United Kingdom: VAT Focus - October 2013

Last Updated: 15 October 2013
Article by Smith & Williamson

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.

What next?

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.

What next?

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.

What next?

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.

What next?

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.

What next?

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.

What next?

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.

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.

Authors
Smith & Williamson
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
Accounting and Audit
Anti-trust/Competition Law
Consumer Protection
Corporate/Commercial Law
Criminal Law
Employment and HR
Energy and Natural Resources
Environment
Family and Matrimonial
Finance and Banking
Food, Drugs, Healthcare, Life Sciences
Government, Public Sector
Immigration
Insolvency/Bankruptcy, Re-structuring
Insurance
Intellectual Property
International Law
Law Practice Management
Litigation, Mediation & Arbitration
Media, Telecoms, IT, Entertainment
Privacy
Real Estate and Construction
Strategy
Tax
Transport
Wealth Management
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates

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.