Monthly Newsletter - February 2008

In this issue:

• Changes in the procedure for obtaining TURN
• Supplies made by Trustees
• Should dealers in mobile phones be aware of "Carousel Fraud"?
• Conversion of dilapidated cottage
• Supplies of software - whether the transactions were a "sham"
• Rounding of amounts in VAT calculations
• VAT reclaims and the 3 year capping rule

Changes in the procedure for obtaining TURN

With effect from 4 February 2008 anyone obtaining a Traders Unique Reference Number (TURN) should address correspondence to:
TURN Team
 HMRC
 5th Floor
 Portcullis House
 21 Cowbridge Road East
 Cardiff
 CF11 9SS
Fax -  02920 386291
Email - Turn@hmrc.gsi.gov.uk

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Supplies made by Trustees

In the case of Capital Cranfield Trustees the company, which was registered for VAT, acted as the trustee of a pension fund. It reclaimed input tax on services from solicitors and actuaries and recharged with output tax.. The Commissioners rejected the claim on the grounds that 'the tax could not be directly linked to supplies made by the trustees on behalf of the specific pension fund'. The tribunal allowed the appeal.

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Should dealers in mobile phones be aware of "Carousel Fraud"

Livewire Telecom Ltd reclaimed input tax of more than £2,000,000 relating to 14 mobile telephones transactions. Their claim was rejected by HMRC on the basis of 'missing trader intra-Community fraud'.
The company appealed, contending that it had engaged in the transactions in good faith. Following the principles laid down by the ECJ in Optigen Ltd and holding that the company 'could not have known of the fraud' their appeal was allowed.

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Conversion of dilapidated cottage

In the recent case of A & T Johnson, a couple have lost their appeal against HMRC’s decision to refuse a refund of tax under the DIY Housebuilders Scheme.

They converted and extended a dilapidated cottage, which had not been used as a dwelling since 2000, and had been declared unfit for human habitation.

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Supplies of software - whether the transactions were a "sham"

This case surrounds a company trading as Boulevard, who reclaimed input tax in respect of two purchases of substantial quantities of computer software, which they exported to a Canadian customer.
Their claim was rejected by HMRC on the basis that the transactions were a 'sham', and that no supplies had been made.
The Tribunal allowed the appeal on the basis that if the transactions were 'shams' the trader would have to be found 'guilty of some degree of fraud'. The Tribunal was unable to 'reach a conclusion along those lines when (HMRC) never contended that the trader was a knowing party to any fraud, and never asked one question in cross-examination that broached this subject'.

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Roundings of amounts in VAT calculations

In this ECJ case, Advocate-General Sharpston considered that 'the Community VAT directives do not regulate in detail the rounding of amounts of VAT and it is a matter for national law, which must, however, comply in that regard with all the relevant rules and principles which flow from the directives.
Those rules and principles do not permit retailers to round down the amount of VAT in the VAT-inclusive price of each item sold, in order to determine the amount of output tax which they must declare in their regular returns.'
We will keep you posted on the ECJ’s decision.

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VAT Reclaims and the 3 year capping rule

The House of Lords have ruled on the cases of Fleming & Conde Nast, a long running dispute regarding VAT reclaims and the 3 year capping provisions introduced in 1997.

The decision confirms that the Government's introduction of a 3 year time limit on filing claims for under-recovered input tax was defective as it contained no transitional period and must be disapplied to claims for input tax incurred before 1 May 1997.

They also rejected HMRC's argument that taxpayers must show that they would have made a claim had there been a transitional period.

Until such time as the Government or HMRC announce the introduction of a prospective and adequate transitional period it appears that the current time limit is  incorrect. This means that all claims for input tax which arose before the defective change in legislation (1 May 1997) will be valid subject, of course, to the normal recovery rules. HMRC will no doubt respond shortly.

The decision represents an opportunity for you to revisit any claims made and refused and/or any claim not made. It applies to input tax incurred before 1 May 1997 and potentially for output tax that you may have over-declared before December 1996.

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For further information regarding any of these articles or any other VAT issue, please phone us on 01962 735350 or e-mail us at: vat@thevatconsultancy.com