Monthly Newsletter - April 2007

In this issue:

• Implementation of the reverse charge for mobile phone and computer chips
• Partial Exemption Methods Approvals
• Charitable Buildings
• Halifax Case
• Cultural Exemption
• Contracts for Services or Grants
  
• Dave Jordan retires

Implementation of the reverse charge for mobile phone and computer chips

Last month HMRC formally announced that the reverse charge will be implemented for mobile phones and computer chips 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. 

Further information may be found in Business Brief 24/07, or contact us for further guidance.

Partial Exemption Methods Approval

With effect from the 1 April 2007 HMRC will only approve a special method if the business has declared it to be fair and reasonable.  If a special method is approved and HMRC subsequently finds that the person signing the declaration did not act reasonably, it could override the method and require the business to recover VAT in accordance with how the costs have been used or consumed.  Further details regarding this declaration may be found in Business Brief 23/07.

Please contact us for further advice regarding partial exemption special methods.

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.

Please do contact one for our consultants if you require any further information.

Halifax Case

The taxpayer withdrew his case before it went to Tribunal on 8 March 2007 so the case is now settled in favour of HMRC.  The case revolved around the taxpayer wishing to avoid irrecoverable VAT on the construction of new call centres by setting up a structure to minimise its VAT exposure.
HMRC argued that the new structure was wholly artificial, and did not rank either as supplies, or as part of any economic activity, for VAT purposes. As a consequence the avoidance scheme failed.
HMRC also argued that the artificial arrangements were an abuse of right.

If you require further details on the impact of this case then please do contact one of our consultants.

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 that any direct or indirect financial interest only effects entitlement to exemption if it is actual, not potential.

Contracts for Services or Grants?

We are aware that many Local Authorities, Councils and PCTs seem to be issuing Service Level Agreements or contracts to charities and commercial bodies rather than their previous preference for issuing ‘grants’.  If the monies are received in return for the provision of services or goods, which a contract or SLA would seem to imply, then this could give rise to a VAT liability to the charity or company concerned.

We would be pleased to discuss this further with you if you have any clients that are now being asked to sign up to these types of Agreements.

Dave Jordan Retires

We are sorry to announce that Dave has decided to retire from practice with effect from the beginning of this month.  Although he has recently suffered from ill health we hope that his spirits will rise with the arrival of Spring and that he may enjoy many happy hours tending to his new home and garden!

Dave’s breadth of knowledge will be sorely missed and we wish him all the very best for a long and peaceful retirement.

All Dave’s existing work has been passed to the Alresford office so please contact us if you wish to discuss any existing work requirements.  

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