 |
||||||||||||||||||
 |
||||||||||||||||||
|
Issue 13
In this issue:
Local Authority Issues Recent VAT Cases And Finally...
Business Briefs and Updates on HMRC Policy:Info Sheet 08/07: Implementation of the reverse charge for mobile phones and computer chips HMRC have formally introduced the reverse charge for sales of mobile phones (including blackberrys) and computer chips between VAT registered entities for transactions exceeding £5,000 with effect from 1 June 2007. The reverse charge will not apply to other goods which had been mentioned in HMRC’s earlier business briefs. Mobile phones which are supplied with an airtime contract are excluded from the scope of the reverse charge accounting. For local authorities, if mobile phones or computer chips are purchased for entirely non-business purposes, the reverse charge should not apply and VAT should be charged as normal by the supplier. If there is an element of business use then the reverse charge does apply. Charitable Buildings Charities that have obtained zero-rating for their new buildings or construction services under Extra Statutory Concession (ESC) 3.29 will no longer have to account for any VAT charge when there is a ‘change of use’ of the building within 10 years of the zero-rate having been obtained. Although this appears to be a positive change – a word of warning – if it is apparent that, at the time zero-rating was obtained, it was intended that non-qualifying use would exceed the 10% limit within the 10 year adjustment period, HMRC will consider that the original supply should never have been zero-rated in the first instance. Cultural Exemption HMRC have produced further guidance as to how they interpret the term ‘direct or indirect financial interest’. The main effect of the guidance is to confirm that any direct or indirect financial interest only affects entitlement to exemption if it is actual, not potential. Further details may be found in HMRC Brief 27/07. There has been substantial recent case law on these issues and the notice incorporates Customs’ new policy on the qualification of a cultural body for the purposes of exempting admission charges. HM Revenue & Customs Brief 36/2007 This Brief deals with the “VAT input tax deduction without a valid VAT invoice” rules and provides a revised Statement of Practice which should be read by all tax payers dealing in computers, telephones, alcohol and fuel oils. The guidance does not apply to situations where HMRC may deny recovery of input tax for other reasons such as "abuse" or the right to deduct. HM Revenue & Customs Brief 47/2007 Customs have outlined details of the scope of the reduced rate of 5% VAT for certain mobility aids for persons aged 60 and over (as announced within the Budget). The 5% rate will apply wef 1 July 2007 to the supply and installation of grab rails, ramps, stair lifts, bath lifts, built in shower seats or showers containing such seats and walk in baths with sealable doors. The installation has to be in the persons own home or one they share with friends or relations; it will not apply to residential care homes or similar establishments. Further details are contained in the Brief 47/2007. Registration Delays Customs have posted on their website, the following; “There are delays with the processing of both online and paper VAT registration applications. Providing good service is a top priority and we are taking steps to improve the situation as quickly as possible. In the meantime, please try to avoid contacting us to see how your application is progressing as this may further extend processing times. Thanks for your co-operation and we apologise for any inconvenience.” We have heard that one Registration Office is due to close and others are not opening mail for up to 30 days and registrations are taking up to 3 months or longer to finalise. Local Authority Issues :
VAT treatment of payments between parties Local authorities may make payments to operators of leisure facilities. However, the nature of these payments can vary and their VAT treatment depends on the circumstances in which they are paid. In some cases they are simply a grant and are therefore outside the scope of VAT. In other cases, such amounts can represent consideration for a supply or third party consideration. Each case needs to be decided on its own facts. Distinguishing between grants and payments can be difficult, especially when interchangeable terms are used, such as 'deficit funding'. Where funding is freely given, with nothing supplied in return, then the payment is not consideration for any supply. This is normally the case with grants paid by public bodies. Conversely, where funding is given in return for specific goods or services, then that payment is consideration for a supply. It has become increasingly common for grant monies to be awarded on condition that the recipient enters into a service level agreement and agrees to meet targets set out in that document. The funding body may even be entitled to quarterly progress reports. This does not of itself mean that a supply is being made in return for the funding. These agreements are often drawn up purely to ensure that the funds are used for the intended purpose, or 'good housekeeping'. To decide whether funding is a grant or consideration for a supply the following questions must be asked:
For example, where leisure facilities are developed and owned by an operator who merely seeks financial support from the local authority for what has always been the operator’s own facilities, then this support is likely to be grant funding which is outside the scope of VAT. Where, however, leisure facilities have been developed, owned and operated by the local authority, and the authority then contracts out the operation of those facilities – imposing conditions upon the contractor - any payments made by the authority to the contractor are more likely to be consideration for the contractor’s supply of agreeing to take over the provision of leisure services under the conditions imposed by the authority. Sucharrangements, where payments are found to be consideration, can give rise to various supplies depending upon whether the contractor is acting as an agent of the local authority or as a principal. Children's Centres HMRC have agreed that where an authority lets all or part of a Children’s Centre to another organisation to enable it to provide the service, the VAT incurred on the construction and operation of the Centre can be excluded from the numerator of the section 33 calculation provided that the rent is calculated to cover no more than the revenue cost of running the facility. Extended Schools Customs have confirmed recently non-business status for instances where the governors of a school operate an extended school activity in their own name (i.e. not on behalf of the LEA), but the LEA makes a charge for the use of the facility, in the shape of a re-imbursement for premises expenditure, which is either (a) childcare related or, (b) non-childcare related (e.g. leisure). “Although the relevant education legislation could be clearer on the matter, it is clear from the DfES web site that in the context of the Childcare Act 2006, extended schools are seen as having an important role to play in the provision of childcare. Additionally, under the Education act 2002 there is an expectation that LEAs will have an advisory role in the context of extended schools. Following the judgment in Edinburgh Telford College, we consider that the LEA’s role in this matter is governed by an overarching special legal framework and that its charge to the governors for the use of the premises is not consideration for any supply to the governors.” School Construction Costs on Study Centre This is a case involving a school that makes exempt supplies but wanted to reclaim VAT on the build of a new study centre. It entered into an arrangement with its school shop company and the school’s charitable trust to enable it to recover input tax for the construction costs of the new study centre. The case was challenged on the Halifax principles preventing “abuse of practice”. The Tribunal ruled in favour of HMRC. The morale of the story is that schools and other exempt bodies need to be very careful in planning the VAT recovery of any construction projects that they may be considering. Any arrangements put in place must withstand critical examination from HMRC. Toasted Sandwiches Too Hot for the VAT Man! Here the issue was whether the supply of hot toasties and grilled panini was a supply in the course of catering and the intention was that the items were to be consumed hot. The appellants claimed that the supply of hot paninis and toasted sandwiches was zero rated and that there was no intention for them to be served hot. The Tribunal accepted that the appellants’ purpose was to provide a crisp fresh toasted product to be consumed but that to be consumed hot was the dominant purpose in heating it so therefore, on this basis, the product was standard rated. And Finally.... Beware of HMRC's Spider Web to Catch Tax Dodgers HMRC have introduced a new software “Web Robot” to its armoury to combat evasion of all taxes. The software acts as a ‘spider’, downloading web pages with relevant details within hours rather than the months it used to take. A recent search was used to find English people letting property in Florida, such a search was estimated to take four months, yet the new software searched over 20,000 pages within 4 hours!
For further information regarding any of these articles or any other Local Authority VAT issue, please contact one of our public sector team on 01962 735350 or e-mail us at: vat@thevatconsultancy.com |
|
||||||||||||||||
|
||||||||||||||||||
Home | Services | Specialist Services | About Us | Our Clients | News | Links | Careers | Contact Us | Privacy | |
||||||||||||||||||
