VAT update

1
VAT update

• September 2009
• Helen Elliott
• Noelia Serrano

2
Agenda

• VAT basics std PE method change of VAT rate
• Claims, assessments penalties
• Property VAT
• Sporting exemption
• Non-business cases
• Place of supply rules
• Miscellaneous staff hire conc SMS messages

3
Standard PE method

• HMRC announced four changes to the standard
  partial exemption method from 1 April 09
• In year provisional recovery rate
• Early annual adjustment
• Use based methods
• Foreign specified supplies
• First three are optional, last is mandatory

See notes
4
Standard PE method

• In year provisional recovery rate
• Can use previous annual adjustment rate on a
  provisional basis rate before de-minimis test
• Corrected in end of year annual adjustment
• Can change year to year, but approach used in
  first VAT return must then be applied for rest of
  year
• Simplifies VAT administration. May also offer
  some cash flow advantages as can choose

5
Standard PE method

• Early annual adjustment
• Can now do annual adjustment in
• Last return of VAT year or
• First return of next VAT year
• Cash flow planning if annual adjustment is net
  payment do next year. If it is a net recovery
  do in year

6
Standard rate of VAT

• The standard rate of VAT is reduced from 17.5 to
  15 between 1 Dec 08 31 Dec 09
• HMRC guidance on rate increase on 31 Dec 09 now
  released including HMRCs light touch policy
  and the new anti-forestalling rules

7
Standard rate of VAT

• Light touch policy
• No assessment or penalty for errors in first VAT
  return after change unless there is an overall
  revenue loss to HMRC
• Eg VAT incorrectly charged at 15 to full
  recovery customer - OK
• VAT incorrectly charged at 15 to partial
  recovery or unregistered customer - not OK

8
Standard rate of VAT

• Election to use basic tax point
• Where a change of rate can elect to use rate at
  basic tax point rather than actual tax point
• Eg goods/ services supplied on 29 Dec but
  invoice raised on 3 Jan can invoice at 15
• Supplies in progress on 31 Dec
• Can apportion between work carried out pre 31 Dec
  (at 15) and post 31 Dec (at 17.5)
• Eg consultancy contract

9
Standard rate of VAT

• Special situations
• Tickets to events HMRC regard basic tax point as
  when ticket is sold not when event is. So if sell
  ticket in Nov 2009 for event in Mar 2010, rate of
  VAT is 15
• Membership subs if a std rated component, can
  apportion on day basis between 15 and 17.5 but
  OK to have all at 15 if invoiced annually in
  advance.

10
Standard rate of VAT

• Anti-forestalling rules
• Stops pre-charging at 15 for supply made after
  31 Dec
• But only applies if lots of conditions met (see
  notes)
• Most likely to apply to large transactions (over
  100k) such as property transactions or
  transactions with connected persons (eg trading
  subs)
• Imposes additional 2.5 charge on 1 Jan 2010

11
Claims assessments

• New time limits for claims assessments.
• Will apply from 1 April 2010 for other taxes but
  for VAT being phased in over 09/10
• Before 1 April 2009 went back 3 years
• In 09/10 claims assessments go back to 1 April
  2006
• From 1 April 2010 will go back 4 years
• 20 years for deliberate under-statement

12
New penalty regime

• New penalty system for understatements on tax
  returns and failure to notify HMRC of an
  underassessment
• Applies to CT, IT, CGT, PAYE, NICs, VAT CIS for
  returns in respect of a tax period beginning on
  or after 1 April 2008 that are due on or after 1
  April 2009
• Will apply to other taxes from 1 April 2010 (IHT,
  SDLT etc)
• Penalties are expressed as a percentage of
  potential lost revenue
• Percentages vary depending on taxpayer behaviour

12
13
New penalty regime
As a percentage of the potential lost revenue
13
14
New penalty regime

• Reasonable care
• Level of knowledge proportionate to circumstances
• Records sufficient to enable an accurate tax
  return to be made
• Seek advice where not sure
• But if original error was reasonable care but
  taxpayer later found error and did not disclose
  when should have deemed to be careless

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15
New penalty regime

• Careless
• Equivalent to general law concept of negligence
• Not deliberate
• Omit to do that which a prudent and reasonable
  person would have done, or
• Do that which a person taking reasonable care
  would not have done

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16
New penalty regime

• Deliberate
• A person knowingly and intentionally gives HMRC
  an inaccurate document
• Concealment
• Active steps have been taken to cover up the
  inaccuracy either before or after the document
  has been sent to HMRC

16
17
New penalty regime

• Maximum penalty is reduced for

Of total available reduction
17
18
New penalty regime

• Potential lost revenue (PLR)
• Amount of tax understated
• Can offset overstatements. But if more than one
  cause (reasonable care, careless etc) offset
  against the less serious first
• If just pay on a later tax return, PLR is 5
  (annualised) of tax delayed
• But no penalty for VAT errors adjusted within
  de-minimis error rules

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19
New penalty regime

• Suspended penalties
• Only available for careless inaccuracies
• HMRC may suspend a penalty for up to 2 years if
  it believes there are conditions that can be
  imposed that, if met, will avoid future
  inaccuracies
• Eg record keeping problems
• If conditions met at end of suspension period,
  penalty is waived
• If conditions not met, penalty is due

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20
Property VAT ESC 3.29

• Can zero-rate property construction, property
  purchases, construction of annexes and
  substantial reconstructions of listed buildings
  if intended for use solely for a relevant
  charitable purpose
• Relevant charitable purpose non-business use
  (other than as an office for general
  administration) or use as a village hall
• Solely means must building cannot be intended for
  any amount of non-qualifying use

21
Property VAT ESC 3.29

• In practice very difficult to ensure solely
  condition is met
• So there is an HMRC concession where can ignore
  non-qualifying use up to 10
• Known as ESC 3.29
• Non-qualifying use has to be calculated in one of
  several prescribed ways (time, floor area,
  headcount)

22
Property VAT ESC 3.29

• ESC 3.29 also has three connected concessions
• Change of use if non-qualifying use goes above
  10 - can ignore
• Switching if qualifying and not qualifying areas
  switched around can ignore
• Look through can look through to an occupiers
  use of the building eg charity lets to another
  charity that intends to use for a relevant
  charitable purpose

23
Property VAT ESC 3.29

• ESC 3.29 to be withdrawn from 1 July 2010
• Connected concessions also to be withdrawn
• However HMRC accept that the term solely
  incorporates a de-minimis threshold
• Charities will be able to ignore non-qualifying
  use below 5
• No restriction on how this is calculated provided
  fair reasonable
• 10 year change of use charge

24
Property VAT ESC 3.29

• HMRC accept that ESC 3.29 can apply to
  construction in progress on 1 July 2010 provided
  a meaningful start was made before 30 June 2010
  and is expected to progress without interruption
• HMRC say we would not accept demolition or site
  clearance works unless construction starts
  immediately afterwards
• For purchases a meaningful deposit such as
  exchange of contracts has been paid before 30
  June 2010

25
Property VAT Abercych VAT Tribunal case (v20746)

• Construction costs of a relevant charitable
  purpose annexe can be zero-rated but not
  enlargements or extensions
• Much case law on the distinction between
  enlargements, extensions and annexes
• Previously thought that these categories are
  mutually exclusive
• But this case suggests not works can result in
  both an extension and an annexe. If both -
  zero-rating is denied
• If contemplating building an annexe need to look
  at this case

25
26
Sporting exemption leisure passes

• Previously HMRC took view that where a pass
  provides access to std rated and exempt
  facilities, the pass is std rated
• HMRC now consider the status of the pass follows
  the predominant reason the typical member joins
• This will usually be the exempt leisure
  facilities
• Means exempt leisure facilities should be able to
  recover VAT overpaid

27
Sporting exemption Canterbury Hockey

• Important ECJ ruling on scope of the sporting
  exemption
• UK law says exemption limited to individuals and,
  where there is a memberships scheme, individuals
  with memberships of 3 months or more
• ECJ decided UK cannot limit exemption to
  particular types of recipient so exemption can
  extend to affiliated groups etc
• And rule on 3 month members is also probably
  wrong
• But High Court judgement still to be handed down
  and HMRC have not yet made an announcement on the
  case

28
Non-business cases Bath Festivals Trust

• Grant (non-supply) vs contract (supply)
• VAT Tribunal case concerning funding from Bath
  Council to the Trust for various services. Trust
  claimed std rated. HMRC argued not a supply but
  grant funding
• Tribunal found that important factors are
• Who initiated the services
• Would the funder otherwise have to provide the
  service themselves

29
Non-business cases Bath Festivals Trust

• Here Bath Council initiated the services and
  would otherwise have had to provide them
  themselves so a supply
• Contrasts with the Trusts Arts Council funding
  where Trust approached the Arts Council and Arts
  Council would not otherwise have provided the
  services - so not a supply

30
Place of supply - changes

• Rules being changed from 1 Jan 2010 see notes

B2B will include supplies to VAT registered
entities even if supply is used for non-business
purposes
30
31
Miscellaneous staff hire concession

• Staff hire concession part A abolished on 1 April
  09
• Allowed an employment business to just charge VAT
  on commission not on salary element
• Now VAT due on whole amount salary commission
• However parts B C remain secondees and
  disabled worker placements

32
Miscellaneous SMS messages

• Mobile Data Association has announced that no VAT
  will be charged on donations of up to 10 if sent
  by SMS to certain dedicated short codes or via
  Payforit
• Shortcodes in the 70xxx range have been set aside
  for charity use only
• Scheme operated by 3, Orange, T-Mobile,
  Telefónica O2 and Vodafone
• See notes for website links to further info

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Contact details

• helen_at_sayervincent.co.uk
• noelia_at_sayervincent.co.uk
• www.sayervincent.co.uk
• www.hmrc.gov.uk/charities
• VAT notice 701/1 Charities