2015 – Are you ready?
There are two main changes to the treatment of cross-border transactions which come into effect from 1 January 2015. The first affects the VAT place of supply rules and will mean that supplies of telecommunications, broadcasting and e-services made by a business established in one EU Member State, to a private customer located in another Member State (B2C) will be taxed in the Member State in which the customer is located, i.e. where the service is consumed. Currently these supplies are taxed in the Member State in which the supplier is established.
The second change is the introduction of the VAT Mini One-Stop Shop (MOSS). This will be an online service that will provide UK and overseas businesses with the option of registering in the UK to account for VAT due in respect of B2C sales of the relevant services supplied in all other Member States. MOSS will therefore allow businesses to submit a single VAT return rather than registering for VAT in other EU Member States. Registration for MOSS should be available from October 2014.
Businesses should assess which of their services will be caught by the new rules. Updating software and accounting systems will be necessary to identify the country location of customers. Understanding the different rates of VAT will be essential to managing pricing.
Currently EU Member States are in discussion as to how the transitional rules will work for sales made on or before 1 January 2015 that are paid at a later date, or are continuous services that will span the period before and after 1 January 2015. Businesses will need to be aware that different VAT rates may apply to services sold that cross the 1st January date. If your business is caught by the new rules, or you are unsure whether your services will fall within the definition of telecoms, broadcasting or e-services, please contact a member of the Smith & Williamson VAT team.
Extension or new build
Different VAT reliefs may apply depending on whether building works relate to extending a building or constructing a building. In a recent case, the developer (Astral Construction Ltd) had incorporated part of a redundant church in a newly constructed residential care home for use as the reception area. In accordance with their published guidance, HMRC had ruled that the work constituted the conversion of the church or an enlargement of or extension to the church, and therefore the construction of the nursing home only qualified for the reduced rate of VAT at 5%. However, the court found that although the church had been structurally integrated into the care home, the construction of a 72 bed nursing home could not be deemed to represent an extension of the church which was 'dwarfed by the new build'. Accordingly, the building works qualified for zero-rating.
Any housing associations or other organisations involved (currently or previously) in the construction of dwellings or 'relevant residential' dwellings, such as a care home, which incorporate a proportionately small existing building, should consider whether the works may have qualified for zero-rating.
Implementation of TOMS in the UK may not be correct
The European Court's decision in European Commission v Kingdom of Spain (Case C-189/11) may have major implications for the way the UK has implemented the Tour Operators Margin Scheme (TOMS).
The Court has decided that Spain is not permitted to allow VAT to be shown on invoices issued to business customers for TOMS supplies at a rate that is not the actual amount of VAT charged on the tour operator's margin. This implies that it is permitted to show the actual VAT charged on a TOMS invoice and that that VAT can be deducted by the business customer, subject to the normal rules, which is currently not the case in the UK. HMRC will no doubt be considering whether a change in UK VAT law is required. In the meantime please get in touch with your usual Smith & Williamson contact to discuss whether to submit a protective reclaim for under-recovered input VAT.
Secondly, the Court has decided that Spain is not permitted to allow travel agents to determine the taxable amount under TOMS globally for each VAT period. Instead 'the taxable amount must be calculated ... by referring to each single service provided by the travel agent, not on an overall basis.' Currently the UK requires the margin to be calculated on a global basis at the end of the financial year, with provisional calculations each VAT quarter.
The UK may therefore have to change the way that tour operators calculate the margin on which VAT is applied in order to be compliant with the Directive, which could require significant changes to accounting systems in the travel industry.
No VAT exemption for the supply of locum doctors by an employment business
The First-tier Tribunal has recently issued its decision in the case of Rapid Sequence Limited about the VAT treatment of supplies of locum anaesthetists. The taxpayer argued that the services were exempt under item 5 Group 7: "The provision of a deputy for a person registered in the register of medical practitioners or the register of medical practitioners with limited registration."
Although the wording in the UK legislation appears to be clear, the Tribunal construed the wording of the UK legislation in light of the EU Directive and noted that while the services provided by the taxpayer were within the plain meaning of the "provision of a deputy" in Item 5, that item had to be interpreted in a way which made it consistent with the Principal EU VAT Directive.
The Tribunal, therefore considered whether Rapid Sequence was providing services that would amount to the provision of medical care, as required by the EU VAT Directive. The Tribunal also considered how the UK legislation should be construed if it included a provision that went beyond the powers given under the EU VAT Directive, and whether it was Parliament's intention to legislate for such a provision. The Tribunal dismissed taxpayers' argument and concluded that it was not providing medical care services but making supplies of staff. The Tribunal agreed with HMRC that these supplies were subject to VAT.
Interestingly, the Tribunal did note that even HMRC accepted that the wording under Item 5 was "unfortunate" and "problematic", that HMRC should view the company's position "sympathetically" if they are to raise assessment in respect of Rapid Sequence's past supplies.
At this point, we do not know whether the decision will be appealed to the Upper Tribunal. However, it would appear that there are a number of medical employment businesses who have lodged claims with HMRC under the deputy exemption. We understand that another case will be heading to the Tribunal in the near future.
For further information about the treatment of supply of staff (including medical staff) and to discuss the implications of this case, please contact Hannah Dobson on 0207 131 8138 or your usual Smith & Williamson contact.
VAT DIY builders claims – getting the foundations right
There have recently been a number of disputes involving claims by private individuals for VAT incurred on the construction or conversion of dwellings under the Do-it-yourself house builder scheme.
The decision of the First-tier tax Tribunal in the case of Bryan Burton serves as a useful reminder of the conditions which must be met by DIY builders in making a VAT claim in respect of a conversion of a non-residential building to a dwelling.
In this case, the taxpayer carried out works to convert a barn to additional living accommodation, which was then joined to the existing house.
A number of the conditions for making a valid DIY claim were considered by the Tribunal, including the requirement that to be classified as a non-residential building, an existing dwelling must not have been occupied in the 10 years immediately prior to the commencement of the works. Furthermore, the completed building must meet the definition of a building designed as a dwelling. Included in the definition of a dwelling is that the property must consist of self-contained living accommodation and have no direct internal access from the property to any other dwelling.
The Tribunal, when looking at the barn conversion and existing house in its entirety, concluding that as the house had been used a dwelling within 10 years prior to commencement of the work, it could not be classified as non-residential. In considering the barn separately, the Tribunal decided that it did not meet the definition of a building designed as a dwelling. The reasoning for this was that the barn did not consist on its own of self-contained living accommodation and was joined to the existing house. The failure to meet these conditions resulted in the appeal being dismissed.
If you are planning to build a dwelling or convert a building into a dwelling for private purposes, please contact a member of the VAT team to consider the appropriate VAT rates and recovery of VAT under the DIY scheme.
Changes to HMRC guidance on exporting to non-EU countries
HMRC has announced changes to the conditions for zero-rating a supply of goods outside the EU as an 'indirect' export.
At present, an indirect export (where the overseas customer collects, or arranges to collect, the goods from the UK supplier) can only be zero-rated if the customer does not have a UK business establishment and is not registered for VAT in the UK.
The requirement for the customer not to be UK VAT registered is not in line with current EU law, which only requires that the overseas customer does not have a business establishment in the supplier's country. Accordingly, UK law will be amended to remove the registration requirement to ensure compatibility with EU law.
With effect from 1 October 2013, a supply of goods to an overseas customer who is UK VAT registered may be zero-rated, provided the overseas customer does not have a UK business establishment.
Clients that have previously been unable to zero-rate export sales to overseas customers because of the UK registration condition may now submit claims for a repayment of VAT incorrectly charged. All claims made will be subject to a four-year cap and will need to be reimbursed to the overseas customers to avoid HMRC rejecting the claim under the unjust enrichment provisions.
If you would like to discuss this further, including making a claim, please contact the VAT team or your local Smith & Williamson contact.
We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2013. code: NTD143 exp: 30/4/14.