UK: Deloitte Weekly VAT News - Week ended 1 July 2005

Organisations that provide research notes and similar financial briefings without charging for them may be facing increased VAT costs. We hear that Customs have decided that "free" briefings of this kind cannot be used to justify VAT recoveries.

Businesses that make payments to their customers to facilitate a transaction may be able to save VAT. Customs recently issued new guidance in relation to their policy on inducement payments made by landlords to tenants and we hear that the new policy is being applied to other inducement payments paid by other suppliers to customers, as well as to agreements between landlords and tenants.

Bodies that provide education and make travel arrangements for students may be facing VAT accounting complications if the ECJ follows the opinion of its Advocate General in the case of iSt Internationale Sprach und Studienreisen GmbH. The case may affect providers of EFL tuition and others who arrange transport and accommodation for their students and the treatment of educational trips organised by schools, colleges and universities may also be affected.

Businesses that provide their staff with mobile phones should ensure that they reclaim only the VAT on the "business" element of the phone bills, or that they pay VAT on the "private" component of them. Customs are asking some businesses to undertake sampling exercises to ensure that the VAT treatment of their mobile phone bills is correct.

Offshore mail order arrangements that allow VAT-free sales to UK customers are coming under renewed attack following statements by the Jersey Government. The arrangements allow goods to be sourced from countries like Jersey without VAT, as long as they are imported individually and are valued at less than £18. The Jersey Government has indicated that it may refuse licences to retailers who are taking advantage of the loophole.

It is understood that the House of Lords will debate the Finance Bill on 19 July and that the most likely date for Royal Assent is 21 July.

In the case of H Griffiths Engineering Limited, Customs were unsuccessful with their argument that a trader could not rely on a bank error as a ‘reasonable excuse’ for a late VAT payment. Customs argued that as the company had previously used the same excuse, it should have done more to prevent the error being repeated. The Tribunal commented that it would have been helpful if Customs had provided an indication of the standards that they expected from businesses using unreliable banks!

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