UK: VAT Focus - A Round-up Of Recent VAT-related Developments, July 2007

Last Updated: 12 July 2007

Change to VAT invoicing Requirements

Following advice by the European Commission (EC) that several aspects of the EC Invoicing Directive have not been fully adopted in the UK, HM Revenue & Customs (HMRC) is introducing new regulations from 1 August 2007.

The most significant changes will be the requirement for invoices to be sequentially numbered (rather than to just bear an identifying number) and for additional information to be recorded on invoices issued in respect of cross-border EU supplies.

In cases of cross-border EU supplies, exempt supplies or where the customer is liable for payment of VAT, the invoice must show a reference to the applicable provision of the EC Directive that enables the supply to be zero rated or treated as a reverse charge. Alternatively, the relevant provision in UK legislation can be referenced (instead of the EC Directive).

The EC advises that certain exempt services, for which invoices are not currently required in the UK, will require invoices when supplied in the EU. However, HMRC has indicated that these changes may require further consultation and will not be introduced until after August.

What next?
Businesses in the UK will need to ensure that their accounting systems are updated in time for the new requirements. Businesses that are currently changing their systems should consider making provision for these changes now. If you have any concerns about how the proposed changes may affect your business, please discuss them with your Smith & Williamson VAT contact.

Partial exemption – annual Adjustment

Businesses that make exempt supplies are required to carry out partial exemption calculations each time they submit a VAT return. In addition, they are required to carry out a mandatory annual adjustment calculation at the end of their VAT year.

Unless otherwise agreed with HMRC, VAT years end on 31 March, 30 April or 31 May and the necessary adjustments have to be declared in the VAT return for the following quarter. For businesses with monthly VAT returns, the VAT year ends on 31 March. For many businesses therefore, the annual adjustment is due in the next few weeks.

If you are using the standard method, the annual adjustment is also the time to check that the results are fair and reasonable – if they are not, the ‘override’ provisions may come into play.

The annual adjustment calculation is especially important for those businesses required to make adjustments to VAT reclaimed on capital items.

What next?
If your business is required to carry out partial exemption calculations, you should consider making an annual adjustment following the end of your VAT year. This is also a good time to review the method and think about whether it is still producing reasonable results. If you require any assistance or any further information, please speak to your usual Smith & Williamson VAT contact.

VAT registration delays

Applications for VAT registration are currently subject to severe delays by HMRC. Some registrations are taking over six months to obtain and some more than 30 days to open. Even after applications are opened the delays can continue, with HMRC often asking for information that has already been provided or that should be obvious from the application. This is leading to cash flow issues for some smaller businesses and, in some cases, creating a lack of credibility with potential customers at a time when credibility is of paramount importance.

HMRC has said that these delays are the result of additional checks being carried out as part of its efforts to combat carousel fraud. To make matters worse, it has been announced that one of the most established HMRC offices dealing with VAT registrations, Newry VAT registration office, is closing. This will almost inevitably cause further delays in obtaining a VAT registration for the foreseeable future.

What next?
If you are intending to apply for a VAT registration, you should speak to your Smith & Williamson VAT contact to try and ensure that your application is not unnecessarily delayed by HMRC.

Fees paid on behalf of another party

The High Court and Tribunal have ruled in favour of HMRC against two premiership football clubs (Newcastle United and Birmingham City respectively). Both clubs recovered VAT incurred by them on fees charged by players’ agents. Although the clubs were responsible for paying the fees and the invoices were issued to the clubs, HMRC disallowed the VAT reclaimed on the basis that the agents’ services were not provided to the clubs but to the players they represented. Where the club was receiving a service from the agent, by representing both the player and the club (i.e. in the sale of a player to another club), partial VAT recovery was allowed.

It is important to note that these principles also apply to other common situations where one party agrees to pay fees on behalf of another party. For example, where due diligence is carried out by a bank in order to assess a potential loan to purchase a building, surveyors’ fees may be paid for by the lender. Any VAT charged by the surveyor will be irrecoverable by the lender because it relates to services provided to the bank.

What next?
If you have concerns about how you have dealt with similar situations, please speak to your usual Smith & Williamson VAT contact.

All-inclusive services

The Court of Sessions has upheld a VAT Tribunal decision that a ‘leisure card’ issued by a local council allowing the purchaser unlimited access to sports and leisure facilities should be standard rated. The council issued three types of card: a budget card, a pay-as-you-go card and an allinclusive card. The VAT treatment of the first two types of card was determined by the use of the cards between the standardrated and exempt activities. However, the VAT treatment of the all-inclusive card was decided on the terms of the contract, which simply provided a right to enjoy an undifferentiated range of facilities and activities; at the time of payment no part of the payment qualified for exemption. The whole consideration was therefore found to be standard rated.

What next?
If you have concerns about how you have treated similar services, please speak to your usual Smith & Williamson VAT contact.
[The Highland Council v HMRC [2007] CSIH 36]

Default surcharge – late payments

In the case of Kpack (UK) Ltd, the company was issued with a default surcharge as VAT due to HMRC was received after the due date for payment. Kpack submitted VAT returns and payment electronically, and had instructed its bank to pay the money due to HMRC a day before the extended deadline. Kpack believed that this constituted payment being made to HMRC on time. However, the Tribunal disagreed and confirmed that payment would only be treated as being made once the funds were actually received by HMRC. This is not as clearly stated on the electronic VAT return as it is on paper VAT returns.

As the appellant had submitted VAT returns in paper format previously, the Tribunal concluded that Kpack could not have genuinely believed that payment meant payment out of its own bank account rather than receipt of payment by HMRC. Therefore, the default surcharge was still applied.

What next?
All businesses should ensure that they have adequate procedures in place with their banks so that payments due to HMRC reach its bank account before the relevant deadline.
[Kpack (UK) Ltd v Revenue and Customs Commissioners (Decision 20109)]

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.