Monthly Newsletter - March 2008

In this issue:

• Money Laundering Regulations
• Three Year Time limit for VAT claims decided
• The MOT VAT Trap
• A Disappearing Residence
• Cats and Dogs are Zero Rated
• Lease or Purchase
• Budget Day

Money Laundering Regulations

Those accountancy services providers (ASP) who have not applied for supervision by one of the professional bodies will be required to be registered by 1st October 2008. These businesses can elect to use H.M. Revenue & Customs as their supervising body and they have set a deadline of 1st July 2008 for the receipt of applications. In addition, the fee payable will be £95 per premises for the year 2007/2008 and HMRC have confirmed that it will remain the same for 2008/2009.

See Business Briefs 05/08 and 06/08.

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Three Year Time Limit for VAT Claims decided

The House of Lords have published their decision in the cases of Michael Fleming (t/a Bodycraft) and Condé Nast Publications Limited in respect of the litigation concerning the application of the three year time limit for input tax claims.

The House of Lords ruled that the implementation of the three year capping was invalid because there was no time limit set for the legislation and that its implementation by a Business Brief was insufficient.

HMRC have issued Business Brief Number 07/08 which states that they accept claims for output tax overpaid or over-declared in accounting periods ending before 4th December 1996, and for input tax under-claimed in accounting periods ending before 1st May 1997. They have also stated that claims will be paid following verification without the need to provide an undertaking to repay.  It is understood however that the Government have given evidence before the House of Lords that their decision would mean they could be facing claims for the repayment of VAT totalling £1 billion.

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The Motor VAT Trap

It is common practice within the motor trade for MOT approved testing stations to charge a lesser amount than the statutory maximum when a non-approved garage refers additional work.  The problem is when the non-approved garage invoices their customer.

This case highlights the problems with Business Brief 21/96.  As a result of this case, the motor trade should review their MOT transactions.

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A Disappearing Residence

This case involved Andrew and Tina Johnson in a claim for the refund of VAT incurred on building works to a cottage that had been used as a dwelling up to 2000 and later declared unfit for human habitation.  The property was deleted from the Council Tax Register but there has been no approval for complete demolition. 

The appellants completed the works in June 2006 and in July 2006 the Council re-entered the property on the register but this time as a new build.  A DIY claim for VAT refund was lodged. HMRC rejected the claims on the grounds that it was not a commercial property and was an existing building which had not been empty for a period of ten years from when the work started.

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Cats and Dogs are Zero Rated

This case concerns Gables Farm Dogs and Cats Home which was a registered charity and sold rescued and abandoned and unwanted cats and dogs.  The appellants had treated their sales as zero rated in accordance with donated goods and charities. HMRC argued that because the original owners had not donated the cats or the dogs there was a standard rated supply by the charity.

The Tribunal found in favour of the appellants and considered that HMRC’s argument of trying to distinguish between sales of animals given directly to the appellants by their owners and sales of animals intentionally abandoned by the owners produced an irrational result when set against the specific purpose of animal protection.

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Lease or Purchase

HMRC have decided to appeal the High Court decision in respect of Weald Leasing Limited.  This decision was in favour of the tax payer and surrounds the perceived abuse by HMRC of a VAT exempt business choosing to lease its assets rather than purchase outright. 

The High Court had ruled in favour of the appellant against the argument by HMRC over an abuse of rights in which they decided to redefine the transactions so that the assets were seen to be acquired direct by the VAT exempt group which gave rise to 99% irrecoverable VAT on the date of purchase.

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Budget Day

Budget Day is set for 12 March 2008.

A special Budget Newsletter will be sent out that day detailing all the important changes you and your clients need to know about.

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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