Revenue & Customs Brief 22/12 issued last week clarifies the current policy on the place of supply of services rules connected to land following recent decisions at EU level. The brief is aimed at businesses that make or receive the following services:
- Supply or purchase of exhibition stands;
- The storage of goods for overseas customers; and
- The provision of access to airport lounges.
The clarifications aim to confirm the treatment applicable since the rules changed on 1 January 2010/ 1 January 2011 (dependant on the service). The HMRC guidance comes about due to the inconsistent treatment applied by Member States in respect of these supplies which in some cases had lead to double taxation.
What are the changes?
1. Stand Space – With regard to the supply of stand space at exhibitions and conferences, the current policy applied is that the supply of specific stand space will continue to be treated as a land related supply. Therefore, the place of supply for VAT purposes will be the place where the land is located. However, where the stand space is provided with accompanying services as a package, this will no longer be treated as a land related supply. Instead, the services will fall under the general business to business rule and will be subject to VAT in the country in which the recipient of the service belongs. This will now mean that exhibition or conference providers supplying a package of services will no longer be required to charge UK VAT on these supplies.
2. Storage of Goods – Previously, it has been HMRC’s policy that all supplies of storage space are land related supplies. HMRC has now confirmed that where the supplier grants an exclusive right to use a specific area of a UK warehouse or storage area, then this will continue to be treated as a land related supply. However, where the supplier agrees to store goods but does not grant an exclusive right to a specific area, this will not be seen to be a land related supply and will be treated as falling within the general place of supply rule. This now means that where the supplier provides such a service to a non-UK business customer who uses the services for business purposes, the place of supply will be in the country in which the customer belongs.
3. Airport Lounges – HMRC have not previously considered the supply of access to airport lounges as land related supplies. However, their policy change now means that such services will be land related and VAT will therefore be due, if applicable in the country in which the lounge is located.
When do the changes take effect?
The change in policy comes into effect from the date of the brief. However, HMRC has agreed that where businesses have been applying the VAT treatment in accordance with it’s own earlier policy, they may continue to apply the treatment for a transitional period of up to three months. However, businesses who wish to adopt the new treatment can do so with effect from the current date.
Can I make a historic adjustment?
HMRC state that adjustments to earlier period can also be made provided that the customer has not already recovered the VAT and any VAT repaid by HMRC is refunded to the customer.
What does this really mean for me?
Although the changes aim to simplify the treatment of such services cross border and allow non-UK businesses an easier method by which to recover the VAT on their own VAT return, the changes do bring with them added complication and some additional administrative burden. Examples of which include having to obtain EU VAT numbers and complete EC services lists for those supplying exhibition space and storing goods on behalf of non-UK business customers. They also bring about added complication for those supplying access to airport lounges as local VAT registrations may well be required when supplying on a wholesale basis.
Businesses supplying such services will now need to review their existing position and determine how they should accounting for VAT and whether there is scope to submit a claim for earlier VAT return periods. We have significant experience of advising clients on these issues, so if you have any questions please call, Martyne Pearson on 01962 735350
There has been increased debate over the last few years on the question of which transaction in an intra Community supply chain for goods can be zero rated (or exempt in EU terms). This was considered in cases such as Emag and Eurotyre and the key observation to take from these cases is that the rules are different within the EU – in an EU chain transaction (ie more than 3 parties), some Member States don’t care who arranges the transport in determining whether the zero rate applies, whilst others do. The plot has now thickened with the Advocate General’s (AG’s) opinion in the Vogtlaendische Strassen-Tief-und Roherleitungsbau GmbH (VSTR) case – not the final ECJ decision but an important step in the legal process. The AG in this case appears to be suggesting that, in a scenario where EU supplier in Member State 1 physically ships goods to final customer in Member State 2, but actually sells them to a non EU business (not VAT registered or established in the EU), who onsells to final customer, there is no requirement for the supplier to charge VAT to the non EU business, even though the latter is not EU VAT registered. This begs a number of questions, not least of which the fact the value of the ‘despatch’ to final customer will not equate to the value of the acquisition in the final country as the mark up from the non EU party will be missing. The EU VAT system in this area relies on the 2 sides of such transactions matching to ensure fiscal neutrality and in the absence of a ‘triangulation flag’ on the relevant reports, there is no way of readily identifying the reason for the discrepancy. Of more immediate concern/interest to businesses is the fact that the opinion would appear to give non EU businesses caught up in EU supply chains a much easier time than EU businesses in terms of VAT compliance obligations. The opinion is not saying that the non EU business is not required to VAT register but it is widely acknowledged that the awareness of this registration obligation often only arises when an EU VAT cost from the supplier is incurred. This leads non EU businesses to VAT register to recover the VAT and to comply with the rules. Without this ‘nudge’ the question arises as to whether there will be an increase in non compliance with the VAT registration rules. VAT registered businesses selling goods cross border within the EU face a significant compliance burden in meeting the VAT and statistical reporting requirements for such transactions – far greater than the burden for imports and exports. It remains to be seen as to whether the ECJ will follow the AG’s opinion but regardless of the outcome here, it is clear that there is now a significant difference in treatment within the EU with regular challenges to the previous status quo. If you would like to discuss this in more detail, please call Julie Park on 01962 735 350.
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.
HMRC have now extended the consultation period from 4 May 2012 to 18 May 2012. This is good news for those interested parties who wish to make a response to the Government’s proposals to withdraw the zero rate from approved alterations to listed buildings. It is still short of the 12-week consultation period that the Government aims for, and we understand that this is so that the measure can be introduced in this year’s Finance Act, which we anticipate will receive Royal Assent in the middle of July 2012, during the summer recess.
The document issued by HMRC includes an extension for the zero rate where a binding contract was entered into prior to Budget Day (21 March 2012). Where a binding contract had been entered into (duly signed by both parties), the zero rate for approved alterations can be extended to 20 March 2013. This appears to be a woefully inadequate period of time for the completion of works for a large number of projects which are already in progress, and takes no account of projects in progress where there is no formal written contract in place, which is often the case with works to domestic properties. It could therefore be difficult for a contractor to provide evidence to support the zero rate beyond 30 September 2012.
Contractors should bear in mind that contracts can be written, verbal or implied, and whilst hindsight cannot change what has gone before, any correspondence relating to the commencement of works should be useful in supporting an argument that there is sufficient ‘proof’ of entering into a contract prior to 21 March 2012. A JCT (Joint Contracts Tribunal) contract should, in any case, be an acceptable binding contract for the purpose of these requirements.
If you would like to hear full details on the Governments proposals, you can listen to a recording of our webinar on the matter by clicking here. The VAT Consultancy will be drafting a response to the consultation and we welcome any comments you may have. These should be emailed to email@example.com.
The Upper Tier Tribunal has released its decision in the Medhotels appeal – the original tribunal decision has been overturned, with the taxpayer succeeding at appeal. One critical point of note emerging in the decision was the finding that the contractual arrangements in place cannot be ignored unless they are found to be a sham. Any slight deviations in practice to the way in which the arrangements were supposed to work (including in this case some hotels invoicing the incorrect party) can be overlooked and are overridden by the form of the contracts. This is a useful principle to have established although the question of what is slight/minor by way of deviation is rather subjective.
The key point overlooked or not touched upon is the fact that there is still VAT leakage in the supply chain, albeit not UK VAT. The decision appears to have dismissed or skirted around the possibility of Medhotels being seen to be acting as an undisclosed as opposed to disclosed agent although reference is made to ‘sales and sub-sales’. Undisclosed agency arrangements arise when the ‘agent’ wants to minimise his risk as is the case here, but the details of the principal’s transaction with the agent is not revealed to the customer. In the case of Medhotels, the customer does not know the value of this transaction and instead only aware of the single price they pay the agent for the accommodation (the cost plus undisclosed mark up).
From a VAT perspective (in the UK and elsewhere) it is accepted that such scenarios should generally be treated as buy/sell transactions which would mean Medhotels would be required to account for VAT under TOMS, even though still legally regarded as an agent (of the ‘undisclosed’ variety). Even if it is accepted that Medhotels is a disclosed agent, travel businesses with similar revenue models would be required to VAT register in each of the countries in which they are selling hotel accommodation (EU and many other countries worldwide with similar rules), to account for VAT from the mark up made. This puts such businesses in a bad position from a compliance perspective, facing the burden TOMS was designed to avoid. In addition, given the UK still has a relatively low VAT rate, accounting for UK VAT under TOMS on B2C mark up revenue could be more cost effective than accounting for VAT from the mark up in countries with rates in excess of 20%. It is questionable as to whether the reduced rates applying to hotel accommodation in many Member States would also apply to fees/mark ups charged for arranging such accommodation.
Whilst the decision appears a good one for Medhotels, similar businesses should tread carefully and consider the overseas as well as UK VAT cost when designing their business model.
For further information on this or other VAT issues in the travel sector, please contact Julie Park on 01962 735 350 or firstname.lastname@example.org
The issue has been highlighted in a recent employment tribunal where a tax inspector told how businessmen were deliberately overtaxed so that colleagues would look as if they had solved cases and deserved performance related pay.
Using public interest disclosure legislation, the inspector claimed that colleagues “conspired not to carry out their legal duty to correctly assess a trader on his trading profits”, thus working against the Civil Service Code of conduct.
From our own experiences of working for HMRC, we have always been aware that this ”yield” was used as a performance indicator, so our advice would always be check, check & check again you are not being overcharged tax otherwise the taxman could be getting an extra bonus!
In terms of the commercial background which has given rise to the discussions, this relates to the increasing need for FAs to charge fees to their customers (the investors) instead of or in addition to them receiving a commission from the underlying supplier of the financial product.
This is as a result of revenues from commissions decreasing – a common scenario across a number of industries in the past few years as underlying suppliers find equally effective routes to market by direct selling eg via the web. From a VAT perspective there are usually two scenarios to consider here, and nothing has changed on this recently.
Firstly, is the FA or other agent/intermediary now simply receiving his revenue from his client rather than the underlying financial institution? If so, and if he is doing exactly what he was doing before in terms of making the same arrangements to effect the underlying financial transaction, the VAT treatment of the revenue remains the same. The same issue arose a number of years ago in the travel industry when business travel agents were forced to start charging increased transaction fees to their customers as airlines etc slashed commission rates. Provided they do the same as before in arranging the transaction, the fee for arranging passenger transport is zero rated in the same way as commission.
The second scenario is one where general/non transaction specific advice is provided for a fee – this is a different activity to arranging a loan/purchase of shares etc and there is currently no scope to exempt such fees from VAT. However looking again to the business travel industry, it was able to agree with HMRC that its monthly management fees to clients can be pro rated to reflect the proportion of zero versus standard rated travel arranged.
Does this offer a glimmer of hope for FAs?
If you would like to discuss this in more detail give Julie Park a call on 01962 735350 or email: email@example.com
The decision has created the opportunity to explore whether the zero rating for food has been properly implemented in the UK, and specifically whether it is appropriate to have excluded hot take-away food from the zero rate – resulting in a standard rated supply. There is still much speculation regarding the outcome and many businesses will choose not to pursue a claim. For businesses that are considering the benefits of making a claim, they should now be considering how to prepare that claim.
The VAT Consultancy is well placed to provide support for those that want to explore the opportunity further. In this respect we have teamed up with a VAT Technical Adviser who will work with us to develop the technical basis and advise on the legal process.
Businesses should, in any case, be aware that it is only possible to make a claim for the past four years, which means that any delay in submitting a claim will reduce the overall claim.
If you would like further assistance or information then please contact me: firstname.lastname@example.org or 01962 735350.
Acting on behalf of one of my clients this morning, I encountered yet more bizarre behaviour from HMRC and I wondered whether readers had experienced anything similar? Acting as agent for my client, my call to HMRC was to the Business Payment Support Services to request a time to pay agreement with them for my client covering a mix of taxes. However, the officer would not deal with me saying that the BPSS did not have access to the 64-8 database and therefore could not verify my agent status. I was staggered – it appears that they will only deal with the company direct. I also later found out that there is a 15 working day backlog in dealing with 64-8’s so I can’t speak on behalf of the company with any other parts of HMRC for another two weeks! So you can be an agent – but not if you need to deal with an urgent issue for the client – another reason for making sure that one of the first jobs when taking on a new client is to get the 64-8 signed and submitted to HMRC.
To talk to me about this or any other VAT matter get in touch: email@example.com or call on 01962 735350.
The June Newsletter is now available on our website. In this issue:
- Budget June 2010 – what will it hold in store for VAT?
- Our survey said… – what do you think will happen to the rate of VAT? Take part in our quick survey and you could win a bottle of champagne
- Even more ways to talk to us – join us on Facebook, Twitter and LinkedIn
- HMRC News round-up
- News from the Tribunals
- Jobs for the month
Click here to read more…
Not receiving our newsletter automatically? Get this and other news from The VAT Consultancy delivered straight to your inbox every month – Subscribe Now