VAT Connect – March 2015
Prompt Payment Discounts (‘PPD’)
The rules concerning VAT PPD’s change with effect from 1 April 2015. VAT will be due based on what a business actually receives, and the customer will recover based on what they actually pay. However, they must initially calculate VAT on the full price due, before any PPD is taken.
Under the existing rules, if a business offers a discount for prompt payment of an invoice, they are permitted to calculate and declare VAT due based on the discounted price, even if the full price is paid. The customer receiving the discount can only recover the VAT shown on the invoice, even if they pay the full, non-discounted amount.
With effect from the 1 April 2015, a business will declare VAT based on what they actually receive, and the customer will recover based on what they actually pay. However, they must initially calculate VAT on the full price. There are two options if the PPD is taken up;
- Issue a credit note for the discount amount
- Include details of the PPD on the original invoice – including the terms of the PPD and a statement advising only the VAT paid is recoverable. Given this, and to avoid the need for credit notes, you should show the discounted price, VAT on that price and the total due if the PPD is taken up, on the invoice.
Full details of the changes, and how to account for these on invoices, can be found at HMRC Brief 49/14.
Further updates on implementation of MOSS
Further information has been made available for businesses supplying digital content to consumers in the EU.
The VAT Mini One Stop Shop (‘MOSS’) legislation was introduced on 1 January 2015. While most businesses that are affected by the changes will now be registered with the scheme, there may be others who are not aware that their supplies are covered by the new legislation. The new rules mean that a UK business will be required to account for VAT at the rate of the country where the customer is based, although this will be declared on a return submitted via their HMRC online account in the UK.
If your business supplies digital services to consumers in the EU you are required to be registered to account for VAT in the customer’s country or use the MOSS system. If you are already VAT registered in the UK this can be done via your HMRC online account. If you are not VAT registered because your UK turnover is under the VAT threshold, then you are required to obtain a UK VAT number, although you will not be required to account for VAT on UK activity – unless you reach the current VAT threshold of £81,000 (but see ‘Stop Press’). Examples of services affected by the new rules include;
- supplies of images or text, such as photos, screensavers, e-books and other digitised documents eg, pdf files
- supplies of music, films and games, including games of chance and gambling games, and of programmes on demand
- online magazines
- website supply or web hosting services
- distance maintenance of programmes and equipment
- supplies of software and software updates
- advertising space on a website
HMRC guidance on MOSS has changed frequently, which has left businesses affected somewhat in the dark. However, the format for the return was published by HMRC on 20 March 2015, which has allowed affected businesses the chance to see what they will be required to submit for the first time. The return appears relatively straightforward, although it may be time consuming for business supplying into multiple countries. HMRC have published a guide alongside the return, which gives step by step instructions on the submission process.
The MOSS return is accessed through the HMRC online account pages, and the guide can be found at https://www.gov.uk/government/publications/vat-mini-one-stop-shop-union-return-guides.
HMRC update on golf clubs seeking repayment of VAT
HMRC has published an update relating to the decision in the Bridport & West Dorset Golf Club case. The update provides clubs with additional information to consider when submitting claims, or amending claims that have already been submitted. This includes clarification on different incomes streams a club may have, including corporate hospitality, buggy hire and sponsorship. The update also advises clubs on the reimbursement of VAT charged to non-members. Given the difficulties in administering such reimbursements, it’s expected that clubs are unlikely to adopt such a strategy. In light of this HMRC are currently reviewing whether to restrict repayments to clubs to ensure they are not receiving a financial benefit from any repayments made to them. The notice also advises that HMRC are reviewing whether ‘unjust enrichment’ has to be considered on a case by case basis, or whether a flat rate can be applied across all claims.
Given the number of updates issued since the last decision, and the length of time the case has been going on, it’s likely to be some time before claims begin to be repaid, whether in full or in part. Full details of the notice can be found at Information sheet 01/15.
When is a blanket not a blanket?
In a recent case, the First-tier Tribunal (‘FTT’) allowed an appeal against HMRCʼs decision that zero-rating did not apply to a wrap for babies on the basis that it was not an ‘article designed as clothing for young children’.
The case concerned an item called a Snugglebundl, which was described as both a ‘baby lifting blanket’ and a ‘hooded baby wrap’. The company argued that babies could spend an entire day in a Snugglebundl, but be lifted in it for only seconds at a time. HMRC guidance on baby clothing advises that ‘towelling bathrobes designed with a hood or sleeves enabling the baby to be wrapped in them as a garment’ were considered items of clothing and as such VAT zero rating would apply. Further HMRC guidance advised that ‘a garment could be designed primarily for another purpose, but could also fulfil a clothing function’.
HMRC argued that on the product packaging it had been designed as ‘the world’s first baby lifting blanket’ and that the company website emphasised the fact that it was used for ‘safely lifting and manoeuvring babies in and out of pushchairs and car seats’.
After hearing both arguments, the Tribunal found that VAT zero rating did apply to the product. While they accepted that the Snugglebundl was designed for a variety of uses, including moving babies in and out of car seats and pushchairs, it was also designed as an item of clothing, and therefore qualifying for VAT zero rating.
The importance of timing with pre-registration input VAT
The FTT dismissed the appeal of Captain Smith t/a Heliops UK, in a case that emphasised not only the importance of pre-registration input VAT and whether costs were goods or services, & the timing of when these costs were incurred, but also the importance of reading the correct guidance.
The appellant applied in January 2013 for VAT registration. As this was an application for voluntary registration, he requested and was granted an effective date of registration of 14 October 2012. He incurred VAT on the helicopter pilot training he had undertaken up to 3 March 2012. However, as the invoice was dated in 2011, the VAT could not be recovered as this exceeded the 6 month timescale for recovering VAT on services prior to registration.
The appellant referred to HMRC’s Business Income Manual, which stated that ‘where attendance is required to give business proprietors new expertise, knowledge or skills, which they lack, it brings into existence an intangible asset that is of enduring benefit to the business’ and that the training therefore qualified as goods, which are subject to a 4 year recovery period. However this legislation concerned direct taxes, and not VAT. VAT legislation on the same topic advises that ‘Supply of goods shall mean the transfer of the right to dispose of tangible property as owner’.
It was also made apparent during the appeal that HMRC had previously advised Captain Smith that he would not be entitled to recover the input VAT before he had submitted the claim, and that he had subsequently submitted the claim to test HMRC’s willingness to take the matter to tribunal.
As a result the Tribunal ruled Captain Smith was not entitled to recover the input VAT incurred, and they agreed that the deliberate penalty of 38.5% raised by HMRC should also remain.
Intrastat arrivals increased from £1.2m to £1.5m
HMRC announced changes to the Intrastat arrival threshold that took effect from 1 January 2015. From then, the annual threshold for making an Instrastat declaration on goods coming into the UK from the EU has been increased to £1.5m. While a UK VAT registered business does not have to make an Intrastat declaration below this threshold, they are still required to declare these arrivals on a VAT return. The threshold for dispatch declarations remains at £250,000. Full details can be found at HMRC Brief 47/14
Key VAT points in Budget 2015
There were a small number of mentions of VAT in Budget 2015. These are;
- From 1 April 2015 the VAT registration threshold will be increased from £81,000 to £82,000 and the deregistration threshold from £79,000 to £80,000.
Comment: This is a minimal increase to the VAT thresholds but one all businesses should be aware of
- As announced at Autumn Statement 2014, hospice charities will be eligible for VAT refunds from 1 April 2015.
Comment: This may be an opportunity for hospice charities to recover significant amounts of input VAT previously blocked.
- The government announced at Autumn Statement 2014 that search and rescue, and air ambulance charities will be eligible for VAT refunds.
Comment: As above, this may provide a significant VAT opportunity for charities of this nature.
- The government will no longer allow businesses to take account of foreign branches when calculating how much VAT on overhead costs they can reclaim in the United Kingdom. This measure will affect partly exempt businesses and they will have to implement the change from the beginning of their next partial exemption tax year falling on or after 1 August 2015.
Comment: This will only affect business who have foreign branches, but could well have a detrimental effect on input VAT recovery in the UK.
If you think you might be affected by any of these points or have any questions, please contact a member of the Henderson Loggie VAT team, or your usual HL contact.