VAT Connect – August 2015

Irish Government Demands Cross-border VAT

Businesses based in the UK, US and Netherlands were reportedly targeted by fraudsters purporting to be the Irish Collector General.

As it turns out however, letters issued by the Irish Revenue were legitimate, albeit an ‘administrative error’ in their MOSS (Mini One Stop Shop) system. The Revenue have confirmed this, and advised that these particular letters should be ignored. It highlights that cross border information gathered under the MOSS scheme for electronic supplies to consumers is flowing amongst the Member States.

Scams are common everywhere, and although in recent years such scams have evolved into emails and texts, this serves as a reminder that the format and medium does not matter: if you receive an unexpected demand or request to update details through any medium you should check with the relevant government department before clicking a hyperlink, calling a phone number, and particularly making a payment.

For UK businesses, HMRC update their site with details regarding their ‘customer’ contact activity as well as what to do if you think there is something untoward about any communication received from them. You can find their most recent publication here (and if you hover over the link, you should see that it will take you to the legitimate site).

VAT Default Surcharge: Size Doesn’t Matter

Upper Tribunal supports HMRC’s view that a 2% default surcharge was fair and proportionate.

The 2% charge, which would not have been the first default for the business, levied a £70,000 surcharge on the business because its VAT payment was one day late. Whilst a lower tribunal held the amount to be disproportionate, HMRC appealed to the Upper Tier Tribunal (UTT) in the belief that the initial Tribunal erred in its interpretation of the law. The Upper Tribunal agreed with HMRC, citing that the purpose of the regime was to impose a penalty for failing to pay VAT on time, not to penalise further for any delay in payment, however the UTT were of the opinion that although the penalty was harsh, it was not unfair.

The Default Surcharge regime deters the late submission and payment of VAT returns. The surcharge percentage is applied to net VAT due to HMRC, and after an initial ‘warning’, the percentages will rise. The submission (and payment) of four successive VAT returns on time removes you from the regime. Subsequent defaults within a year of each other can trigger surcharges of 2%, 5%, 10% and 15%. If you find yourself regularly incurring defaults, we can review your systems and processes, and consider if there are HMRC schemes available which could help. Read the full decision here.

Dentistry: Supply of Healthcare or Staff?

A dental practice formed a separate company to fulfil a patient contract it had with an NHS board and believed that the VAT liability of the dentistry supplies throughout the chain were exempt. HMRC disagreed but lost their case at Tribunal.

In a case heard at the First Tier Tribunal (FTT), HMRC took the view that the supplies between the dentist’s newly formed company and the dental practice to be a standard-rated supply of staff, as the exempt healthcare services applied only to the services supplied under contract between the dental practice and the NHS board.

The FTT did not agree with HMRC’s view, agreeing with the business and confirming that domestic legislation reflected EU principals which was worded so that all welfare and healthcare services in a chain of supply qualified when supplied by registered dentists. The legal entity of those involved did not matter, only that the services were provided by medical professionals. As both entities held the same dental practitioners, all of the supplies could be exempt.

For clients who supply their own skilled employees to other businesses, you will know that there is a fine line between the supply of services and a supply of staff: the latter always being standard-rated with no scope to take on the VAT liability based on the nature of the services actually being supplied. The case decision can be viewed here.

Airport Retailers Duty-Free Excess Profit

Retailers in airport departure lounges have come under fire this month for not passing on VAT savings to passengers.

Retailers located ‘airside’ in airport departures can treat certain goods bought by passengers travelling outside the EU as ‘exports’ and, on provision of evidence to support the export (the passenger’s boarding card), the retailer will zero rate the sale and pay no VAT to HMRC, but still collect the full ticket price. Unfortunately, some of the retailers do not pass this 20% reduction on to the passengers, but instead keep it as an additional profit.

Although it has been referred to as a ‘scam’, there is nothing that the retailers are doing wrong with regard to VAT legislation.

EU Look to Close Channel Island Benefit

2016 could see the removal of importation relief of low value ‘gifts’ bought from outside the EU.

A report published earlier this month by the European Commission is considering the impact of removing the Low Value Consignment Relief (LVCR) from all Member States. LVCR is a relief on the importation of low value gifts, effectively allowing consumers to import goods from outside the EU without VAT and duty due at the point of import.

The relief value varies depending on the member state of the consumer receiving the goods, ranging from €10 to €22. In 2012 the UK removed this relief specifically from the Channel Islands to combat an unfair advantage that large fulfilment companies had gained by being based there. That decision saw the importation of CDs and DVDs to the UK drop by 95%.

The report estimates that the growth of the fulfilment sector up to 2013 has seen a 286% increase in consumer importation since 1999. This increase now causes a significant competitive distortion over the same businesses based within the EU. The competitive distortion alone will be enough for the EU to consider the removal of the relief, which will in turn see a financial increase to the consumer who chooses to buy online. Link to Report.

England Completes the Carrier Bag Charge

England is about to introduce the compulsory 5p charge on single-use carrier bags, which means that this law will soon apply to the whole of Britain.

Unfortunately for businesses established across the UK, the rules and definitions differ slightly per country, but whilst you ponder yet another set of rules impacting your branches in England from the 5th of October, don’t forget that the charge for the bags is taxable at the standard rate, and you should ensure that you include the sales and the output tax in your VAT return. Link to R&CB14(2015).