UK: Deloitte Weekly VAT News - Week Ended 9 September 2005

Investment management opinion released

The European Court’s Advocate General has released her Opinion in the Abbey National PLC case, suggesting that the ECJ should rule that sub-contracted trustee, depositary and administrative services relating to Unit Trusts and OEICs are VAT free if "they form a distinct whole and are essential for and specific to the management of the common fund or investment company". If the ECJ follows the opinion, authorised unit trusts and OEICs (and their managers) should see a reduction in the VAT on their costs and refunds of VAT overpaid in the last three years should be available. Affected businesses should make claims as soon as possible.

From 6 September 2005, the statutory interest rate paid on overpayments of VAT and other indirect taxes changed from 4% to 3% and the interest charged by HMRC on underpayments changed from 7.5% to 6.5% in response to changes in interest rates generally. HMRC have also admitted that the rate of interest charged in the period 6 August 2003 to 5 September 2003 was 1% too high and this is being corrected. Refunds should be made automatically to businesses affected by this error but those affected might wish to check that they receive the repayment.

HMRC have announced changes to their processes for dealing with claims from overseas businesses seeking refunds of UK VAT. From 1 January 2006, claims will be vetted on receipt and incorrect or incomplete claims will be returned to claimants who will have to resubmit them once any errors or omissions (e.g. missing invoices, certificates of status and so forth) have been rectified. Businesses that file claims close to the deadlines (30 June for businesses in the EU and 31 December for those outside it) may find it difficult to refile any claims that are rejected under this vetting process before the expiry of the deadline and face the possibility that their claims could be rejected as "out of time". We would advise any business contemplating a claim for a refund of UK VAT under these procedures to make it as early as possible.

It is rumoured that HMRC will shortly begin a consultation exercise in relation to the VAT treatment of vouchers, with a view to introducing changes to the way they are dealt with for VAT purposes in the next Budget. We hear that the consultation exercise will focus on the use of vouchers in the telecoms sector but it may be wider.

At present, overseas businesses in the finance sector (and other businesses that make what would be "exempt" supplies in the UK) that would not be able to recover all of the VAT on their costs if they were based in the UK are allowed to reclaim all of the VAT that they incur in the UK. We hear that this policy is being reviewed by HMRC. It is possible that, in future, such businesses may face a restriction on the amount of UK VAT that they can reclaim.

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.