NEW LEASEHOLD INTERESTS AND GOING CONCERN TRANSFERS
The decision of the First Tier Tribunal (FTT) in the recent case of Robinson Family Limited has called into question the policy of HMRC that the grant of a new property interest can never be treated as a transfer of a business or a going concern (TOGC).
Robinson Family Limited owned a leasehold interest in a commercial property consisting of several individual units. It opted to tax the property and sold one unit with the benefit of a proposed letting to a third party. No VAT was charged under the TOGC provisions.
HMRC argued that VAT was payable on the sale of the unit on the grounds that the creation of a new asset (the sub-lease) cannot be a TOGC. Robinson Family Limited argued that the proposed letting of the unit to a third party constituted a business activity and the sale transferred that business activity to the purchaser and effected a TOGC.
The FTT agreed that the proposed letting was a business activity and held that the grant of the new sub-lease was in substance the transfer of that business activity as a going concern.
HMRC is due to issue a press release in relation to this decision and may accept that a grant of a sub-lease out of a freehold may constitute a TOGC provided all the other conditions have been satisfied. If you have past or intended property transactions of a similar nature, this decision may be relevant to you.
CHANGES TO VAT TREATMENT OF VOUCHERS
HMRC has outlined new rules for the treatment of certain face value vouchers.
The changes concern single purpose face value vouchers, i.e. vouchers which are only redeemable for specific goods or services at a single rate of VAT. Such vouchers include prepaid telephone cards which entitle the user to make calls.
Under the new rules, which have retrospective effective from 10 May 2012, sellers need to charge and account for VAT at the time of the sale, as opposed to the time at which the goods or services are redeemed.
Transitional measures have also been implemented to ensure that VAT is accounted for on vouchers issued prior to 10 May 2012 but redeemed after this date. By virtue of these provisions there is a deemed supply to the end consumer for VAT purposes by the person from whom the goods or services are obtained where this supply is made in the UK.
The European Commission has announced a proposal to revise the VAT treatment of vouchers within the EU, to achieve a consistent treatment of vouchers across all member states. It is proposed that the changes resulting from this will come into force from 1 January 2015.
In the meantime, businesses involved in supplies of single purpose face value vouchers should review their VAT position and, if required, make adjustments to account for VAT.
PLACE OF SUPPLY OF SERVICES IN CONNECTION WITH LAND
Following changes to the place of supply rules in 2010 and 2011, a number of differences were identified in the way that some EU member states were treating certain 'land-related' services leading to circumstances where some services could be taxed in more than one member state, or not taxed at all.
Following consultation with the European Commission and other member states, HMRC recently announced changes in the way that certain land-related services will now be taxed.
The supply of stand space at an exhibition will no longer be treated as a land-related service if the supply includes accompanying services such as: the design and erection of the stands, security, power, telecoms, hire of machinery or publicity material. From 2 August 2012 this package of services will fall under the basic place of supply rule and will be taxed where the customer belongs (a reverse charge service).
The mere supply of a specific stand space, with no other accompanying services will continue to be treated as a land-related service and taxed in the country where the exhibition takes place.
There have also been changes to the rules regarding the supply of storage space and access to airport lounges.
The change in policy on exhibition stands will be of interest to businesses organising conferences/exhibitions in the UK and elsewhere in Europe.
LISTED BUILDINGS – UPDATE
As announced in the Budget earlier this year, the zero-rating relief for approved alteration work to listed buildings and the first grant of a major interest in substantially reconstructed listed buildings will be withdrawn from 1 October 2012. However, following a consultation exercise HMRC has extended the qualifying conditions and transitional period in which the zero-rating may continue to be applied. Under the transitional arrangements, zero-rating will continue to apply until 30 September 2015 where one of the conditions below apply:
- a written contract entered into with the supplier before 21 March 2012
- listed building consent (or appropriate consent for places of worship) applied for before 21 March 2012
- for substantially reconstructed listed buildings (in addition to the two above conditions), at least 10% of the work was completed before 21 March 2012.
HMRC has also issued further guidance on the anti-forestalling rules. These rules are essentially intended to prevent zero-rating being applied to payments made before 1 October 2012 which relate to works carried out after this date. However, the rules also allow suppliers to zero-rate work performed before 1 October 2012 where payment is received after this date.
If you are receiving or providing approved alteration works to a listed property, you should be aware that the works may qualify for zero-rating for another three years and bear in mind the anti-forestalling rules.
MATRIX SECURITIES LIMITED
HMRC had pursued Smith & Williamson's client for a number of years in relation to corporate tax matters with little success. At the point of closing their enquiries, HMRC turned its attention to VAT and took the view that a range of services provided by Matrix to an unconnected company in the Republic of Ireland did not fall within Schedule 5 VATA 1994 (as was), and should therefore have been charged with the standard rate of VAT. The charges in question related to a share of Matrix's overhead costs, plus a proportion of Matrix's salary costs for accounts staff and a third-party accountant's time. A schedule was produced by Matrix for internal charging purposes, but not provided to their client. This list showed a breakdown of the costs, e.g. entertaining, couriers, travel, photocopying, etc.
John Voyez took the case before the Tribunal, together with a witness from Matrix, and argued that the schedule with a breakdown of the charges simply represented costs incurred by Matrix in order to provide its services to their client which represented a single supply of professional accounting services. The Tribunal agreed with Matrix and found in our client's favour, quoting at length from letters written by John Voyez to HMRC.
The current place of supply rules that have been in place since 1 January 2010 mean the place of supply VAT issues in similar circumstances would now be different. However, it is interesting to note that many others questioned why HMRC ever took the case, and that the Tribunals do overturn unreasonable positions taken by HMRC.
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.