The VAT Consultancy acquired the business of VAT Services (Scotland) Ltd on 1 February 2023. We will retain VAT Services Scotland as a trading name and are in the process of introducing ourselves to VSS’s clients. We are excited about this addition to our business and look forward to working with VSS clients in the future, ensuring they receive the same high quality service provided by Gary Moore historically
From 1 January 2015, supplies of digital services (telecoms, broadcasting and electronically supplied services) to private individuals in other EU Member States will be liable to VAT in the customer’s country. Rather than registering for VAT in every Member State where customers are located, businesses can discharge their EU VAT obligations via the MOSS.
Registration is now open and can be accessed via HMRC’s online services:
For further information, please contact Julie Park on 0208 941 9200 or email@example.com
Direct mail is frequently used by financial institutions to target new customers, whilst many charities will use it to solicit donations. As both types of organisations are unable to recover much VAT, they benefit significantly from the availability of zero-rating for printed matter.
For the agencies supplying these mail packs, the rules regarding zero-rating are complex, in terms of:
- what types of printed matter qualify (and therefore, whether the mail pack qualifies overall); and
- the treatment of other services provided as part of the print process e.g. design, artwork, fulfilment and postage. On their own, many of these services would be standard rated. The question therefore arises as to whether they form only a minor part of the contract (“ancillary” to the main supply of printed matter), to enable them to be zero-rated as well.
The question of zero-rating has become even more important, since the changes which resulted in more postal services being subject to the standard rate of VAT – as the benefit of zero-rating as a single supply of printed matter has increased.
The debate with HMRC
The question of zero-rating these additional services has been the subject of much discussion between HMRC, individual taxpayers and representative bodies over the last two years. Many agencies that supply mail packs to financial institutions or charities have been visited by HMRC anti-avoidance officers, whilst other agencies have contacted HMRC to obtain rulings on the VAT liability of particular supplies.
Many agencies consider that HMRC’s guidance is unclear in relation to:
- the difference between zero-rating of “delivered goods” and the standard rating of “direct mail” services; and
- the point at which additional services no longer qualify as “ancillary” to the supply of printed matter and therefore liable to VAT at the standard rate.
HMRC have attempted to clarify their position and recognise that past guidance has been unclear, with contradictory rulings issued. Updated guidance is expected shortly and HMRC have indicated that from October 2014, they expect agencies to apply the zero-rate correctly.
That still leaves agencies with the question of which supplies qualify for zero-rating and this will be influenced by:
- the terms of the contract with the customer;
- the scope of the additional services – including the cost and time input relative to the print;
- how the postage services are procured i.e. whether the agency is acting as a principal or merely as an agent between Royal Mail and the client.
Based on the above, we consider that it is still possible for some mail packs to qualify for zero-rating, although these are likely to be subject to scrutiny from HMRC. As such, the VAT liability will need to be carefully considered for each type of mail pack being supplied to a client that cannot recover all of the VAT it incurs. Although it is possible that HMRC will adopt a light touch in respect of past errors (given the lack of clarity in their guidance), this isn’t guaranteed it would be prudent to review all such contracts within the last four years, to avoid potential assessments and penalties.
For further information please contact:
Steve McIntyre (firstname.lastname@example.org)
Rowena Clifton (email@example.com)
HMRC have published Revenue Brief 32/2014, confirming that whilst their policy post-BAA remains unchanged, they have updated their guidance on deal costs.
What was the BAA case about?
The Ferrovial Group set up a new company (ADIL) to acquire the shares of airport operator BAA. ADIL incurred £6m of VAT on professional costs at a time when it was not registered for VAT. After the takeover, ADIL joined the BAA VAT group and sought to recover the VAT incurred.
In order to recover the VAT, the taxpayer needed to prove that ADIL was carrying on an economic activity (or intended to) at the time the costs were incurred, and that there was a direct link between the takeover costs and the taxable supplies of the BAA VAT group.
The Court of Appeal found that at the time the costs were incurred, ADIL’s only intention was to take over the group by acquiring the shares. There was no intention to carry out an economic activity such as providing management services (or to even join the BAA VAT group), even though this did come later.
HMRC’s guidance has been updated to reflect the specific scenario that was considered in the BAA litigation. Although BAA was denied leave to appeal to the Supreme Court, HMRC have indicated that they will review their policy again once a number of similar German cases (Larentia and Minerva) have been heard in the Court of Justice of the European Union (CJEU) in 12 to 18 months time.
Despite the ruling in BAA, deal costs remains an area where many businesses may still be eligible to recover a proportion of the VAT they incur. However, as the BAA case shows, VAT needs to be considered early on, not just in the context of the structure of the transaction, but also the post takeover activities and good quality documentation will be critical. BAA demonstrates just how difficult it is to deal with VAT effectively after the deal is done.
For further information on the recovery of VAT on deal costs please speak to Julie Park (firstname.lastname@example.org or 0208 941 9200).
Following the recent seminar on the 2015 VAT changes for broadcasting, telecoms and e-services, HMRC has published its responses to the questions raised which can be viewed on HMRC’s website (http://tinyurl.com/k5fx3n8).
The European Commission is continuing its roadshows with an event in Warsaw on 9 September 2014, followed by an event in the US in Santa Monica on 16 September 2014, and they are useful forums for businesses to attend.
In preparation for the 2015 VAT changes we have prepared a MOSS readiness project document to assist businesses with their planning – http://www.thevatconsultancy.com/mini-one-stop-shop-download/
Should you wish to discuss mini-one stop shop for broadcasting, telecoms and e-services and what your businesses needs to do prior to 1 January 2015 please contact your usual TVC contact or Sean McGinness on +44 (0) 1962 735350 or Julie Park on +44 (0) 208 9419200
The Court of Justice of the European Union (“CJEU”) gave its decision recently in the Banco Mais SA (“Banco”) VAT case. The case concerns VAT partial exemption and which values should be considered turnover for the purposes of calculating the deductible proportion of overhead input tax.
• Banco is a Portuguese bank which carries out leasing activities in the automotive sector;
• Banco enters into finance lease arrangements with its customers;
• Banco acquires goods from a third party and supplies them on to the customer under a finance lease; and
• In return for this the customer pays Banco a “rental” payment which covers the cost of the goods, an interest charge and any other charges that might be due.
What is the case about?
In 2004 Banco recovered the full amount of VAT paid on the acquisition of the goods and services which were used exclusively for the purpose of carrying out taxable transactions. This included the acquisition of the vehicles.
With regard to mixed use goods and services, Banco calculated the deductible proportion of the VAT incurred on the basis of a fraction containing, as a numerator, the payments collected from the financial transactions in respect of which VAT is deductible, to which the turnover from leasing transactions was added. This method enabled Banco to reclaim 39% of the VAT incurred on the purchase of goods and services that related to mixed use goods and services.
In 2007 the Portuguese Tax Authorities assessed Banco for VAT claimed under this method, claiming that the calculation used to determine the VAT recoverable on the leasing transactions should have excluded the part of the rental payment which offset the acquisition cost of the vehicles.
Banco appealed the decision and the case was heard by the Lisbon Tax Court in 2008. The Court upheld the action brought about by Banco on the grounds that Banco had correctly applied Article 23(4) of the CIVA (which states that the proportion to be used for mixed use goods and services should be calculated by reference to the share of the turnover relating to transactions in respect of which VAT is deductible). Under this provision Banco should have been allowed to take account of the whole of the rental payments made in determining how much of its input tax should be reclaimed.
The Lisbon Court sought a referral from the CJEU. The referral sought guidance on the value to be included in the denominator and whether only the interest element should be taken into account, since it constitutes the true remuneration (profit) accruing to the bank from the leasing contract.
What was the outcome?
The CJEU ruled that the inclusion of the entire “rental” payment in the partial exemption calculation is likely to be distortive. Therefore, only the part of the “rental” payment which equates to the “interest” element of the leasing transaction should be included in the numerator and denominator of the pro-rata calculation (this is on the basis that this is more likely to provide an accurate reflection of the extent to which the overheads of the business are used for taxable purposes).
However, the CJEU held that it was for the national court to determine what was more appropriate in the present case. The decision has therefore been put back in the hands of the Portuguese Tax Authorities to determine the way forward for Banco.
What does the decision mean for UK Lenders?
With regard to the UK position you may recall that the VWFS Court of Appeal hearing was vacated pending the outcome of the Banco case. It is likely that this case will now be concluded in light of the CJEU decision. If concluded in favour of the CJEU this will mean that Lenders will be significantly worse off depending upon the current methodology applied. We eagerly await HMRC’s response to the above and would recommend that those affected by the decision to seek advice on possible alternative methods. If you are affected by the decision and would like to discuss the implications in more detail please contact Julie Park on 0208 941 9200 or via email at email@example.com
Following on from the result in the Bridport and West Dorset Golf Club VAT case at EU Level (C 495/ 12), HMRC have now issued guidance on the line they will take on VAT claims made in respect of non-members’ green fees (HMRC VAT Brief 25/14 refers). HMRC state that they plan to enact the change to their approach by 1 January 2015.
In short, HMRC’s view of the treatment of fees charged to non-members of a members’ golf club for playing at the club (green fees) was that they could not be VAT exempt under the sporting exemption VAT rules, thus treating such fee income as liable to VAT at the standard rate. Over the past few years, a number of retrospective VAT claims were made by members’ golf clubs, on the basis that the exemption for sports played by members of a club should also be extended to non-members. These claims were rejected by HMRC, pending the outcome of the lead case, Bridport and West Dorset.
HMRC now accepts that the VAT exemption was available on fees charged to non-members, provided that the “services were closely linked and essential to sport” and were “made to the persons taking part in the sport”.
What action is required?
Any sports club that has not submitted a claim should consider whether it has/is accounting for VAT on guests’ fees and also how this change to the VAT treatment of income will affect the sports club’s VAT recovery on costs, both for the past and on an on-going basis.
I run a proprietary club – can I make the claim?
No. The exemption applies only to non-profit making bodies so the status of the club would need to change going forward to make use of the exemption.
Will HMRC repay the VAT to the club?
HMRC are considering the claims in two phases:
- Phase 1: where the members’ clubs have decided to reimburse the non-members and must demonstrate they have made arrangements and a legally binding commitment to reimburse the non-members in a timely manner.
- Phase 2: where HMRC consider that unjust enrichment will be applicable, they are considering restricting such claims, e.g. where the amount charged to non-members has been/will be reduced due to treating the pricing as inclusive of VAT, if applicable, and where no refund to the non-member player would be made by the club as a result.
There are some key points arising from this:
- Here, HMRC will be looking to offset any reimbursable VAT against any previously recovered input VAT which, under the partial exemption method used by the club, will now relate wholly or partly to VAT exempt supplies rather than (as previously) to taxable supplies.
- The possible assumption on HMRC’s part that the pricing of the non-members’ green fees was influenced by inclusion of the VAT element and whether this is a valid reason not to repay the claims.
- Can HMRC’s “unjust enrichment” concept be over-turned in favour of the claimant club where it can be demonstrated that there were reasons/factors other than VAT for the pricing of the non-members’ fees to be higher than the members’ fees.
- Clubs which are yet to make a claim will be time-blocked in how far back they can go – the four year cap.
Should you wish to discuss whether your club is eligible to make a claim, please contact Marianne Hawksworth on +44 (0)1962 735350 or your regular TVC contact.
The first VAT Tribunal case regarding the cost sharing exemption, West of Scotland Colleges Partnership (“WOSCOP”)  UKFTT 622 (TC), has now been reported and we thought it timely to raise the issue for two reasons:
- there is little HMRC guidance on how to achieve the exemption available, making organisations unsure of how to implement it within their procurement arrangements; and,
- whilst certain sectors or types of entity/business have established a cost-sharing arrangement, the cost sharing exemption provisions would still appear to be “under the radar” of many organisations who are potentially eligible to benefit.
The cost sharing exemption is not only beneficial in situations involving the centralisation and sharing of costs for “not for profit”/social sector organisations, it is equally applicable to commercial organisations with low or nil VAT recovery rates for business purposes, e.g. from partly exempt organisations such as in the financial and insurance sectors to independent/private schools. The arrangements could be of benefit not only financially, but also in terms of time/administrative costs, where eligible costs (n.b. only on services and not on goods) are shared.
In the WOSCOP case, the taxpayer was ultimately unsuccessful due to the basis of the cost allocation between its members being deemed insufficiently accurate/exact. This is one of the six conditions for operating a Cost Sharing Group (“CSG”), which are as follows:
- there must be an independent group (i.e. the CSG cannot be controlled by one or several members);
- members of the CSG must have VAT exempt or non-business activities (or can have both);
- the services supplied by the CSG must be “directly necessary” for the members to make those exempt or non-business activities;
- the services must be supplied to the CSG members at cost (i.e. no additional charge or profit must be made);
- the supply must not give rise to a distortion of competition; and,
- (an additional rule introduced by HMRC), apart from having exempt or non-business activities, a member must also receive a qualifying service which is exempt ( as defined within Group 16 of Schedule 9 to the VAT Act 1994), i.e. an onward charged commercially outsourced service cannot be provided by a CSG to its members.
Why Would I Want a Cost Sharing Group?
If you cannot recover VAT but incur VAT on labour-intensive costs, this may be of benefit to you. Whilst the CSG cannot register for VAT and so cannot recover VAT on costs, the services supplied by the CSG to its members can be exempted from VAT, if all of the conditions apply. This means that where the costs incurred themselves are exempt, such as staff salaries, or zero-rated, such as food products, a clear benefit arises. In addition there may also be a benefit for organisations using outsourced services, such as IT, accounting, legal, catering services, etc., and where a number of organisations (although not necessarily a large number) need the same type of service.
The benefit to partly exempt businesses and to organisations with heavily VAT exempt or non-business activities would be to receive labour-intensive services free of VAT, thus keeping costs down by 20%.
Should you wish to discuss the above, please contact Marianne Hawksworth on +44 (0)1962 735350 or your regular TVC contact.
We attended the joint tax authority and EU seminar on Monday on the new rules relating to VAT accounting for telecoms, broadcasting and e-services (BT&E). The new rules impact businesses that sell to private individuals and other non-business customer (referred to as B2C). We have already commented on the general rules and HMRC’s guidance in previous blogs – see links (http://tinyurl.com/melzzot & http://tinyurl.com/mzot6fw).
We’ll be commenting further over the next few weeks and below we have set out some of the key issues from Monday’s discussions. One of the over-arching comments from the EU Commission was that there is a will to extend the “one stop shop” method of compliance to other areas, if the mini one-stop shop (MOSS) is successful. This includes the online sale of goods (distance selling), other B2C services and, perhaps more surprisingly, the low value importation of goods from outside of the EU.
MOSS – Key issues
How do I know if the new rules affect my business?
The new rules will apply to any business that is supplying BT&E services to private/non-business customers (for example, downloads, on demand TV/film, internet connections, pay per view TV, etc.). However, the key point to establish is where in the supply chain your business is. The point was strenuously made that the presumption is that each party is acting as principal in the supply chain and therefore it is only the final party (for example a web store/market place) that is making the B2C supply and is affected by MOSS. This is on the understanding the final party typically authorises the charge, delivery of the product and sets the general ts&cs. The point here is that this may be obvious for initial downloads from a third party web store but the question of what then happens with further paid for content within the app needs to be fully understood.
Action: if you are selling a consumer product it is vital you determine whether you are selling directly to the customer and need to use the MOSS or whether a marketplace further down the chain has this role. Clearly both parties need to agree, otherwise there is a risk of something falling through the gap.
What if there is a doubt whether my supply falls into the definition of BT&E?
Again, there is an assumption that if it is unclear, the supply does fall under these new rules. It is therefore important to understand whether your product is a genuine e-service or is merely something delivered using electronic means. This will be particularly important for businesses in sectors such as education as differing VAT treatment/rates will apply depending on which member state the customer is located in.
The key question, certainly for e-services, is the amount of human intervention required. If this is significant then the service may not fall under the rules. HMRC’s rules are not clear on this point and it is something we are clarifying with them.
Action: Understand what is being supplied and whether within the definitions. Summary guidance has been published by the EU on various topics, including what they view as falling within the three sectors (http://tinyurl.com/p9ynewk).
As I register with my local tax authority I assume their rules apply, is this correct?
No. One of the key messages was that MOSS is a simplification measure (there is an alternative to register directly with each tax authority). This unfortunately means that the business needs to comply with the regulations in each member state where it has customers. This will include invoicing to meet local requirements, being subject to local VAT audit rules (although there is an agreement that the first point of contact and VAT audits will be managed through a business’s local tax authority), and being subject to local penalties regulations for any errors on MOSS returns.
In theory this means that there are potentially 28 sets of rules to consider.
Action: As the new rules take effect from 1 January 2015 then it is important for businesses to ensure that their systems and processes will be MOSS ready by 1 January. The view of the tax authorities and the EU Commission was that a light touch will be adopted in the early stages but there is no guarantee that all tax authorities will adhere to this and therefore being compliant from 1 January 2015 is important.
We will be posting another blog on MOSS readiness later this week which will cover the data and process issues.
I’m a business with EU business customers only (no B2C). MOSS doesn’t apply to me does it?
On the face of it the answer to this question should be no. However, what became apparent was that some member states will take the strict view that, if a supplier has not received a VAT number from a business customer, the supply should be treated as a B2C supply and therefore subject to VAT where the customer is located. It is debatable as to whether this is a correct analysis of the legislation but this is the clear stance being taken.
Action: Businesses need to ensure that they are capturing VAT numbers as far as is possible – the indication was that this would apply to EU as well as non-EU businesses. It remains to be seen how a tax authority requiring the VAT number of the supplier will enforce this rule if the supplier has issued a valid B2B invoice. This will especially be the case in relation to non-EU businesses
I’m a non-EU business with no establishment in the EU, but I do have an EU VAT registration as I supply goods from an EU location. Which MOSS scheme should I use if I also supply e-services?
Surprisingly, the answer from the Commission was that neither scheme is appropriate and that suppliers in this situation are technically required to register in each member state that they make supplies in. Whilst this seems completely irrational, and does not seem to fit with the encouragement to get non-businesses to comply, it was advised that this is unfortunately created by a function of wider VAT law and will remain the case.
From a systems perspective I want to have a control that clearly identifies whether a customer is a business or a consumer, can I treat all services as B2C where I don’t receive a VAT number from a customer?
Yes. The regulations enable suppliers to assume that their customers are consumers rather than businesses if no VAT number is provided.
Action: Businesses need to decide whether the VAT number test is a fixed test that if not met means the transaction is treated as B2C. Many businesses already apply this logic in their system.
We hope the above is useful, and as indicated will continue to post more comment over the coming weeks. The key message is that businesses should start to consider their MOSS readiness with less than 6 months to implement the systems process and reporting. Should you wish to discuss how we can assist with the preparation for MOSS please contact Sean McGinness or your usual TVC contact on +44(0)1962735350.
In our blog of 23 May 2014 we summarised the rule changes relating to the supply of business to consumer (B2C) broadcasting, telecoms, digital and e-services, and the requirements for businesses to register for mini one stop shop (MOSS) VAT reporting which will apply from 1 January 2015.
In addition to the challenge of reporting sales under 28 member states’ VAT rules (local sales are still reported on the local VAT return, not the MOSS return), there are some further issues that need to be considered by businesses. There are detailed rules and guidance published at both UK and EU level and we have summarised below some of the key points:
- If you are selling through an online platform then it is important to establish whether you or the platform operator are deemed to be making the supply to the customer for VAT purposes. HMRC suggest that where the platform sets the general ts&cs, collects payment and doesn’t include the sellers details on the invoice/receipt to the customer then it is the platform owner that should be accounting for VAT under MOSS.
It is recommended that agreements with platform providers are reviewed to identify who has the responsibility to account for VAT and how the contract deals with where the liability of the VAT sits (likely to be with the supplier and not the platform therefore care needs to be taken that this VAT has been taken into account when setting margins).
- You must be able to identify whether the customer is a business or not. HMRC suggest that the only consistent evidence across all member states will be the collection of the customer’s VAT number (to be able to treat the supply as Business to Business – B2B).
It is recommended that systems are reviewed to ensure that they are capable of clearly identifying B2B and B2C transactions – the starting point being to incorporate the requirement for a customer VAT registration number if applicable during the customer registration process. The guidance indicates that if no VAT number is obtained for a B2B transaction then VAT will be due under MOSS in the member state where the customer is located, unless countries accept alternative evidence that the customer is “in business” – many do not.
- Under EU law and the guidance published by HMRC, two pieces of non-contradictory evidence are required to establish which member state the customer is located in and therefore which member states’ VAT should apply to the sale. HMRC give the following examples:
The billing address of the customer;
The IP address of the device used by the customer;
The location of the bank (we assume this means the location of the bank that issued the debit card/credit card to the customer);
The country code of the SIM on a mobile device;
The location of the customer’s landline through which the service is supplied;
Any other commercial relevant information such as product codes which identify jurisdiction.
Clearly there are systems/customer take on issues to consider relating to the above, and again it highlights the importance of fully understanding the relationship with any portal through which you are selling. If your business is deemed to be the supplier under MOSS, rather than the platform, then it is important that the information to establish location of customer is available.
- The difficulty in determining whether something is an e-service or not remains – HMRC have advised that there is a distinction between different forms of e-learning, with some services being covered by MOSS and others not. The key point is the presence of human interaction whether that be by webinar or other online contact, or by there being human activity in terms of the provision of examination services. These rules are likely to present additional complexity to businesses in this area as they try to identify which jurisdiction’s VAT law applies and therefore whether any exemptions or reduced rates are available).
We will be attending a joint session being held by HMRC and the EU on the implementation of the changes on 2 June and we will provide a further update. Should you wish to discuss the above, please contact Sean McGinness on +44(0)1962735250 or your regular TVC contact.