Changes to the VAT legislation regarding vouchers to take immediate effect
Karen Mulcahy, VAT Senior Manager
Following the recent ECJ case of Lebara v HMRC (published on 3 May 2012), HMRC announced changes to the legislation regarding vouchers last week which had immediate effect as of 10 May 2012. These changes affect organisations that issue, sell and/or redeem vouchers. In addition to this, the long awaited EU proposal by the Commission for a harmonised, EU wide, approach to vouchers was also released (please see our separate blog).
The UK changes relate to ‘single purpose vouchers’, so will not affect all businesses using vouchers. The treatments of other vouchers such as multi-purposes vouchers remains unchanged. However, it will be necessary to determine exactly what type of vouchers are being issued/redeemed. A number of documents relating to the changes have been released and the Tax Information and Impact Note describes a single purpose voucher as “one that carries the right to receive only one type of goods or services which are all subject to a single rate of VAT. These may include, but are not restricted to, pre-paid telephone cards; electronic downloads vouchers and vouchers for a specific service (such as group purchase vouchers)”. The legislative changes will be included within the current Finance Bill which has yet to receive Royal Ascent and will have retrospective effect from 10 May 2012. Transitional provisions will apply where a single purpose voucher has been issued before 10 May 2012 but it is redeemed on or after this date.
The effect of the changes is that there is no longer a VAT saving on non-redemption of single purpose vouchers as VAT must be accounted for on issue of the voucher (whether redeemed or not) rather than on redemption. The Commission considers the issue and redemption of the voucher to be a single transaction and therefore HMRC sees the initial issue of the voucher as the tax point. However, whilst a right to the supply may be granted at the time the voucher is issued, there is no availability for a claw back of VAT where no underlying supply linked to this right takes place.
We are anticipating much debate regarding these changes and the related issues and if you would like to discuss how this may impact your business or how to classify your vouchers in the most VAT efficient manner, please get in touch on 01962 735350.
HMRC don’t believe the Wurst will happen here in the UK
Following the recent European Court decision regarding the VAT treatment of certain food items in Germany (Manfred Bog and others), HMRC has now issued its’ view in Revenue & Customs Brief 19/11.
The case revolves around the definitions applied to the supply of food as a good, as opposed to the supply of food as a catered service. The European Court considered that where the supply involved limited preparation, as for grilling a sausage or burger, to be taken away for consumption, the supply was that of a supply of goods, subject to the reduced rate of VAT in Germany. By comparison, a catered service would consist of a more involved service, such as the provision of tables and chairs, knives and forks etc., creating an environment for enjoyment of the food.
The UK has not adopted a reduced rate for food, and when the zero rate was introduced certain exceptions were drawn into the legislation, which mean that they are excepted from the zero rate and therefore subject to VAT at the standard rate. A supply in the course of catering is one such exception. However, this is further defined within the Notes as any supply for consumption on the premises on which it is supplied, and any supply of hot food for consumption off those premises, i.e. hot takeaway food.
It is this line that HMRC is relying on in to deny the application of the European Court decision in the UK – but this presumes that the UK legislation is compatible with the direct effect of the EU legislation. This is part of the challenge creating the opportunity for UK businesses to protect their position in respect of the last four years. Of course, businesses can wait for the outcome of the legal debate, but this will not happen overnight and may restrict the ability for the business to recover the full extent of overpaid VAT available.
In short, this is HMRC’s polite way of saying ‘Bog-off’, and not for the first time. Some years ago a European decision in another German case determined that takings from certain gaming machines were exempt. The initial reaction from HMRC was that the decision had no effect in the UK, however, many of you will be aware of the recent significant repayment of overpaid VAT to the Rank Group in the UK – just the latest instalment in this long running debate.
To coin a well used gambling phrase, ‘you’ve got to be in it, to win it’. How true!
For more advice on this issue, get in touch with Karen Mulcahy karen.mulcahy@thevatconsultancy.com or call her on 01962 735350.
Sausage ruling poses VAT question
In the last week the ECJ has published its judgement in the joint cases of Manfred Bog, CinemaxX, Lohmeyer and Fleischerei. This judgement is already hitting the UK press as it raises interesting questions in connection with the distinction between catering services and the supply of foodstuffs i.e. have taxpayers been erroneously accounting for VAT on their sales of takeaway or mobile food sales. Before readers rush off to buy celebratory popcorn, it is necessary to consider that the case is in relation to German Taxpayers and whether German VAT legislation was being interpreted in line with EU legislation and it cannot be directly read in to UK VAT legislation.
In summary, under EU Law, Member States are able to introduce a reduced rate for ‘Foodstuffs’ and for ‘Restaurant and Catering services’. The German government applies the reduced rate to ‘Foodstuffs’ but beverages and all restaurant and catering services are treated as being subject to the standard rate. In the UK we joined the EU with a derogation to retain a zero rate for certain foodstuffs and not having adopted the reduced rate for restaurant or catering services everything falling outside of our zero rate is naturally liable to VAT at 20%.The ECJ case was primarily about whether the Taxpayers were supplying food services i.e. catering which would then be standard rated, or whether they were supplying foodstuffs which would fall within the German reduced rate. The ECJ judgement considers that ‘foodstuffs’ includes cooked and prepared food ready for immediate consumption but that such foodstuffs will only become restaurant or catering services when there is sufficient additional provision of other service elements (such as tables, chairs, cutlery and crockery and waitressing). It was held that the sale of hot food from Mr Manfred Bog’s market stall was not catering and, as such, he was correct in using the reduced rate for all but the beverages. Equally in the case of CinemaxX the simple provision of a chair in the auditorium with a drinks holder, was not enough to create a provision of catering services for the food sold at the cinema kiosks. This is obviously good news for burger and food vendors in Germany. In the UK (and notwithstanding current accepted definitions) the zero rate currently excludes confectionary and beverages, as well as catering. The UK has not adopted reduced rates for catering services, which means that anything not falling within the scope of the zero rate will be subject to VAT at the standard rate. In another food related case (‘Deliverance’), the UK Second Tier Tribunal decision may offer further scope to UK businesses as this case hinges on the definition of ‘hot’ food. Whilst we are still within time for HMRC to lodge an appeal, the Deliverance case was successful in arguing that a motorbike service delivering ‘freshly baked’ (and therefore warm/hot) poppadoms, naan breads, onion bhajis and samosas could zero rate the supplies.
HMRC has not issued any comment on either the ECJ case or that of Deliverance yet and that this may not be forthcoming for several weeks. Both cases highlight the complexity of VAT legislation relating to food and takeaway sales and our recommendations are that all businesses involved in the sale of takeaway food, food outlets, catering services or mobile food services consider what it is they are supplying.
There has been a significant increase in the number of cases successfully challenging positions that, for example, harm fiscal neutrality. These cases provide an opportunity to consider the potential for claims relating to non-catered food. The VAT Consultancy is working with leading advisors to develop this opportunity. Businesses should be looking to protect their position in respect of VAT liabilities already declared and paid to HMRC. Get in touch by email: vat@thevatconsultancy.com or call us on 01962 735350
VAT treatment of payment processing fees – uncertainty set to continue
HMRC released Revenue and Customs Brief 54/10 on 12 January 2011 outlining the position they have taken following the AXA/Denplan ECJ decision, which dealt with the VAT treatment of payment processing fees.
Denplan operates payment plans for dentists whereby patients pay regular monthly sums by direct debit for dental treatment. Denplan treated the service it supplied to the dentist as being a VAT exempt payment processing fee. The ECJ arrived at an unexpected decision, in deeming the fee to be for Denplan providing standard rated debt collection services, even though the fees being collected were not aged debts. The decision was viewed as potentially being far more wide reaching than intended, possibly impacting banks and businesses such as BACS.
It is also perhaps surprising that HMRC have issued their guidance so soon after the decision and it is fair to say that the Brief raises as many questions as it answers. It introduces the concept of charges still being VAT exempt provided they involve the collection of payments as an ancillary or a minor function of a larger payment related transaction. The Brief states that this excludes the movement and settlement of payments between bank accounts.
Given the number of industries this potentially impacts outside of the financial services sector, including the travel, ticketing and charity giving sectors, it appears uncertainty will continue to exist for some time to come. Businesses making supplies of this nature would be well advised to consider whether they are certain they are applying the correct VAT treatment given the material difference between VAT exemption and a standard rate of 20% and being partially or wholly exempt versus fully taxable.
If you have any queries in relation to this issue you can contact Julie Park by email: julie.park@thevatconsultancy.com or call her on 01962 735350.
Life’s for sharing and so is ECJ ruling on VAT on telecoms services
The ECJ delivered its decision in the Everything Everywhere (formerly T-Mobile) case today.
This case was focused on charges levied on customers who did not pay their telecoms bill by BACS or direct debit. The charges were invoiced separately to customers. T-Mobile argued the charge should be exempt from VAT as a payment handling service. The ECJ disagreed with this viewpoint, stating that the charge should be regarded as ancilliary to the VATable supply of telecoms services, on the basis the charge is not distinct and independent from the principal supply.
The circumstances of this case differ slightly from those in the recent ECJ decision in AXA/Denplan as T-Mobile is providing the telecoms and payment handling service as principal. It is therefore relatively clear as to why the court arrived at its decision.
The same cannot be said of the AXA/Denplan decision however which has raised more issues than it has resolved and impacts a broad range of industries including travel agents, ticket agencies, clearing houses, charity fund raising companies – it remains to be seen how the AXA/Denplan decision will be adopted in practice.
For further advice on this contact Julie Park, Director