Our recent experience in trying to make a written submission via e mail to the Written Enquiry Team at Southend demonstrates how difficult it can be sometimes to get your message through.
Firstly, we discovered that the advertised e mail address, Enquiries.email@example.com is no longer a recognised address.
Searching for the new system, we discovered it’s now online at the HMRC website (as below) and you need to submit an online form with your enquiry. It’s definitely HMRC’s preferred route as it says below. That’s okay, but your submission has to be less than 2,000 characters and you can’t send an attachment. Not very useful when you are submitting something like a request for a Partial Exemption Special Method, which requires a number of specific paragraphs which HMRC stipulate.
So be aware, you need to be brief these days, or resort to posting your request.
For general VAT enquiries
Where possible HMRC strongly recommends that you submit your questions about VAT by secure email using one of the links below rather than by post. HMRC can reply to your enquiry more quickly this way. Only particularly long questions or those with attachments should be sent by post.
If you need to write to HMRC by post, please use the following address:
HM Revenue & Customs
VAT Written Enquiries Team
HMRC has published its summary of responses to the VAT: Addressing borderline anomalies consultation. HMRC has made little in the way of changes to the original proposals beyond the headlined pasty tax and caravan changes.
From 1 October 2012 supplies of self-storage facilities will be standard-rated regardless of whether the supplier has exercised its option tax. The Government is pressing ahead with the changes however it should be noted that we understand that some of the larger operators are preparing to mount a legal challenge to the standard rating of self-storage after the law takes effect in October.
In the meantime, the Government has however made a welcome change to the proposals for smaller operators.
A supply of self-storage will be taxable from 1 October, and VAT on associated costs will be recoverable. However, the majority of input tax incurred would have been incurred up front on the fit out of the premises and as the supplies at the time would have been exempt, none of the associated VAT would have been recovered. The Capital Goods Scheme (CGS) will enable businesses that spent more than £250k on refurbishments, construction of a premise or even the cost of the land to revisit the VAT recovery and if the VAT was incurred in the last 10 years then partial recovery will be possible (the CGS looks at use over a 10 year period).
The issue here is that small businesses may have incurred less than £250k on the fit out and would therefore miss out on using the CGS. HMRC has accepted this point and from 1 October, the CGS will be extended, for self-storage facilities only, to cover capital expenditure of less than £250k. This is welcome news for small businesses and it is well worth considering when fit-out/construction costs were incurred and whether there is now an opportunity to recover some of the VAT that was irrecoverable when incurred.
Small Businesses involved in the supply of self-storage facilities should also consider whether the flat rate scheme may be beneficial for them as it is possible to use the flat rate scheme and also recover VAT on capital expenditure.
In the recent VAT case stated above, Mr Fox owned land in Cornwall, consisting of an old barn and a separate garage. These buildings were derelict and were converted such that the new dwelling would consist of two buildings, the old barn becoming the main living area and the garage solely having a bedroom and bathroom. The two buildings were within one curtilage and intended to be used together. Most of the building work was done by Mr Fox himself.
The Tribunal concluded that it is possible that a single dwelling can consist of two or more buildings. The Tribunal added that this is supported by the fact that the tests for the definition of a dwelling relate to the dwelling and not each building. On this basis the appeal was allowed. The Tribunal went on to consider Mr Fox’s second argument in case either the Fox or the Catchpole decision was overturned. The Tribunal concluded that looking at the barn in isolation it was converted into self-contained accommodation and all the tests for recovery of VAT on the barn conversion had been met.
It is not uncommon that more than one building remains in such situations where a number of outbuildings are converted. HMRC can challenge VAT recovery under the DIY housebuilders’ scheme on the basis that one of the buildings is not capable of separate use or disposal and is also not intended to be used together with the other building(s). It is therefore worth considering whether there are one or multiple dwellings under the tests described within Mr T Fox. Depending on the stage of the development, it may also be beneficial to consider if slight changes to the make-up and use of the various buildings can result in a more favourable VAT position. We would be happy to advise in relation to such matters.
The case was almost identical to an earlier case which the Judge had heard – Mark Catchpole v HMRC. According to the decision, this had been released but because of the timing had not been considered by either party. Whilst this led the Judge to the conclusion that this simplified the case, the Mark Catchpole decision does not appear to have been released yet (even though it was heard in February, one month before Fox).
The two buildings described above were within one curtilage and intended to be used together.
The decision focused on the definition of a dwelling under Note 2 to Group 5 of Schedule 8 to the VATA 1994. This states that:
“A building is designed as a dwelling or a number of dwellings where in relation to each dwelling the following conditions are satisfied:
(a) the dwelling consists of self-contained living accommodation;
(b) there is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;
(c) the separate use, or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision; and
(d) statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent”.
HMRC applied the tests above to each building. The converted garage failed the above condition because the bedroom and bathroom were not self-contained living accommodation. Mr Fox argued that as the buildings constituted one dwelling and that the tests in Note 2 should be applied to the buildings together as a whole. Mr Fox’s secondary argument was that even if considered separately the VAT costs in relation to the barn conversion should be allowed.
The changes announced to the VAT treatment of certain food items in last week’s Budget confirm that HMRC are now seeking to extend standard rating to food provided in the course of catering to the customer. This is in two situations:
- where food is sold at above ambient air temperature; and,
- where food is sold to be consumed in areas set aside for this, whether the seating/eating areas are provided solely by the producer of that food or if shared with customers of other food suppliers.
The reason for these proposed changes is stated to be due to a number of mainly successful challenges by businesses which would otherwise have to charge VAT on their sales of “hot takeaway food” or on food consumed outside their premises.
In particular, bakeries and supermarket outlets have been able to zero-rate their sales of products such as hot pies, hot meat products, toasted sandwiches, etc. This was primarily due to interpretation of the current VAT legislation, where food had been heated “for the purposes of enabling it to be consumed at a temperature above the ambient air temperature”. Many businesses successfully argued that the prime purpose of the heating was not for the food to be consumed at a particular temperature, but rather to comply with health and safety regulations and/or for appearance enhancement purposes.
Certain detrimental socio-economic effects are likely to be seen as a result of this change. These include:
- The imposition of VAT on certain basic foodstuffs at a time when retail prices are rising faster than average incomes.
- Increasing pressure on food producers by retailers who cannot pass on the (full) 20% increase to their customers and will be looking for considerable price reductions from their suppliers. This may cause businesses to fold as they will no longer be able to make a sufficient margin to survive.
- Encouraging businesses to keep the “ambient air temperature” of their outlets higher so that the temperature of “freshly baked food” is the same as or less than this.
The question arises as to how will HMRC define “freshly baked” bread? Would this include products requiring “bake off” by the retailer, as happens in many supermarket outlets currently, and flatbreads and similar staple bread items baked or otherwise created from a heating process pre-sale?
The definition of “premises” has also been clarified by HMRC. Currently, food (hot or cold) consumed on the premises on which it has been supplied is treated as being supplied in the course of catering and thus standard rated. However, the new definition includes food consumed in “any area set aside for the consumption of food by that supplier’s customers”, even if other suppliers’ customers can also use the area. This will cover food courts, tables and chairs outside restaurants and cafes, areas set aside for eating in airports, ports, railway stations, motorway service stations, theme parks, shopping centres, etc.
- Would there again be a differential VAT treatment where there are public seating areas, e.g. wooden benches for the purpose of seating- rather than for the consumption of food – located closer to the retail outlet than any area designated for eating?
- How can the staff at such outlets easily identify where the customer will go to consume the items purchased, and thus the correct VAT treatment, once the customers have left the premises? It might be nearer (and cheaper!) for customers to return to their place of work to consume the food, e.g. an office located next to a sandwich shop, rather than to sit in a “general” eating area which may be some distance further.
- Will the term “premises” include the whole of an airport or theme park?
- Will HMRC introduce a “distance test” to determine how far a consumer must take their food purchases to have them treated outside the confines of “supplied in the course of catering”?
We await the outcome of the consultation process on this with interest. In the meantime, if you would like to discuss this further, please contact Marianne Hawksworth on 01962 735350.
We’ve now had the chance to review the VAT changes announced in the Budget and most importantly to consider the commercial impact of these. The proposed changes that are highlighted in the Consultation Document ‘VAT: Addressing Borderline Anomalies’ , all purport to remove anomalies and level the playing field by removing zero rating or exemption for a number of areas including the sale of hot take away food, approved alterations to listed buildings, sports drinks, self storage and a number of other areas. This follows a trend seen elsewhere in the EU where the tax authorities/governments appear to be tinkering around the edges with zero rates and exemptions having already raised the standard rate of VAT in many cases.
It is clear from press coverage over the past few days and also from discussing these changes with businesses in the industries affected that the changes were largely unexpected and took businesses by surprise – not helpful in the current climate. Perhaps more surprising is the fact that the Impact Assessments almost entirely fail to consider the impact of the changes on the wider supply chain. Many manufacturers operating in the industries affected by the changes will have profit margins seriously eroded or wiped out entirely as a result of a rate change from 0% to 20% when the product is sold in a retail environment. This could impact on jobs. The Impact Assessments focus on the impact on the consumer, failing to recognise that businesses cannot always simply raise their prices by the relevant VAT amount – the market may not bear this price and the consumer could switch to an alternative product, regardless of whether this is also standard rated.
The rationale for the changes is stated as being focused on simplifying matters, but to pick on the easiest target in the proposed changes, it is difficult to see how a business is going to be able to monitor the temperature of a pie when sold to a customer – standard rated if just out of the oven and zero rated half an hour later for a different customer once it has cooled down. Many more questions arise in relation to the specific measures, and hopefully comprehensive comments illustrating the commercial difficulties will be provided to HMRC as part of the Consultation. The changes will achieve the goal of raising additional revenues but it remains to be seen as to what the hidden cost to niche industries will be.
To discuss this further please contact Julie Park on 01962 735350.
Yesterday’s Budget announced changes to remove the zero rate for alterations to protected buildings (mostly listed residential dwellings but also listed buildings used for charitable and other residential purposes). Whilst there was some speculation of a reduced rate being applied to all works to listed buildings at some point in the future to simplify the rules (rather than some at the zero rate and some at the standard rate), we had not expected works of approved alterations to become taxable at the standard rate.
Whilst the zero rate of VAT is being retained for substantial reconstructions of residential listed properties, the definition of ‘substantial reconstruction’ is being revised. The effect is to limit the zero rate to works which amount to demolition and reconstruction from a shell.
Listed places of worship will also be affected, and whilst the Listed Places of Worship refund scheme (operated by the Department for Culture, Media and Sport) is to be extended for approved alterations subject to VAT at the standard rate of VAT, there is no indication that the funding for the scheme is to be extended.
There are transitional arrangements in place where owners of listed buildings and developers have already entered into binding contracts for approved alteration works and associated construction materials prior to Budget Day. For approved alteration works where a signed contract is in place before Budget Day, works specified in that contract (allowing for minor amendment) continue to benefit from the zero rate if performed up to 20 March 2013 (1 year after Budget day). Any works performed after that date will be standard-rated.
HMRC are inviting comments on the draft legislation from businesses affected by these changes. The consultation period runs from 21 March 2012 – 4 May 2012.
Following our blog of November 14 2011 noting that questions were being raised about the legality of the UK blocking low value consignment relief (LVCR) only on goods entering the UK from the Channel Islands (and not from other non EU locations), these legal challenges have now failed.
Jersey and Guernsey lost their cases after three days in the High Court to try to stop the UK Treasury ending LVCR. The islands were also ordered to pay half the UK government’s legal costs. Both island governments are considering an appeal.
Giving Channel Island ministers permission to challenge his ruling, the judge said the EU was a “complex organism” and the case covered a “difficult area”. However, Mr Justice Mitting said there was no legal requirement that the UK government should treat one territory the same as another.
The trade is worth hundreds of millions of pounds a year and approximately 1,500 workers in Jersey and about 600 workers in Guernsey could lose their jobs.
The decision, which will see the UK government end the tax relief to the Channel Islands from the start of April 2012, is expected to have a significant impact on the economies of both Jersey and Guernsey.
For advice on this or any other VAT matter contact Sarah Franklin on 01962 735350.
A move towards fiscal neutrality has been announced by HMRC in their Brief of 01/12, in connection with recouping VAT as pre-registration input VAT (in certain circumstances) which was previously declared as output VAT on business assets on hand at the time of the (earlier) deregistration of the same entity.
HMRC have previously allowed, on a more formalised discretionary basis, input VAT recovery in situations where the claimant has not held a valid tax invoice (as defined under Regulation 29(2) of the 1995 VAT Regulations SI 1995/2518). However, a sticking point has been where an entity has deregistered for VAT and accounted for VAT on assets on hand at close of business/registration. HMRC require this VAT to be declared as output tax as a “self-supply”. In such a situation, such entities will not hold a valid tax invoice and, technically, they were not entitled to use alternative evidence for input VAT deduction.
The policy change announced in this Brief will apply to entities which have deregistered because they were below the limit for VAT registration, accounted for output VAT on their assets on deregistration but continued trading and using the assets for business purposes. However, it will allow VAT recovery of this self supply charge but only if the entity in question had to reregister within four years of the previous deregistration. Otherwise the input VAT recovery will not be covered by these provisions (under the four year rule). Capital goods items are dealt with under the capital goods scheme rules and not Regulation 111. Capital goods scheme input VAT recovery may be recoverable over a longer period.
Interestingly, HMRC mention a capital goods scheme limit of over £100,000 rather than of over £50,000 for computers, ships and aircraft in this Brief. Here at The VAT Consultancy we await more details with interest – Budget Taster perhaps or unintended error?
The provision of salary sacrifice schemes was probably not anticipated in 1973 when VAT was first introduced in the UK – and this is evident from the number of cases concerning the treatment of employee contributions which have been considered over the years. Nevertheless, and irrespective of what has gone before, the decision in the Astra Zeneca case last year has helped to provide clarity, and HMRC subsequently issued two Business Briefs (28/11 and 36/11) on the issues.
Prior to the Astra Zeneca case decision, HMRC policy was to make a distinction between the VAT treatment of supplies of goods and services to employees by deduction from salary (VAT claimed on the cost, and VAT payable on the amount deducted), and those provided under a salary sacrifice arrangement (VAT claimed on the cost but no VAT payable on the amount of salary sacrificed) – albeit that both resulted in the employee ending up with less ‘cash’ at the month end.
The Astra Zeneca Decision
The essence of the European Court decision is that there is no longer a distinction between deductions from salary and salary sacrifice. This being the case, HMRC have taken the view that whilst it is appropriate for a business to claim the VAT element of such costs, the business must also account for and pay VAT (where appropriate) in respect of the amount of salary either deducted or sacrificed, thus providing a common approach for both.
With effect from 1 January 2012, the amount on which VAT is due, under salary deduction or sacrifice schemes, is the amount deducted from the employee. However, where the amount charged or deducted is less than the cost to the employer, VAT will be due on that cost value.
These changes do not, however, apply where the salary sacrifice arrangements were already in place on or before 27 July 2011 (the date of the Astra Zeneca decision) or a fixed term arrangement expires. In such cases VAT will continue not to be due until the arrangements are reviewed or the term expires.
Employers should, nevertheless, take care to not charge and / or account for VAT on supplies which are exempt from VAT, for example: -
- nursery vouchers
- pension contributions, and
- supplies on which VAT has not been claimed by the business
VAT will also not be due where no charge, deduction or sacrifice is made, such as free or subsidised meals, as long as they are made available to all employees.
Businesses should now be reviewing their current arrangements and where necessary bring them in line with the new changes.
The outcome of the Astra Zeneca case should probably not come as any great surprise, and in a number of ways simplifies the VAT treatment, by treating similar things in the same way – and appears to provide a further level of fiscal neutrality. Albeit that the result is a further amount of VAT payable by the business (as charged to the employee) this approach does follow the basic principles of VAT, in applying VAT to supplies of goods and services when supplied by a VAT registered business. It doesn’t, however, mean that the new approach is going to be popular!
If you would like further assistance with this or any other VAT matter, email Karen Mulcahy or contact on 01962 735350.