjustments exceeding this value must still be made on a VAT 652 (Voluntary Disclosure of Errors) and of course get the adjustment wrong and there are penalties.

Elysian Associates

May 2008

Three year capping

Further to my note in November The House of Lords has now released its decision regarding the three year capping cases in respect of Conde Nast and Fleming.

The Judgment was a resounding success for the tax payers and the three year capping was judged to be illegal and implemented incorrectly in the UK.

The claims relate to input tax under-claimed prior to May 1997 and over-paid output tax up to December 1996. Any claims could go as far back as April 1973.

Not surprisingly Customs are strangely quiet on the matter but it could mean that any claims reduced by the three year capping should be pursued for payment. In addition any claims not lodged as yet should be lodged as quickly as possible. Remember that any claims paid will also include interest – possibly compounded.

If you wish to discuss please give us a call.

Elysian Associates

January 2008

It may be possible to claim compound interest on overpaid VAT where a taxpayer mistakenly pays too much VAT, particularly where there was no error of the part of HMRC. It is important to act as soon as possible, so if any of your clients have in the last 6 years overpaid or under recovered VAT through his/her own mistake perhaps by a simple oversight or accounting system error they are entitled to make a claim for compound interest to HMRC. This is even possible where simple interest has already been paid. See Sempra Metals tax case.

Three year capping

The House of Lords has now heard appeals against the Court of Appeal’s decisions in the cases of Conde Nast and Fleming. It is possible that the Judgment may be issued before Christmas but most likely it will be delivered in the New Year. Apparently one of their Lordships mentioned “temporal limitation” which means that only claims submitted before the decision is released will be accepted. This is a very rare situation but it is possible that this could affect belated claims to recover output tax overpaid before 4^th December 1996 and input tax under recovered before 1^st May 1997. We would recommend that any claims be submitted as soon as possible just in case.

Elysian Associates

November 2007