UK: Deloitte Weekly VAT News - Week ended 19/08/05

We reported last week that Customs were set to withdraw the "70/30" rule, which is used to allocate VAT on the management of funded pension schemes, with effect from 1 0ctober 2005. Following representations from the IMA (Investment Management Association) Customs have announced that they will delay the withdrawal of this rule until 1 January 2006. In the meantime Customs will be consulting with representatives of the asset management industry as to how existing guidance may be clarified.

The new rules, allowing Customs to deny VAT free status to some sales taking place in Customs warehouses, will come into effect on 1 September 2005. This will lead to increased costs for those businesses affected.

Customs have published draft guidance setting out how transfer pricing adjustments should be treated for VAT purposes. They conclude that making a transfer pricing adjustment does not, in all cases, mean that a corresponding VAT adjustment must be made. However, Customs do believe that a VAT adjustment will be required in some situations and examples are given in the draft guidance.

The Tribunal has recently ruled in the Tribunal case of Benjamin Clowes Limited that the taxpayer had a ‘reasonable excuse ’for the late payment of its VAT return. The taxpayer sought to pay its VAT due by Bank Giro thereby taking advantage of an extra seven days to pay relying on the guidance given on the VAT return. Customs did not receive the payment within this time limit and levied a penalty for late payment. However the Tribunal held that the guidance notes on the VAT return relating to Bank Giro payments were misleading and therefore allowed the taxpayer’s appeal. The Tribunal chairman suggested that the guidance notes be rewritten.

The Chancellor has announced a scheme whereby charities will be reimbursed the VAT costs incurred on the construction, renovation and maintenance of memorials. This refund will be subject to the memorials satisfying certain conditions and will apply to expenditure incurred on or after 16 March 2005. The Government is also continuing to ask the EU to allow a reduced rate of VAT to apply to the repair and maintenance of listed places of worship and the construction and repair of memorials.

Ensuring that a dynamic business is VAT compliant can be a demanding task, which requires responsible personnel to have an up to date knowledge of complex and fast moving rules. In recognition of this, we are offering a one day VAT training seminar to provide attendees with an up to date overview of the key areas of VAT compliance. The event is being held at the ICC in Birmingham on 22 September 2005.

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