Following the recent issue of Revenue & Customs Brief 27/11 which sets out HMRC’s position regarding the Tribunal decision in Paymex Ltd, we have been approached by several Insolvency Practitioners to look at their supplies in connection with individual voluntary arrangements.
One particular practice is due a refund of over £50,000 in VAT plus interest.
Revenue Customs Brief 27/11 stated that HMRC would not be appealing the decision subject to the normal rules of input tax adjustment capping and unjust enrichment and they will pay claims for overpaid tax charged on the services of Insolvency Practitioners that fall within the findings of the Tribunal decision.
Steve McIntyre our Director of VAT is currently looking at claims and would be pleased to offer further advice should an Insolvency Practitioner wish to submit a claim for refund of VAT.
You can contact Steve on 01962 735350 or by email: firstname.lastname@example.org
Hot of the press is news that in the case of Paymex Ltd v HMRC, the VAT Tribunal have held that nominees’ and supervisors’ fees in an Individual Voluntary Arrangement (IVA) to constitute a single exempt supply for the purposes of VAT under Article 135 (1) (d) of the Principle VAT Directive (2006/112/EC).
We understand that HMRC will not be appealing the Tribunal’s decision but that a Business Brief setting out their response to this decision will be issued shortly.
This will have an impact on any advisor involved in providing insolvency advice. We will keep you updated, but in the meantime, if you would like any further advice on this issue, then don’t hesitate to get in contact with John Crawford at email@example.com.
Since the introduction of the Flat Rate Scheme, HMRC have always been of the opinion that, irrespective of a businesses activities, any bank interest received is also subject to VAT using the relevant Flat Rate Scheme percentage. This created an anomaly, as bank interest is normally treated as exempt from VAT, and is often disregarded for other VAT calculations as being passively earned – i.e. not earned as a result of any business aim or purpose.
However following a decision by the First Teir Tribunal, in which The VAT Consultancy acted in a supportive role, the tide has now turned. In the joined cases of Fanfield Engineering Limited and Thexton Training the Tribunal has determined that bank interest does not form part of the relevant turnover for the purposes of the Flat Rate Scheme calculations.
This is a sensible conclusion, however, we would advise that businesses do not assume that all bank interest will be excluded from Flat Rate Scheme calculations. Businesses operating the Flat Rate Scheme should review the income included for the scheme calculations, and make sure that the appropriate rate is being applied.
If you would like further advice please contact Karen Mulcahy, firstname.lastname@example.org or call on 01962 735350
A recent Upper Tier Tribunal Case involved the delivery of crispy duck pancakes, spring rolls, samosas, falafels, sesame prawn toast, onion bhajis and bread of several kinds, where Mrs Justice Proudman reviewed the issue as to whether they were standard rated for VAT as hot takeaway food or zero rated as “freshly baked”.
The court looked at the way the company delivered the product which stated that all cooked items were put into a cardboard box which is put on a shelf with heating above while the complete order is assembled. Cold items were put in bags. The hot items of the completed order were put in the heated cupboard for a maximum of 15 minutes pending dispatch. The complete order including cold items were then put into a padded bag which goes into a lined box on the motorcycle for delivery. The reason for treating the disputed items in the same way as other hot food was to save having a separate system for dealing with them and to comply with food safety regulations.
Mrs Justice Proudman was quite clear in her decision that there is a clear distinction between a supply of food that is freshly-baked as against a supply of food that is consumed hot. Providing the food is freshly-bake, even though it maybe hot at the time of consumption, it would qualify for zero rating, and this did apply to the items at issue.
Clearly the decision is critical to all suppliers of freshly-baked products be they bakers, confectioners or caterers as to whether they inadvertently charge VAT on hot food that would actually qualify for zero rating.
If you would like further advice on this burning issue, contact us, email@example.com or call on 01962 735350.
Just occassionally the complex world of VAT throw’s up some very bizarre questions! The latest came to our attention in the case of Supreme Petfoods Limited where the conundrem for the Tribunal was whether a ferret was a pet or a working animal.
Not something one ponders everyday, but nonetheless an important question to answer if, as the supplier of their food product “Frankie Ferret” and “Selective Ferret”, you are trying to reclaim the VAT back on these supplies.
The supply of animal feeding stuffs is zero-rated, however pet food is standard rated. Supreme Pet Foods were of the opinion that their supplies were eligible for zero-rating as their products were mostly sold to wholesalers and they were supported by the opinion of the British Ferret Club who believe the majority of ferrets are kept as working ferrets.
HMRC, however, were of the opinion that the supplies were standard rated pet food and thus it was left to the Tribunal to root out the answer.
Relying on various submissions including the Ferret Census Results of 2009, the Tribunal concluded:
“We accept therefore (and find as a fact) that ferrets can be classified generally as a pet species….
We conclude (and find as fact) that food held out for feeding ferrets generally is pet food, because ferrets generally are pets. The position is, apparently, different for rabbit food because HMRC appears to accept – though we make no finding on the point- that rabbits generally are not pets.”
And they say tax needn’t be taxing!
If you’d like to read the full case or would like any further advice, then don’t hesitate to get in touch!
Tribunals don’t always prove anything as highlighted by the recent Tribunal case of John Price which concluded that ‘blinds’ were indeed ‘building materials’ for VAT purposes and thus the VAT could be recovered through a Housebuilders DIY claim (where VAT is recovered on a house you build to live in – as long as all items are classified as building materials by HMRC).
HMRC have always stated that window furniture were NOT ‘building materials’ – so where does that leave the matter? Well, HMRC have decided not to appeal as they state in their Revenue & Customs Brief 02/11 that their ‘view remains unchanged’ and they will ‘not be changing their policy’.
We will have to wait for further Tribunals on the matter before we see any policy changes here – a reminder that Tribunal decisions are indicative but certainly not a reason for HMRC to back down!
Full details of the business brief are available here: http://www.hmrc.gov.uk/briefs/vat/brief0211.htm and if you’d like further advice on this then please contact consultant Zaenia Rogers: firstname.lastname@example.org or call on 01962 735350.
HMRC challenged the arrangements Lower Mill Estates had put in place which involved two separate but connected companies making supplies in relation to holiday homes – one supplied standard rated land with planning permission and the other supplied zero rated construction services. If a single supplier had supplied the completed holiday home the entire amount payable by the purchaser would have been subject to VAT at the standard rate. The Upper Tribunal essentially found that there was sound commercial rationale for structuring the contracts in this way. HMRC regularly raise abuse challenges of this nature following their success in the Halifax case.
We are aware of numerous situations in which this is happening but with limited success if the case goes to litigation. More worryingly there appears to be a significant increase in abuse challenges in relation to ‘mixed supplies’, eg where a package of standard rated and zero rated items is sold for a single price. The exhibition industry has been targeted for providing entrance to an event with a zero rated publication.
Whilst the commercial rationale for every business will differ, the Lower Mill Estates decision does seem to reinforce the findings of much older VAT decisions such as Telewest in supporting the view that you cannot force a single supply for VAT purposes from two separate suppliers, provided they are operating on an armslength, commercial basis and have sound business rationale for doing so.
Businesses that supply packages consisting of standard and zero rated/exempt items would be well advised to review the VAT treatment applied to ensure there is no risk of challenge and equally to ensure the business is not unnecessarily over accounting for VAT.
If you would like to know about these issues then get in touch with Julie Park – email@example.com or call her on 01962 735350.