The main changes announced today are:

• As expected the standard rate of VAT will increase to 20% on 4 January 2011. Anti-forestalling legislation has been announced to prevent any widescale planning.
• There are no changes to the current zero rates. The flat rate scheme percentages will be increased in line with the increase to the standard rate of VAT.
• The standard rate of Insurance Premium Tax will increase by 1% to 6%. The higher rate will increase by 2.5% to 20%.
• Previously announced changes to the zero rating of certain types of aircraft.
• Previously announced changes to the place of supply of certain types of natural gas and heating/cooling systems.
• Previously announced changes to the use of the Lennartz principle for certain types of asset used for business/private use.
• Previously announced changes to the VAT exemption for certain public postal services provided by the Royal Mail with effect from 31 January 2011. Stamped mail remains exempt so private individuals should be largely unaffected.

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Mercer & Hole can report the following tax measures:

• VAT - increased to 20% from 4 January 2011(zero rating remains for food and children's clothes).
• Council Tax - the Government will assist local councils freeze council tax for one year (from 2011).
• Capital Gains Tax - 
  • Basic rate tax payers will pay 18%
  • From midnight tonight higher rate tax payers will pay 28%
  • The entrepreneurs' rate will be extended to the first £5 million earned.
• Income tax - the £6,475 tax free allowance will be increased to £7,475 in April 2011 (higher rate tax payers will not benefit from this change).
• There were no new duties on tobacco, alcohol and fuel.

 

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HMRC has announced an important change to the treatment of cheques sent by taxpayers to pay VAT due on their VAT returns.

From 1 April 2010, payment will be treated as being ‘received’ by HMRC when the cheque clears into HMRC’s bank account and not as currently, the date the cheque is received. A cheque takes three bank working days to clear (excluding weekends and bank holidays).

Businesses paying by cheque must ensure that they allow enough time for the cheque to be received and cleared by the due date of the VAT return. HMRC recommends that businesses should allow at least three days for the post (to allow for any postal delays).

Late payment will lead to surcharge penalties.

Businesses can use alternative means to pay VAT due (eg electronic forms of payment) to avoid such issues with cheques. Online filing and payment is a much more efficient and reliable way to deal with VAT returns. From 1 April 2010, online filing is compulsory for businesses with a turnover above £100,000.

Jane Stacey is a VAT adviser and a senior manager at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Jane you can call her on 01727 869141.

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Chancellor Alistair Darling confirms that the VAT rate will return to 17.5% on the 1 January 2010 as anticipated.

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Chancellor Alistair Darling has confirmed that he will make his Pre-Budget Report statement on Wednesday 9 December 2009. We will be providing full analysis of Pre-Budget Report announcements on the day.

We will be blogging on SME Plus Blog and Tax Plus Blog on Pre-Budget Report day.  If you do not already subscribe to our blogs click here for SME Plus Blog or here for Tax Plus Blog to ensure you get our comment and analysis as and when it happens.

Lisa Spearman is a partner at Mercer & Hole. If you would like to discuss the contents of this post with Lisa you can call her on 020 7353 1597. 

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The Government’s new temporary scheme introduced on 18 May 2009, to boost the flagging new car market has brought with it a number of potential VAT issues for manufacturers, dealers and customers alike.

As the amount is funded in two ways, half from the manufacturer and half from the Government, there is scope for VAT accounting errors to occur, particularly as many car dealers are using this scheme in conjunction with other promotional schemes.

HMRC’s Business Brief 31/09 sets out the correct VAT treatment of the £2,000 subsidy.

If you buy a new car or van under this scheme and are entitled to reclaim the VAT on the purchase, you will need to adjust the VAT reclaimed to reflect the manufacturers’ discount.

Further information regarding this scheme can be found on HMRC’s website.

Jane Stacey is a VATadviser and a Senior Manager at Mercer & Hole. The views given in this blog are personal to the author.

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It was a fairly uneventful VAT budget.

The Chancellor confirmed that the standard rate of VAT will revert back to 17.5% on 1 January 2010 as previously announced. Draft “anti forestalling” legislation has already been published and will be introduced in the Finance Act 2009 to prevent certain exempt businesses from planning to benefit from the rate increase.

There was speculation beforehand that the standard rate of VAT would increase to at least 18.5% and/or that the Chancellor would make use of new powers to extend the reduced rates of VAT but neither of these has happened.

Other VAT changes announced are:

• The annual VAT registration threshold has been increased from £67,000 to £68,000. The annual threshold for deregistration has been increased from £65,000 to £66,000.
• Revised fuel scale charges will apply to VAT returns on or after 1 May 2009.
• VAT exemption will apply to gaming participation fees (bingo and other games of chance) with effect from 27 April 2009.
• The rate of bingo duty will increase to 22% for any accounting period beginning on or after 27 April 2009.
• Other miscellaneous changes to the rules for bingo and games of chance.
• A package of changes to harmonise cross border supplies of goods and services and to reduce fraud, will be introduced on 1 January 2010 as part of an EU wide exercise. The UK has announced new rules in relation to EC Sales Lists for goods and services, overseas VAT refunds and the time and place of supply of certain cross border services.  
• A reduced VAT rate of 5% will apply to bases for child car seats.
• A minor simplification of the option to tax 'permission' rules where previous exempt supplies have been made.

Comment on this blog in the space provided below, or visit my profile for details of how to contact me.

Jane Stacey is a VAT Manager at Mercer & Hole.

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With less than a week until Chancellor Alastair Darling’s second Budget statement the speculation as to what may be announced on Wednesday 22 April 2009 is mounting.

Political  commentators such as www.politics.co.uk suggest that on one hand it should be a neutral Budget, but on the other hand spending is now part of the Government’s DNA. The British Retail Consortium (BRC), is reported in The Telegraph as saying that, “the high street is in need of some retail therapy”.

The Times reports that, “the Budget will make or break renewable energy” and the BBC is giving its own predictions here.

From a tax perspective much has already been announced in respect of the current tax year, but there may be changes announced for later years. Those dealing with the taxation of non-domiciled UK residents would welcome some simplification of the horrendously complex new rule introduced in Mr Darling’s first Budget last year. 

As usual, we will just have to wait and see! 

We will of course be blogging on SME Plus Blog and Tax Plus Blog, providing analysis on the key highlights next Wednesday.    

If you do not already subscribe to our blogs click here for SME Plus Blog or here for Tax Plus Blog to ensure you get our comment and analysis as and when it happens. 

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The Chancellor will make his Budget statement on Wednesday 22 April 2009.  We will be providing analysis of Budget announcements on the day.
 

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As widely reported, the PBR today has confirmed that the standard rate of VAT will be cut to 15% with effect from 1 December 2008. (The new VAT fraction to be applied to VAT inclusive prices will be 3/23).

This means that standard rated supplies of goods and services made after this date will attract the new rate of VAT. Supplies at the zero or reduced rates and exempt supplies are not affected. The new rate will remain in place for 13 months till 1 January 2010, when it will rise again to 17.5%. (Anti- forestalling legislation will be brought in to prevent planning around the subsequent rate increase).

For sales spanning 1 December, special tax point rules mean that businesses can choose to charge VAT at the new rate on goods removed and services performed after the rate change, even if payment has already been received or VAT invoices issued. In those cases, credit notes will have to be issued to correct the VAT overcharged.

Special rules will apply to retailers, those providing continuous supplies of services (e.g construction industry) and other special schemes (second hand dealers etc). Detailed guidance on how to deal with the change is available on HMRC’s website.

The reduction in the standard rate will also amend the rates applied under the Flat Rate Scheme for small businesses. The revised percentages are published on HMRC’s website.

Other VAT and duty changes announced are;

• Increase in threshold for Bespoke Retail Schemes with effect from 1 April 2009.
• Simplification of the entry and exit rules for VAT Flat Rate Scheme with effect
  from 1 April 2009.
• Payment arrangements for those having difficulties paying VAT bills via the “Business Payment Support Service”.
• Increases in fuel/alcohol and tobacco duty.

The Chancellor has urged retailers to pass on the rate cut “as quickly as possible”. In reality, businesses may choose not to pass on the cut. They are unlikely to welcome it as it will cost them to implement changes to prices /accounting and point of sale systems. In the retail sector, where prices are already being heavily discounted, it is hard to see that a further 2.5% cut will have much of an impact on sales turnover.

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Please find below a blog which you might find of interest from my colleague Cathy Corns, who writes for our sister blog SME Plus...

HMRC has published new guidance on the new penalty provisions that will apply from April 2008.

HMRC states that it has designed the new penalties so that:

• If people take reasonable care when completing their returns they will not be penalised.
• If they do not take reasonable care errors will be penalised, and the penalties will be higher if the error is deliberate.
• Disclosing errors before HMRC find them will substantially reduce any penalty due.

The new penalties initially apply to VAT, PAYE, National Insurance, Capital Gains Tax, Income Tax, Corporation Tax and the Construction Industry Scheme.

Further information can be found at:
http://www.hmrc.gov.uk/about/new-penalties/penalties-leaflet.pdf
http://www.hmrc.gov.uk/about/new-penalties/faqs.htm

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The main VAT changes announced in the Budget today are;

1. With effect from 1 April 2008, the annual VAT Registration/deregistration limits have
   increased to £67,000/£65,000 respectively. 
2. Revised fuel scale charges will apply for VAT return periods beginning after 1 May 2008.
3. A transitional period has been announced for VAT refund claims to 31 March 2009. This follows recent litigation relating to the three year capping rules introduced in 1996/7.
4. Withdrawal of the staff hire concession with effect from 1 April 2009.
5. A package of simplification measures for the option to tax.
6. Extension of the VAT exemption for fund management services.
7. The limits for correcting errors on VAT returns have increased from £2,000 to the greater of £10,000 and 1% of turnover.
   
   Full details of these changes will be contained in our Budget Tax Bulletin to be issued shortly.
   
   

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My colleague Cathy Corns recently outlined the new penalty regime for both direct and indirect taxes to be introduced next year. This new regime will potentially mean that businesses will face higher penalties for errors in VAT return periods with a due date after 1 April 2009.

Under the current VAT rules, if a business discovers an error before HMRC has begun to make enquiries, it can either make a voluntary disclosure or where the VAT is less than £2,000, it can adjust the amount on the VAT return. By doing so, the 15% misdeclaration penalty (triggered when an error breaches certain thresholds) will automatically be waived. Also, a penalty will not apply where a business can convince HMRC that it has a “reasonable excuse” for the error. Under the new regime, the concept of “reasonable excuse” will no longer be grounds for waiving a penalty.

Instead, HMRC will determine the quantum of a penalty by reference to the amount of VAT at stake, the nature and behaviour of the offence that lead to an understatement of VAT and the extent of the disclosure by the business.

There has been no confirmation so far that VAT errors below £2,000 cannot continue to be adjusted on the VAT return, under the new regime. However, it may prove necessary to write to HMRC to disclose any error, regardless of the size and reason, even when the error can be put on the VAT return. This would avoid the potential for a 30% penalty for making “careless” errors.

Hopefully HMRC will confirm this point nearer the time. Watch this space….

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HMRC have now issued Business Brief 07/2008 inviting businesses to submit claims for both input tax accrued before 1 May 1997 and also output tax claims for accounting periods prior to 4 December 1996.

There is no time limit for submission of these claims but if you have a claim, prompt action should be taken.

Further announcements are expected.

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If you are involved in providing cross border services, you may be affected by future changes to the place of supply rules under a “VAT package” agreed by the European Commission in December 2007.

Broadly the new rules (to take effect from 2010) will change the place of supply of “business to business” services to the place where the customer is situated. Supplies of services to consumers will continue to be where the supplier is established. However, there will be special rules (“one stop shop”) for telecoms, broadcasting and electronic services to consumers (delayed until 2015).

The package will also introduce a much needed improved system for businesses seeking refunds of VAT paid in other Member States. The EU VAT refund system will become fully electronic from 1 January 2010 thus ensuring a quicker and easier process. This is a very welcome change. For those of you who are familiar with the current paper system, it is extremely burdensome and can take 6 months or more to obtain VAT refunds from other countries. Under the new system, interest will be paid if Member States are late making refunds!

We will keep you informed of the changes as these become available.

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A recent decision in the case of Livewire Telecom LON/06/1365 has demonstrated the complexity of VAT fraud cases involving carousel fraud.

The appellant was a wholesale broker (exporter) of mainly new mobile phones. In the course of selling such phones, the company made the relevant checks on both suppliers and customers and the unique phone reference numbers “IMEI”. However, in 2006, HMRC refused to make a significant repayment of input tax on the basis that it suspected that the business was knowingly involved in “contra trading” in respect of 14 transactions. “Contra Trading” involves two separate supply chains, one “clean”, the other “dirty”. The dirty chain will include a “missing trader”. In this case, the appellant was part of the clean chain but HMRC claimed that it was knowingly involved in a carousel fraud.

The tribunal decided, on the evidence available, that the due diligence process of the business appeared to be flawed. However, the appellant could not have (nor ought to have) known of the fraud at the time the transactions took place. Interestingly the tribunal was also critical of the way HMRC presented its evidence and made suggestions as to how this could be improved for future cases.

Other businesses which have had input tax claims refused may now seek millions of pounds of VAT refunds.

HMRC are considering whether to appeal the decision.

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Have you had input tax (or output tax) claims capped by HMRC at 3 years? If so, a recent House of Lords Judgement will be of interest to you.

The judgements in two similar cases Conde Nast and Fleming have ruled that the introduction of the 3 year cap with effect from 1 May 1997 was in breach of the principles of Community law as it did not allow the taxpayer a reasonable transitional period in which to submit refund claims. As such it must be disapplied. This opens up the period for submission of old and new claims.

The Lords ruled that a prospective transitional period should now be allowed in order for taxpayers to make claims. Futhermore, as the three year cap has been ruled to be defective, this means that even taxpayers who have not yet submitted claims for input tax incurred before 1 May 1997 will have the opportunity to do so. It is not known how long the transitional period will be, but it could be as short as six months.

Therefore if you have had input tax claims capped in the past, you should now revisit these claims as a matter of priority. When the details of the transitional period are announced, such claims should be re-submitted.

This judgement also calls into question the position following the Marks & Spencer case (relating to overpaid output tax). It may also be possible that the transitional period for output tax claims could be "reopened". Therefore, any output tax claims (overdeclared VAT in the periods prior to 4 December 1996 ) which have been capped by HMRC should also be revisited.

Watch this space for further details...

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Do you use business assets for private or non business purposes (e.g. a yacht/aircraft/computer)? Are you aware that you have a choice as to how the VAT paid on the purchase of such assets is treated? Continue Reading...

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My colleague Roger Bell reported in July this year on an important European Court of Justice (ECJ) case involving the VAT treatment of fund management services.

The Times and the Association of Investment Companies today report that HMRC has withdrawn its appeal in the case of JP Morgan Claverhouse Investment Trust plc/Association of Investment Trust Companies v HMRC.

Continue Reading...

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Below is a piece I wrote for SME Plus Blog (for which I also contribute) on sales promotion schemes...

Are you involved in sales promotion schemes? If so, you may be interested to hear of two recent Court of Appeal decisions which will affect the VAT treatment. These cases are the latest in a long line of cases dealing with business promotion schemes.

Continue Reading...

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The restrictions on recovering VAT on the purchase or  leasing of company cars has of course long been a sore point with businesses and it seems hardly a month goes by without some  case coming to Court.

In September HMRC issued Revenue & Customs Brief 60/2007 announcing their intention to appeal the VAT Tribunal’s decision in the cross- border leasing case RBS Deutschland Holdings GmbH.

Continue Reading...

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A timely reminder that modifications are required to the format of some invoices from 1 October 2007.

The businesses most affected are those

Continue Reading...

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H M Revenue & Customs have announced new advisory fuel rates which can be used by businesses to reclaim VAT on employees mileage allowances for business travel.

The new rates which apply to all journeys on or after 1 August 2007 are as follows:-
Continue Reading...

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Investment trust companies (ITCs) are celebrating their victory at the European Court of Justice on 28 June when it was ruled that the term “special investment funds” can include closed-ended investment funds, such as ITCs. As a consequence they should benefit from the same exemption from VAT for fees paid for management services, as presently enjoyed by unit trusts and OEICs..

The case was brought by JP Morgan Fleming Claverhouse Investment Trust plc and The Association of Investment Companies. The Association say investment trusts have been unfairly charged VAT on management expenses since 1990 Continue Reading...

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Should HMRC pay you compound interest on VAT repayments? The House of Lords is due to hear the case of Sempra Metals Ltd v HM Commissioners of Inland Revenue on 16 May which although concerned with advance corporation tax will, it is thought, also have implications for VAT repayments.

HMRC have always paid simple interest on tax repayments but “Community law requires full compensation for the loss of the use of money; and full compensation for the loss of the use of money requires that interest is compounded…”. Not my words but those of Chadwick LJ in the Court of Appeal. If HMRC lose their appeal in the Sempra case prepare to revisit old repayment claims. It may well be that you can make a supplementary claim for additional sums of interest.

 

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Those of you who are overweight may have considered joining the Weight Watchers
programme but have probably not thought about the VAT implications!

Customers are asked to attend weekly meetings at which they are weighed. They are given an initial handbook, a monthly magazine and weekly leaflets. In 2004 Customs issued a ruling to Weight Watchers UK Ltd that part of the consideration paid by customers could be attributed to this zero rated printed material. In 2005 they withdrew this advice and ruled that the company was making a single supply of a standard rated weight loss programme and that it had to account for VAT on all the takings.

The company appealed and in March 2007 a VAT Tribunal allowed the appeal, holding that the company was making multiple supplies and that the consideration should be apportioned.

Whilst this is good news, it does illustrate one of the most difficult areas of VAT – when you bundle together goods or services with differing VAT rates, are you genuinely making multiple supplies at different rates or as HMRC will usually argue citing the case of Card Protection Plan, a single supply with the other items being merely ancillary or incidental to the main supply. We would be interested to hear of your own experiences in this area.

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H M Revenue & Customs have issued more guidance on the new declaration that is required to accompany all applications to use a special method for VAT partial exemption from 1 April 2007.

You are required to declare that to the best of your knowledge and belief the special method you are proposing “fairly and reasonably represents the extent to which goods and services are used or to be used in making taxable supplies”. A template for making the declaration has been given in HMRC Brief 23/07. See www.hmrc.gov.uk/briefs/vat/brief2307.htm

But what is fair and reasonable? If HMRC approves a method but subsequently decide that the method being used gives excessive input tax recovery they can override the method and retrospectively recalculate the affected VAT returns. Great care therefore needs to be taken by the person signing the declaration to satisfy himself that he is fully aware of the result the proposed method will have on all areas of the business and that it is “fair” to both the business and the Treasury. Call me cautious but I am not sure I would want to sign this. “Fairness” is a matter of opinion.

HMRC expect this to raise £20 million in 2007/08, so they clearly intend to challenge many of the methods proposed. Will the risk of a later challenge mean there will now be fewer applications?

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The European Commission is trying to standardise VAT invoices ( just invoices?) throughout Europe and the UK Government has agreed to make a number of changes to our regulations by August 2007.

The changes will affect:

The numbering of invoices – they will need to be sequential based on one or more series which uniquely identify the document. Don’t we already do this?

 

Cross border invoices to business customers in other Member States where the supply is exempt or where the customer applies the reverse charge procedure – the invoice will need to show the VAT treatment; and

 

Invoices issued under the margin scheme for second hand goods and the Tour Operators Margin Scheme- the invoices will need to identify the scheme used.

The Joint VAT Consultative Committee have asked for comments on the draft regulations and the estimated costs to business of making the changes. See www.hmrc.gov.uk/news under 14 March.
I suggest you read this before ordering any new stationery!

 

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