VAT Connect – September 2015

Another blow for HMRC’s ‘cost’ theory in partial exemption

The Court of Appeal hands out another decision that goes against HMRC’s view that input tax on overheads is only deductible by reference to the ‘profit’ that it generates.

In a similar vein to Chester Zoo, HMRC argued in the case of VW Financial Services Ltd that their profit only came from exempt finance charges and not the sale of second hand cars that were sold at cost (which carried no profit margin). The input tax incurred on their overheads could only therefore have a direct link to their exempt activity. The Court comprehensively rejected this argument.  The full decision can be found here.

If you are Partly Exempt and operate either a cost-based Special Method, or if you use the Standard Method but your taxable income isn’t that straightforward (i.e. you use a margin scheme), then now may be the time to consider reviewing that.

Alcohol Wholesaler Registration Scheme (AWRS)

New legislation is being introduced next year which will affect all businesses who make wholesale supplies of alcohol to other businesses.

This new legislation forms part of the anti-fraud measures being introduced by the government to combat the illicit trade in alcohol. Any business that is involved in wholesales of alcohol must make an application between 1 October and 31 December 2015 to HMRC, registering for the Alcohol Wholesaler Registration Scheme via the Government Gateway website.  Failure to register will see the business unable to legally trade in duty paid alcohol from 1 January 2016, and until such time as they have been approved by HMRC.  HMRC will begin the approval process on 1 January 2016 and will continue to approve businesses until 31 March 2017, so if you miss the deadline to register for the scheme you could find yourself unable to trade for up to 15 months. The approval process includes a ‘fit and proper’ test and may include a visit from HMRC officers.

Any business making duty paid supplies of alcohol to other businesses, including businesses arranging supplies such as brokers and auctioneers, will be affected.  There are no exceptions for small volumes. However, businesses making incidental supplies do not need to register (e.g. a supermarket that makes a sale to a local restaurant is incidental because the intention is to sell as retail).  Henderson Loggie can offer assistance with the registration process if required.

Charitable Reliefs for Medical/Veterinary Equipment

Did you know that you could qualify for VAT relief on the goods you buy for use or research into human and animal welfare?

You may be aware that Charities are eligible to VAT relief when buying advertising, but the same rule is available on certain goods and related services when they are used for non-business research into human and animal welfare.  The relief can apply to all purchases, including UK and abroad.  The relief can also be extended to duty in certain instances on qualifying goods that you import.  If you would like more information, please contact the Henderson Loggie VAT Team.

The EU ‘VAT Gap’ is widening

But the UK was doing something right in 2013, as our VAT Gap reduced marginally.

The VAT Gap is the difference between the expected VAT revenues payable to HMRC and the amount actually collected. Unfortunately, the figures are not real-time, with these latest figures coming from an analysis of 2013 compared to 2012. The UK is still low on the scale, down slightly on 2012 and being responsible for around 9% of the total EU VAT Gap. Italy sits at the top of the league with responsibility for 28% of the Gap. The full report can be viewed here, with the summary of the comparison contained under Section 2.2.

Fiscalis 2020: EU Member State Conference

The tax authorities from each of the Member States gathered in Dublin this month with business and industry representatives to discuss laying down the groundwork for future VAT legislation.

The main discussion was around the impact that the VAT rules on electronically supplied services had impacted small businesses, in particular the logistics burden of invoicing and record-keeping that businesses have to meet.

Industry leaders in attendance are pushing for a turnover threshold which would exclude small start-ups and hobby businesses, which may be under consideration by the EU. The current rules which apply the VAT rate based on where your customer is based has no such limit, which has apparently seen thousands of smaller UK businesses stop trading outside of the UK just to avoid the cost of implementation. Watch this space as this issue is still far from being resolved.