Issue 11

In this issue:

Business Briefs and Updates on HMRC Policy

• Business Brief 03/06 - New VAT 1614 - Option to Tax
• Business Brief 01/06 - Hotel Conference/Function Facilities

Local Authority Issues

• Business Brief 04/06 - Off-street car parking
• Burial of Ashes

Recent VAT Cases

• Tribunal - The Highland Council
• Court of Session - Edinburgh's Telford College

Business Briefs and Updates on HMRC Policy:

Business Brief 03/2006 - New VAT 1614 – Option to Tax form

A new form has been introduced to try and reduce the number of supplementary questions HMRC raise in response to notifications.  The new form can be downloaded from the HMRC website and must be used for all new options to tax (unless you provide all the same information in a letter).

The changes include notification of authorised representatives submitting forms on behalf of clients, requirements for further information about the nature of any exempt supplies made prior to opting to tax and new boxes which have to be completed to indicate why automatic permission is thought to be appropriate.  The address of the Option to Tax Unit is also now helpfully included.

HMRC state that the Option to Tax Unit should not be contacted to obtain the progress of an application to opt to tax before 10 working days have elapsed from the date the form is sent, although if an urgent acknowledgement is required, the OTTU will do their best to respond urgently.

Business Brief 01/2006 - Hotel Conference / Function Facilities

HMRC have announced a revised interpretation of law on the VAT treatment of hotel conference/function facilities.

The change affects the liability of supplies of rooms by hotels that are to be used for meetings, conference and similar functions. There is no change to the treatment of supplies of rooms where the primary use will be for the purpose of supplies of catering, such as dinner/dances, wedding receptions, etc. Supplies of rooms for such purposes are always taxable supplies.
 

Background

Hotels and other establishments often provide rooms for meetings, conferences and similar functions organised by third parties. It is usual for them to make inclusive charges depending on the requirements of individual delegates. It is the general practice for hotels and similar providers to charge organisers on a delegate or attendee basis (referred to as the ‘delegate rate’), i.e. the charge will be determined according to the number of delegates requiring:

• use of the conference room only;
• use of the conference room plus meal(s) (‘8 hour conference delegate rate’); or
• use of conference room plus meals and overnight sleeping accommodation (‘24 hour conference delegate rate’).

The supply of a conference/function room on its own in these circumstances is exempt from VAT (unless an option to tax has been made). Where, in addition to the use of the conference/function room, a meal is provided to delegates and an inclusive charge made (the 8 hour delegate rate), each element is treated as a separate supply, so whilst the conference room continues to be exempt from VAT (unless an option to tax has been made), the part of the consideration relating to the provision of food is taxable (unless the provision of refreshments is minimal, such as tea and biscuits). However, where the 24 hour conference delegate rate has been applied and an inclusive charge made, HMRC has until now seen the charge as consideration for a single taxable supply of use of the entire hotel’s facilities including conference/function facilities, sleeping accommodation and food.

Revised interpretation of the law

Where a room is provided for a meeting, conference or similar function organised by a third party (but not where the primary purpose is for a supply of catering – see above), HMRC now accepts that the provision of conference/function room hire, meals and sleeping accommodation under the 24 hour delegate rate, even where made in return for an inclusive charge, should be treated as separate supplies. These will be taxable supplies, with the exception of the conference/function room hire, which will be an exempt supply, unless the hotel has opted to tax its supplies. In cases where a single consideration is paid for supplies having different liabilities, for example where a charge for room hire is made under the 24-hour delegate rate by a hotel which has not opted to tax its room hire, a fair and reasonable apportionment to the consideration must be made.

There is no change to the treatment of 8 hour delegate charges.

Where hotels organise and run conferences or similar events themselves and charge for entry to delegates, their supplies are always taxable supplies. Furthermore hotels that have made an option to tax will be unaffected by the change and should continue to charge tax on their supplies.

The change described above should be implemented from the 19th January 2006 and there is no requirement to make adjustments in respect of supplies made prior to this date. However, where hotels or other establishments wish to make a claim to HMRC for a repayment of output tax incorrectly paid, they may do so, subject to normal conditions.

Local Authority Issues :

a)  Business Brief 04/06 - Off-street car parking

HMRC have announced that they have appealed the Tribunal’s decision that there is no need for the Isle of Wight Council (and the other three local authorities who took the case) to account for VAT on car parking in their areas.  No date for the High Court hearing has yet been set. 

In the Business Brief, the Department has expressed its view that the Tribunal decision is confined to the circumstances of the four local authorities who took the appeal and it will therefore consider making repayments of VAT overpaid by them on their off-street car parks (subject to unjust enrichment rules).

As for other local authorities, Customs have said that it would be inappropriate for them to make claims, and that indeed Customs will continue to make protective assessments or disallow protective claims received (although we understand that Customs have now backed down on disallowing protective claims and will await the outcome of the further litigation).

This leaves all authorities with a decision to make; to carry on accounting for VAT on off-street car parking and make regular protective voluntary disclosures to ensure that they do not fall foul of the three year capping provisions, or stop declaring VAT on the income from off-street car parking and therefore receive regular assessments from Customs for the VAT which they say is still due. 

One option runs the risk that, in the event that Customs eventually lose the litigation, they will seek to invoke unjust enrichment, whilst the other strategy will most probably mean that Customs will deduct the assessed amount from the Council’s next repayment return, and these assessments will need to be appealed and stoodover pending the decision in the Isle of Wight case.        

b) Burial of Ashes

HMRC have confirmed that burials of ashes by local authorities fall under the auspices of the Local Authorities Cemeteries Order 1977 and are therefore supplies carried out by the public law bodies under a special legal regime and hence are outside the scope of VAT.
We have received queries regarding the VAT liability of exclusive burial rights in Local Authority cemeteries and can confirm that these are also outside the scope of VAT.      

    
Recent VAT Cases:

a) Tribunal – The Highland Council

This appeal concerned the VAT liability of income from the sale of various “Highlife cards”.  These were cards which provide holders with admission rights to leisure facilities run by the Council and various community organisations, companies and council trusts.  There were three levels of cards, some provided freely, which entitled the holder to reduced admission prices, and others paid for by a monthly payment giving unlimited access to the facilities. 

The cards gave access to activities with differing VAT liabilities and therefore the Council sought to apportion the annual payment (13.37% exempt).  Customs argued that what was being purchased and provided by the card was a single supply of a right to exercise and enjoy the use of the Council’s facilities.  The Tribunal agreed with this analysis and added that given that there may be various tax treatments of the services subsequently taken up, and it could not be known at the time the card was sold which ones the customer would take up, it was incorrect to apportion the income.  Customs were right to decide that the income from the sale of the cards should be standard rated.        

b) Court of Session – Edinburgh’s Telford College

A case which may prove useful in helping to decide whether ‘adult education’ should be classified as a non- business activity of a local authority. 

Edinburgh’s Telford College (ETC) appealed against the Tribunal decision that it was not acting as a public authority when delivering FE and HE courses.  This was an issue, as the college sought to recover VAT it had incurred on the construction of a campus building under ‘the lennartz mechanism’ whereby VAT on an asset to be used for both business and non business purposes can be recovered in full initially, with an output tax charge being declared over a period (up to 20 years for land and buildings) to reflect the non business use. However the college sought to use lennartz for recovery of VAT which related to exempt supplies, but this was found not to be allowed by the court.  

ETCis a further education (FE) college, created by statute.  It provides a mixture of further and higher education courses which are funded under an agreement with the Scottish Education Funding Council. 

The court accepted ETC’s argument that it engages as a public authority when delivering FE and HE courses, which was on the basis of the legal structure of ETC’s managing body and the legal requirements of the funding stream.  It was held that this education was provided in a non-business capacity. 

For further information regarding any of these articles or any other VAT issue, please phone us on 01962 735350 or e-mail us at: vat@thevatconsultancy.com