UK: VAT focus - August 2009

Last Updated: 10 August 2009

A Round-Up Of Recent VAT-Related Developments

The problem with 'management services'

A recent Tribunal decision has highlighted the perennial problem of applying the correct VAT treatment of management services to an overseas entity and, in particular, where such services should be deemed to be supplied for VAT purposes.

A UK subsidiary contended that the management services it supplied to its Japanese parent were consultancy services, with the consequence that the place of supply of these services was in Japan and therefore outside the scope of VAT.

However, HM Revenue & Customs (HMRC) argued that the services were essentially managerial in nature, and consequently should be treated as supplied in the UK and subject to VAT at the standard rate. The Tribunal agreed with HMRC and commented that consultants could not be considered to be part of any ongoing management processes, as an essential characteristic of the consulting services was that they were given in an independent manner (independent of the ongoing management processes). In this case, as there was no clear dividing line between the services supplied and the day-to-day jobs of the executives of the UK subsidiary, the services could not be independent.

What next?

If you are supplying management services from the UK to an overseas entity, or vice versa, you should consider reviewing the arrangements and agreements to ensure that the correct VAT treatment has been adopted. Given the nature of the supplies, and the new penalty regime, this could be potentially costly if the services have been incorrectly treated. In addition you should be aware that changes to the place of supply of service rules will be effective from 1 January 2010. For further guidance in this area, please speak to your usual Smith & Williamson contact. [2009 UKFTT 121 (TC)]

Check VAT registration numbers online

In response to the increasing threat of fraud in relation to VAT, especially regarding European Union (EU) cross-border activities, the European Commission has launched a revised online EU VAT registration service. http://ec.europa.eu/taxation_customs/ vies/vieshome.do?selectedLanguage=EN

The service will allow businesses to get a certificate, provided that they have checked the validity of the VAT registration number of any client at a given time. This certificate can be used as one of the elements of evidence supporting the VAT treatment adopted on supplies to other business customers in other EU member states. This will be essential in demonstrating that a business has acted in good faith in these situations.

What next?

This is a welcome tool for businesses involved in EU cross-border activities and should provide some reassurance in this area. If you would like any further information, or have any doubts about any of your clients'/customers' VAT registration numbers being genuine, please speak to your usual Smith & Williamson contact.

Option to tax – new automatic permission rules

In certain situations businesses are required to ask permission from HMRC before they are entitled to opt to tax. However, if businesses are able to meet specific automatic permission conditions published by HMRC in VAT Notice 742A, there is no need to obtain permission before opting.

HMRC has introduced a new automatic permission condition (APC) which replaces condition three contained in Notice 742A. The new APC came into effect on 1 May 2009. It is rather complicated and has been split into two separate tests that will need to be passed in order to qualify.

What next?

If you would like to find out more details and think you may be affected by these changes, please speak to your usual Smith & Williamson contact.

VAT returns to go online in 2010

From April 2010, the electronic submission of VAT returns will be compulsory for businesses with an annual turnover greater than £100,000 and for new VAT registrations. From April 2012 this will be extended to all VAT registrations.

There are considerable administrative benefits to making the change to online filing, so while the mandatory filing of VAT returns online may be some time away, it is still worth considering sooner rather than later. The benefits include the following.

  • Postal delays, and unnecessary default surcharge disputes with HMRC, can be avoided.
  • VAT return submissions to HMRC are instantaneous and secure.
  • There is up to seven extra days to submit a VAT return, providing it is not a repayment or nil return.
  • There is up to seven extra days to pay any VAT due to HMRC; where payment is made by direct debit this is extended by a further three working days.
  • An electronic acknowledgement of submission is received from HMRC immediately.

Any VAT payments due to HMRC in respect of VAT returns filed online must be paid electronically (i.e. through the internet, telephone banking, BACS, direct credit, CHAPS, or direct debit). Consideration should be given to any charges that may be levied by the banks. Cleared funds must reach HMRC's bank account by the extended due date. "Smith & Williamson – different, innovative and entrepreneurial."

However, large businesses submitting quarterly VAT returns with an annual VAT liability over £2m, are required to make monthly payments on account and cannot take advantage of the above payment and return submission deadline extensions.

What next?

If you are interested in registering for the online service or would like any further information, please speak to your usual Smith & Williamson contact.

Zero rating – new rules for residential and charitable buildings

HMRC has announced that, from 1 July 2010, the two concessions associated with the zero-rating of buildings used 'solely' for a relevant residential or charitable use will be withdrawn. Instead, a de minimis use test will be included in legislation providing that if a building is used for at least 95% charitable purposes (currently the concession permits to 90% charitable use) it will be eligible for zero-rating. The method of calculating the 'use' of the building will no longer be defined by HMRC, but should be 'fair and reasonable'. This will be of most concern to charities wishing to take advantage of the zerorating provisions for construction of and acquisition of a building intended for use solely for a relevant charitable purpose.

What next?

If this affects you and you would like further information, please speak to your usual Smith & Williamson contact.

VAT briefing: how to avoid VAT

All businesses are affected by VAT to some extent and a lack of awareness or understanding of the tax can lead to serious problems.

We will be hosting a briefing which will look at how to avoid unnecessary VAT problems, as well as providing a general update on the VAT issues affecting your business. We will consider the latest developments and news concerning VAT, including:

  • VAT pitfalls on cross-charges and recharges within corporate groups
  • the 'VAT package' – the new rules for cross-border supplies and what they mean in practice
  • VAT reclaims – opportunities, time limits, interest on claims
  • managing VAT cashflows
  • managing your relationship with HMRC.

Date: Thursday 10 September 2009
Time: 4.30pm – 6.00pm
Venue: Smith & Williamson, 25 Moorgate, London EC2R 6AY

For more information, please email events@smith.williamson.co.uk

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.

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