Deloitte Weekly VAT News - Week Ended 6 January 2006

HMRC has issued some further guidance about the new rules for recovering VAT on business fuel bought by employees, which came into force from 1 January. Among other things, the guidance confirms that the only practical change is that a VAT invoice must support VAT recovery claims. It also suggests that employers whose staff use their cars for business purposes may need to ask them to obtain garage invoices for all their fuel purchases, as a claim cannot be supported by an invoice dated after the relevant business trip. Employers who use mileage rates to calculate how much VAT they can reclaim on business motoring may also be interested in the "approved" mileage rates published by HMRC on their website.

The High Court has rejected an appeal by HMRC against the Tribunal’s decision that the construction of a nursing home intended to provide residential accommodation for patients with various mental disorders was a VAT free project. HMRC argued that the building was similar to a hospital or prison and so was subject to VAT. The Tribunal and High Court both disagreed. As a result of this judgment, it appears that more nursing home projects should be VAT free.

The ECJ will be issuing decisions in the joined cases of Bond House, Fulcrum Electronics and Optigen (about VAT recovery claims in relation to transactions where a VAT fraud by another entity in the supply chain left HMRC out of pocket) on 12 January and in the infringement proceedings against Luxembourg for its failure to make repayments of amounts claimed under the EU Eighth Directive procedure within the six-month time limit on 19 January. The Court will hear the United Utilities case about sub-contracted betting call centre services on 2 February and the Hutchison 3G licences case about whether the sums paid by the mobile phone companies for their 3G licences included VAT on 7 February.

Businesses that supply or use temporary staff should bear in mind that HMRC's 18 month moratorium on a review of the continuing need for the staff hire concession, which allows many businesses to use temporary staff without incurring a VAT cost on the wages bill, ended on 6 January 2006. We understand that HMRC hopes to issue a consultation paper towards the end of this month, to obtain views on the continued need for concessions in this area. Affected businesses may wish to respond. Until changes are announced, businesses can continue to use the staff hire and agency concessions set out in Business Briefs 02/04 and 10/04.

Deloitte’s Customs Group will be holding a series of road shows around the UK to explain how businesses shouldprepare for important changes affecting companies involved in importing and exporting. The changes include an increased HMRC focus on import and export compliance and the impact of new Customs regulations. These changes may affect the supply chain, tax and legal departments as well as the accountant’s responsibilities. These events will be taking place in February and March at various locations around the UK.

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