NEC Decision on Booking Charges – Good News for Travel Agents
Martyne Pearson, Senior VAT Manager
The decision in the National Exhibition Centre Limited (‘NEC’) case on the VAT treatment of booking fees has found in favour of the tax payer. This means that the NEC can treat its income from Booking fees as exempt from VAT.
The NEC decision hinged on whether the services supplied by the NEC qualified as exempt payment handling services. It was confirmed that the supply by NEC to its customers effected payment and therefore qualified for exemption. This is good news for travel agents who have been assessed by HM Revenue & Customs (‘HMRC’) following the Court of Appeal decision in Bookit Limited (where HMRC have argued that the activities of the travel agent did not affect payment and therefore failed to fall within the exemption). In our view the activities undertaken by travel agents are on all fours with those in the NEC case. In respect of this and the number of assessments raised in this area it is likely that the decision will be appealed by HMRC.
If NEC are ultimately successful this will mean that travel agents will have a competitive advantage over those accounting for VAT under the Tour Operators Margin Scheme. Unfortunately, such businesses will only enjoy the benefit of the exemption in the situation where the payment handling services are being supplied by a separate entity (i.e. the structure in place is akin to that in Bookit Limited/ NEC).
At The VAT Consultancy we have considerable experience of advising clients on the VAT treatment of these services and the options available to both travel agents and tour operators. Therefore, if you have any questions regarding the case or would like to discuss the issue further, please contact Martyne Pearson on Martyne.pearson@thevatconsultancy.com or call on 01962 735 350.
Submitting a Written Enquiry to HMRC can be a trial
Steve McIntyre, VAT Director
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.estn@hmrc.gsi.gov.uk 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.
Email HMRC for your Effective Date of Registration (EDR)
UK VAT-registered business – email a VAT question
Business not registered for VAT in the UK – email a VAT question
Members of the public – email a VAT question
Agent with a UK VAT-registered client – email a question
Agent with a client who is not registered for VAT in the UK – email a question
If you need to write to HMRC by post, please use the following address:
HM Revenue & Customs
VAT Written Enquiries Team
Alexander House
Victoria Avenue
Southend
Essex
SS99 1BD
VAT penalty regime – over enthusiasm?
Julie Park, Managing Director
The fairly new VAT penalty regime based on behavioural tests appears to be causing much confusion amongst HMRC officers. We have become aware over the past couple of months of a significant rise in the number of penalties being imposed by HMRC where it is at best questionable that the error a) was an error in the first place b) was ‘disclosed’ by HMRC (prompted) and c) was careless. We are seeing this trend across all sectors and sizes of business, with penalties being imposed on those where there is a CRM large business relationship in place as well as on smaller businesses with no regular HMRC contact.
Perhaps more worryingly is the move towards imposing penalties where a refund claim has been filed and there is later an adjustment to the figures following discussions between both parties, even though no repayment of tax has actually been made. This begs the question as to whether businesses will think twice before filing complex refund claims where historically a collaborative approach would have taken place to agreeing the final value. This would clearly be unjust.
If you have been subjected to such a VAT penalty and you feel HMRC’s decision was not fair and reasonable, we would be happy to talk through the fact pattern with you.
You can call Julie Park on 01962 735350.
Selling in a global marketplace – VAT pitfalls for e-tailers
Julie Park, Managing Director
A number of the major established e-tailers now offer SMEs easy access to the global marketplace via their websites, which is great news for these smaller businesses, but it brings with it a great deal of complexity and overseas VAT obligations.
We have seen a significant increase in overseas tax authorities pursuing UK SMEs for local VAT on the basis they have been making B2C sales into their country in excess of the VAT distance selling threshold (Euros 100k or 35k per annum depending on the country).
Under the distance selling rules, B2C sales of goods from the UK to EU private individuals are taxed at the UK VAT rate until the threshold overseas is breached, at which point overseas VAT is due on the sales instead of UK VAT. We are seeing a sharp increase in the number of cases where the SME has been contacted by an overseas tax authority seeking VAT on revenues and imposing significant penalties for non compliance. The tax authorities review websites regularly to identify overseas vendors.
Historically an overseas tax authority would struggle to force a non resident business to comply with its local rules. However in the past year we have seen wide use being made of the EU’s ‘mutual assistance’ provisions, which allow overseas tax authorities to seek the assistance of eg HMRC to collect VAT due on their behalf. The business faces the prospect of owing additional VAT overseas – this can have an adverse impact on profits if the overseas rate is higher than the UK rate.
If you would like to better understand your VAT registration obligations overseas under the distance selling rules give us a call. We also offer a low cost VAT registration and VAT return completion service and can advise on areas such as pricing strategy to take account of varying VAT rates, website terms and conditions, and what your website needs to be able to do to recognise the customers’ location.
You can call Julie Park on 01962 735350.
Charities have until August to enjoy reduced VAT rate on energy saving materials
The Government has announced its intention to defend the UK’s stance on 5% VAT for energy saving materials for residential buildings, which is the subject of a formal challenge from the EU. However under the VAT guidance of HMRC Brief 26/12 they confirm that similar installations in charitable buildings is to be withdrawn from a date following Royal Assent to the Finance Bill 2013 which is likely to be 1st August 2013. Any works that have commenced BEFORE the date will still attract 5% and will apply to the whole installation.
Any charity considering installing energy saving materials should act now and for further VAT help please contact Sarah Shears or Steve McIntyre on 01962 735350.
HMRC – “quasi” amnesty on outstanding VAT returns
Sean McGinness, VAT Manager
Taxpayers still have until the end of February 2013 to bring their affairs up to date following HMRC’s announcement of their Outstanding Returns campaign earlier this month. HMRC have asked that all businesses that have outstanding VAT returns take this opportunity to file VAT returns, and pay any outstanding tax. It should be noted that the campaign is not an amnesty in terms of potential penalties and interest that may apply.
HMRC say in their VAT guidance that if all filings are brought up to date before 28th February, then taxpayers will be offered “the best possible terms” and that if returns are still outstanding after 28th February, HMRC will be paying closer attention to the tax affairs of the those with outstanding returns.
The comments made appear to support the view that there is a toughening of HMRC’s position against taxpayers who are not keeping their VAT compliance up to date.
If you or your clients have any returns that are outstanding and would like to discuss how best to deal with bringing filings up to date please contact us 01962 735 350.
More VAT Rate Increases for the Tourism Sector
In late December 2012, the Icelandic parliament approved a number of changes to the rate of VAT on hospitality services, movie tickets, and certain personal – use items.
With effect from 1 January 2013, movie tickets to Icelandic films are no longer exempt from VAT, but are subject to the standard VAT rate of 25.5%.
Another VAT change effective from 1 September 2013, is the VAT rate on the rental of hotel and guestrooms and other accommodation (including campsite facilities) will increase from 7% to 14%.
Those operating under the Tour Operators Margin Scheme do not have to pay UK VAT on the onward supply of these services. However, the VAT incurred on the purchase of such items is a cost to the travel business due to the fact that the VAT cannot be recovered. For travel businesses who have already agreed 2013 brochure prices which include Icelandic content (such as hotel accommodation) these VAT rate changes will have a significant impact on their profit margins. Those currently negotiating the 2014 brochure prices will need to factor in these additional costs to ensure that the current level of profit is maintained.
If you would like any further advice on this or any other VAT issue, please contact Martyne Pearson on 01962 735350.
A New Year : A New Rule for the Supply of Transport
The New year brings with it a new VAT rule for the B2C supply of the long-term hire of a means of transport.
With the exclusion of the long-term hire of a pleasure boat, the place of supply for VAT purposes will change from the place where the supplier has established his business to the place where the customer belongs. Long-term hire means 30 days or more for all transportation with an exception of the long-term hire of a vessel (in which case the period is 90 days or more).
What are the New Rules?
Where the supplier and the customer belong in the same country this will mean that there will be no change to the current VAT treatment applied – the supplier will continue to charge local VAT.
- However, where the customer belongs in another EU Member State this will mean that the supplier will have a requirement to register and charge local VAT in the country in which the customer belongs.
How do I determine where my customer belongs?
The customers’ place of belonging is his usual place of residence.
- The usual place of residence of an individual is not defined in the VAT legislation.
- HMRC interpret the phase according to the ordinary usage of the words – meaning the country were the individual has set up home with his family and is in full-time employment.
- An individual is not resident in a country if only visiting as a tourist.
With the intending changes to the personal tax residency rules that are also due to come into play next year, suppliers affected by the change will need to carefully consider the evidence obtained to support its customers usual place of residence. This will obviously have a knock-on effect to how the supplier will account for VAT and its wider compliance obligations.
Please let us know if you would like to discuss this issue in more detail. You can call us on 01962 735350.
HMRC Success in Med Hotels Case – What is the impact for the sector?
The Court of Appeal has released its decision in the Secret Hotels 2 Ltd (formally the Medhotels) case – the Upper Tribunal decision has been overturned, with the Court of Appeal reaching the same conclusion as the First Tier Tax Tribunal.
The appeal, heard in July 2012, concerned whether the bed bank operated as an disclosed agent or principal, the latter making it liable for VAT under the Tour Operator Margins Scheme (‘TOMS’). In making its decision the Court of Appeal placed particular weight on the following facts and concluded that MedHotels was not simply supplying agency services but was itself buying in and re-supplying the services in its own name.
1) MedHotels dealt with holidaymakers in its own name in respect of the use of its website and in the services of its local handling agents;
2) MedHotels dealt with holidaymakers in its own name (and not as an intermediary) in those cases where the hotel operator was unable to provide accommodation offered;
3) MedHotels dealt with matters of complaint and compensation in its own name and without reference to the hotel operator;
4) MedHotels used the services of other taxable persons (the hotel operators) in the provision of the travel facilities marketed through its website;
5) MedHotels did not provide the hotel operators located in other EU countries invoices in respect of its commission making it impossible for hotel operators to comply with their obligations to account for local VAT on the full selling price of the product; and
6) MedHotels treated deposits and other monies which it received from holidaymakers and their agents as its own monies – it did not enter those monies into a client suspense account nor did it account to the hotel operator for those monies.
Travel businesses operating on a similar model to MedHotels are at risk of challenge by HMRC if their fact pattern is similar. For those business operating tight margins the application and additional VAT payable under TOMS could be enough to wipe out all profit obtained from the sale of EU holiday products.
Although the case specifically refers to the sale of hotel accommodation, the same principles are likely to apply to other travel products sold on the same basis (such as the sale of flights on an undisclosed agency basis). Businesses caught by this decision should therefore look at the wider picture and not just at the sale of hotel accommodation.
In light of this decision some travel business may have no option but to consider mitigating their VAT position. For those providing passenger transport, the UK Transport Company concession may be of benefit if not already implemented. Others may be forced to consider more radical options such as off-shoring the business to a non-EU location. For non-EU established business supplying TOMS products, there is a clear competitive advantage to those who are supplying the products from an EU establishment as the EU Commission continues to try and agree a way in which the current loophole (allowing such sales to be VAT free), can be plugged. Clearly any business migration has to be supported by robust implementation to ensure the requisite functions have exited the original country and moved overseas.
It may not be the end of the road for the case if MedHotels is given leave to appeal to the Supreme Court. However, the outcome of the Court of Appeal will give some no option other than to consider whether it is still viable to operate under their existing arrangements.
Please contact Martyne Pearson on 01962 737 961 or via email martyne.pearson@thevatconsultancy.com if you have any questions regarding the above.
Accession of Croatia to the EU 1 July 2013 – A checklist
Julie Park, Managing Director
Croatia is set to join the EU on 1 July 2013 and this section of the article aims to highlight key impacts for businesses:
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Transitional Period – Imports and Exports or Intra Community transactions? |
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· The logic here is usually a ‘like with like’ approach – any movement of goods into or out of Croatia starting prior to the switchover date but ending afterwards is categorised in the same way both ends ie an export and an import or vice versa as opposed to an export and an acquisition |
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· Assuming the same rules apply as for previous EU accessions, businesses will need to be able to manually ring-fence transactions straddling the cutover period so that they are in a position to apply a different VAT treatment to that programmed into the systems, otherwise eg acquisition tax would automatically be applied to the receipt of goods from Croatia post 1 July whereas import VAT and potentially customs duty are to be accounted for via an import entry |
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P&L Impacts – Changes to VAT and Duty liability for certain transactions |
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· There are a number of scenarios where an additional VAT cost will arise for the business with the change to Croatia becoming an EU Member State |
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· EU established businesses making certain B2C supplies (electronic services, telecommunication services etc) will need to start accounting for VAT on their sales to individuals in Croatia going forward – this has an impact on pricing decisions raising the question of whether the business will bear the additional VAT cost or pass it on in part or full |
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· EU travel businesses using the tour operator’s margin scheme (TOMS) to account for VAT will need to account for VAT on Croatian holidays/trips. Croatia is a popular destination and with brochure prices and sourcing costs likely already agreed for 2013, the question arises as to whether businesses have taken this additional VAT cost into account when budgeting |
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· For businesses operating in the VAT exempt finance and insurance sectors where VAT recovery on costs is dictated by the location of the counterpart (ie EU or non EU), there is a negative impact in Croatia becoming an EU Member State as VAT recovery on direct costs is inhibited and overhead VAT recovery further restricted |
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· EU established etailers and mail order companies selling delivered goods to private individuals will need to start accounting for VAT on sales to individuals in Croatia and will also need to monitor the distance selling threshold for sales into this country. Consideration should be given to the impact on pricing of a switch from a zero rate of VAT currently (as an export), to the UK VAT rate (20% assuming standard rated products are sold) post accession, to the Croatian VAT rate of 25% when the distance selling threshold there is breached |
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· On a more positive note a customs duty liability will no longer arise on transactions in goods involving Croatia and other EU Member States – in addition there will be no requirement to complete import and export declarations which reduces costs from freight forwarders |
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· Croatia will adopt EU VAT principles and as such it is likely some cross border services purchased historically with Croatian VAT may become VAT free/subject to the reverse charge |
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· Businesses incurring Croatian VAT eg on business travel, will be able to recover this via an 8th or 13th Directive reclaim |
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Cashflow Impacts – largely positive |
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· There will no longer be a requirement to lodge guarantees to defer import VAT and duty on imports |
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· There is a positive impact in the switch to accounting for acquisition tax on the VAT return rather than funding import VAT. Import VAT funding can present a significant cost for businesses importing into countries such as the UK where there is no simplification in the form of a plafond type arrangement |
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Compliance and Systems – Changes |
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· Systems changes are required to ensure Croatia’s status as an EU Member State with the associated VAT treatment is updated |
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· Customer standing data and invoice templates will need to be change to ensure the customer’s Croatian VAT registration number is logged and shown on invoices |
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· There will be an increased compliance burden in the form of the need to record transactions on Intrastat declarations and EC Sales Lists – whilst import and export compliance costs reduce, VAT compliance costs for additional reporting increase, and as these reports are frequently completed by in-house teams as opposed to third parties such as freight forwarders, there may be an impact on resource depending on the volume of Croatian transactions |
First published in Tax Journal on Friday 23rd November 2012 as part of their “Special Report, VAT and the EU”. If you would any further advice or assistance on this or any other VAT issue, please contact Julie Park on 01962 735350.