Monthly Newsletter - March 2007

In this issue:

• Manufacturers "cashback" payments
• Yachts
• DIY Claims - Is a chalet a building?
• Cash Accounting Scheme changes
• VAT Liability of private tuition
• Remote Gaming Duty

Manufacturers "cashback" payments

Cash backs refer to the payments usually made by a manufacturer direct to the customer of a retailer, or under manufacturer discount schemes, usually based on a volume of purchases throughout a period.  Prior to 1 March 2007, there was scope not to adjust the input VAT on the original purchase when in receipt of a cash-back, provided the manufacturers had not reduced their output tax.  HMRC have confirmed that where manufacturers have changed their minds and do adjust the output tax, they will assess recipients for over-claimed input VAT, or defend assessments already issued.  Many drug manufacturers within the veterinary arena recently took to making 3 year claims for output VAT which in turn has left many of their customers vulnerable to assessment.

To avoid the above, from 1 March 2007, both parties are required to adjust their VAT liability for cash-backs. If you are VAT-registered and you receive a ‘cash back’ payment, this effectively reduces the taxable value of your purchase and you must reduce your input VAT accordingly.

Yachts

HMRC have publicly announced that they are to carry out full investigations on any yacht where they are aware it may have been supplied through one of the various VAT schemes currently promoted by some advisors.  The schemes in place include those where private individuals incur little or no VAT, the schemes fall broadly into two categories, cross-border leasing and artificial chartering to the private funder.   

DIY Claims - Is a chalet a building?

A recent Tribunal considered whether a chalet (“mobile home”) which existed on the land, of which a small part was incorporated into the new build, was considered a ‘building’ for VAT purposes.  The small part of the existing ‘chalet’ which was incorporated was not limited to a façade nor was it part of the planning consent.  The Tribunal considered the facts and confirmed the chalet was a building for VAT purposes, based on the normal dictionary definition of the word building (i.e. walls and a roof) and therefore the DIY claim was refused in whole.  

For further information on the DIY builders scheme and the effective of the above case then please do contact us.

Cash Accounting Scheme changes

The threshold for using and leaving the scheme will increase significantly with effect from 1 April 2007.  The threshold for entering the scheme will rise from £660k annual turnover to £1.35m, the limit when a company should leave the scheme will rise from £825k to £1.6m.

The cash accounting scheme offers a cashflow benefit to most businesses.  If you would like to find out more how the scheme could help your business then please do contact one of us.

VAT liability of private tuition

The case of Empowerment Enterprises Limited has been won by HMRC with the Court of Sessions confirming that the VAT exemption for private tuition only applies to sole proprietors and partnerships who teach a subject ordinarily taught in a school or university.  If you run a profit making corporate entity and have exempted your tuition, similar to those directors in the Empowerment case, then you will now need to bring all output VAT to account.

Please contact us for further advice.

Remote Gaming Duty

HMRC have announced an informal consultation with businesses on proposals to introduce a new duty of excise on the provision of remote gaming.  The proposal is for providers of remote gaming to be licensed and regulated in Great Britain with effect from September 2007, bringing the activity within the scope of gambling duties.  We will update you all when we have the outcome from this consultation process.

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