Monthly Newsletter - January 2008

In this issue:

• Reduced Rate on Residential Renovations and Alterations
• Intrastat Thresholds
• HMRC Interest Rates
• Pre-VAT Visit Questionnaires
• HMRC Annual Report
• Unjust Enrichment
• Business and Non-Business Input Tax
• Flat Rate Scheme

Reduced Rate on Residential Renovations and Alterations

With effect from 1st January 2008, the condition of being empty has been reduced to two years from three years for renovations and alterations to residential properties that will attract a 5% rate.

Reference H.M. Revenue & Customs Business Brief 74/07.

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Intrastat Thresholds

From 1st January 2008 the threshold for completion of the supplementary statistical declaration, known as Intrastat, will remain unchanged at £260,000.  This is a document that needs to be completed for the import or export of goods for suppliers/customers within the European Union.

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HMRC Interest Rates

From 6 January 2008, the rate of interest payable on underpaid VAT is reduced to 7.5% and the rate of interest payable by HMRC in cases of their error has been reduced from 5.0% to 4.0%.

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Pre-VAT Visit Questionnaires

The issue of a pre-visit questionnaire, described as a document to be used by H.M. Revenue & Customs to determine whether a verification visit would take place, has been used for some years However it has come to our attention that the disclosure of errors on this questionnaire will subject to an assessment and potential penalty action by HMRC irrespective of whether the error is less than £2,000 or not.  Clearly this highlights the care needed in responding to these questionnaires.

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HMRC Annual Report

HMRC have issued their annual report in which it is revealed that the cost of collecting VAT will rise in 2006/07 to 0.60p per £1 collected as compared to 0.55p per £1 collected in 2005/2006.

In their aim to improve customer experience, support business and reduce the compliance burden, HMRC conduct telephone surveys of around of 19,000 businesses in 13 key customer groups to measure their success in achieving their goal.  In their target “To respond accurately and completely to requests for advice “is to increase to at least 80% of the proportion of individually owned businesses who say they achieve success at the first point of contact.  The latest assessment of this target is November 2006 and was that 74.1% agreed.  They also have a target of “Reducing the scale of VAT losses to no more than 11% of the theoretical liability”.  The latest assessment is a reduction to 14.2% in 2006/2007 which is a reduction from 16.1% in 2002/2003. Is the 1.9% reduction over the last four years, equating to approximately 0.5% per annum, worth the considerable time and effort put in by H.M. Revenue & Customs and the distress and inconvenience caused to many businesses attempting to become VAT registered?

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Unjust Enrichment

The Advocate General of the European Court has published his opinion in respect of Marks & Spencer Plc’s claim for the refund of output tax overpaid on their teacakes before 1994.  The opinion has ruled in favour of Marks & Spencer’s in so far as that HMRC have provided for  a VAT free supply with the deduction of input tax, e.g. the zero rate, cannot claim unjust enrichment if there is a  tax over-payment when the taxpayer insists on the law application of the rate.  Furthermore it is contrary to principle of equal treatment to differentiate between payment returns and repayment returns. This case could have implications to other businesses seeking to recover overpaid output tax.

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Business and Non-Business Input Tax

The Advocate General of the European Court has issued his opinion on the recovery of input tax incurred on purchase used simultaneously for a business and non-business purposes. He decided that the method of apportionment is at the discretion of each Member State but when exercising their discretion the Member States must ensure, in particular, that the principle of fiscal neutrality is respected.

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Flat Rate Scheme

In a recent VAT Tribunal case the classification of management consultancy came under the spotlight. The taxpayer had researched the definitions and skills required of a management consultant with the Institute of Management Consultancy and took the view that his services did not fit with this definition and therefore applied a rate from a different trade sector.  HMRC considered the rate was not correct and issued an assessment initially back dated to 2003 but later amended to the date of discovery in 2006. The Tribunal agreed with HMRC actions. This case highlights the care need when applying the correct rate but also the need to record the reasoning behind use of that rate so that HMRC can only change the rate from a current period.

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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