March Newsletter from The VAT Consultancy

Under the Spotlight:  

In our recent client survey you told us that one of the biggest VAT challenges businesses face is managing everyday VAT accounting. Karen Mulcahy, Consultant takes a look at this challenge in more detail and gives her top ten tips for successful management of basic VAT accounting.
Read the blog.

This month on The VAT Blog:

Tide turns on treatment of bank interest and the Flat Rate Scheme
A recent first tier Tribunal has decided on the VAT treatment of bank interest under the flat rate scheme.
Read the blog

HMRC News Round-up:

Company Cars – new rates from 1 March 2011
New rates have been issued that apply to all journeys on or after 1 March 2011 which reflect current fuel prices. The rates provide a guide as to the amount of VAT recoverable on the fuel element of mileage rates paid to employees. For full details click here.  

Change to the process of claiming import VAT overpaymentsWith effect from 1 March 2011, HMRC are changing the method for businesses claiming import VAT overpayments. With effect from that date all overpayments of import VAT should be reclaimed via the VAT return under the normal VAT rules. Any repayment claims for import VAT on a C285 or C&E 1179 received after this date will be refused. This change in process is only for fully taxable VAT registered importers. It will not apply to non-VAT registered or partially exempt importers.

Tax cheats face up to five years scrutiny
In a recent press release HMRC have announced that letters will start to land on doorsteps of 900 know tax cheats telling them they are now under increased levels of personal scrutiny as part of the new Managing Deliberate Defaulters (MDD) programme. The impact for VAT registered businesses is that HMRC may withdraw use of certain schemes, for example, cash accounting, flat rate scheme or retail schemes, if HMRC think it is necessary for the protection of the revenue.

Clearly anybody receiving such a letter needs to seek urgent professional advice.

News from the Tribunals

Construction of dwelling house and garage
This appeal was brought to the First Tier Tribunal by Palmers of Oakham following an HMRC decision that the building services supplied in connection with the construction of a detached triple garage with a first floor games room should have been standard rated rather than zero rated as contended by the taxpayer.

The taxpayer’s contention was that it was all one single project, all being that it had taken up to 4 years to complete.

The outcome of the appeal was that it was allowed in part in that the Tribunal found that zero-rating applied to the garage but no other element of the building.

The important issue here is to understand when a building has been completed for VAT purposes as this could prevent any zero rating of additional construction works.

Exempt Services

This case involving the European Tour Operators Association which was founded as an unincorporated association in 1989 and surrounded the issue of whether membership subscriptions to a trade association constitute exempt supplies.

Their submission was that membership subscriptions are exempt from VAT under the provision of Item 1(d), Group 9, Schedule 9, VAT Act 1994 as they are an association, the primary purpose of which is to make representation to the government on legislation and other public matters which affect members.

The Tribunal considered carefully the constitution of the body and its primary purpose and, on this basis, considered that the appeal should be allowed and the exemption should apply.

HMRC Abuse challenge fails in challenge to business promotion arrangements

The decision in the recent Next Plc case was released recently.  The case focused on an arrangement Next had put in place to increase sales in its Directories business.  In short these involved making a zero rated charge to customers for the provision of the Directory, but at the same time giving them a credit in the same value against the delivery charge for an order.  The economic impact of the arrangement was such that the customer did not end up paying more than they did prior to a charge being implemented.  The Tribunal agreed with HMRC that the Directory was effectively provided free of charge and that part of the consideration received from the customer could not therefore be zero rated.  However the Tribunal dismissed HMRC’s arguments that the arrangements were abusive, stating ‘I am satisfied….that the driving motives behind the introduction of the arrangements were to maximise sales by encouraging customers to place orders…… The perceived VAT saving, important though it was, was not the primary objective. ‘

The case is useful in highlighting VAT pitfalls associated with business promotion arrangements, particularly where zero rated or exempt items are involved.

EU Implementing Regulations

The draft implementing regulations for the EU VAT Directive were approved by ECOFIN on 18 January – they seek to clarify the Directive with a view to facilitating uniform application of the rules across the EU.
Click here to view the draft.

Chancellors Budget Speech

Look out for our special Budget Newsletter next week following the Chancellors Spring Budget speech next Wednesday. Whilst we are not expecting any major changes in relation to VAT and Customs Duty, we will of course bring you a full round up of the more detailed changes announced by HMRC following the Budget.

You can also follow us on twitter @vatconsultancy on the day for any comments and analysis as it happens.

John Crawford will also be giving his comments, analysis and advice on BBC Radio Solent from 5pm on the afternoon of the Budget.