UK: Deloitte Weekly VAT News - Week ended 3 June 2005

Insurance companies that underwrite the risks associated with surety bonds should see a decrease in their Insurance Premium Tax, following the Tribunal’s decision in Travelers Casualty and Surety Company of Europe Ltd. The taxpayer appealed a ruling by Customs that contracts which insured the risks covered by surety bonds were liable to IPT and the Tribunal agreed that the contracts were of reinsurance and therefore exempt from IPT.

The consultation about the new powers of HM Revenue & Customs is due to conclude on 13th June. The consultation document, initially released on 24th March sought opinions about the relationship between the tax authorities and taxpayers. Businesses are invited to comment on the crossover of powers in the merged department. Any "levelling up" of powers with the merged department enjoying the greater of the powers of its predecessor departments seems likely to increase the compliance burden on taxpayers.

On 31 May the European Commission met with over 200 business representatives, tax advisors, academics and representatives from the Member States’ tax authorities to discuss its "one-stop shop" scheme. The primary purpose of the proposals is to allow taxpayers to comply with their EU-wide VAT obligations through the Member State in which they are established rather than facing compliance burdens in each country. The proposals were universally supported by business representatives, but they were opposed by the German Federal Finance Ministry and opposition from any Member State is likely to delay implementation of the proposals while the Commission seek consensus.

Public Bodies that treat VAT on the purchase of capital assets as irrecoverable because they are to be used for their "non-business" activities will not be allowed to reclaim VAT later, if they sell the asset and charge VAT, following the ECJ’s decision in Waterschap Zeeus Vlanderen. This Netherlands public authority argued that where the capital asset was subsequently sold with VAT, an adjustment should be made to recover some of the VAT on the original purchase. The Advocate-General agreed that some VAT recovery should be allowed, but the ECJ did not follow the opinion and ruled that public bodies are not entitled to recover any of the VAT disallowed at the outset, even if they have to charge VAT on the sale.

The way in which businesses appeal HMRC decisions may be fundamentally changed in April 2006, when a new Tribunals regime is to be introduced. It is likely that the new Tribunals will have greater independence, with a new Tribunal Service managing a two-tier Tribunal system. The lower tier would deal speedily with purely factual and initial appeals while the second tier would deal with appeals from the lower tier and more complex cases.

Businesses that have relocated to Madeira to take advantage of the low VAT rate there are likely to suffer higher VAT bills, with the Madeiran VAT rate expected to rise from 13% to 15% probably with effect from 1 July 2005. The rise is in line with the increase to the Portuguese VAT rate from 19% to 21%.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.