Insights

VAT Focus

  • Written By: David Gage and Sunil Parmar
  • Published: Wed, 25 Nov 2020 10:00 GMT

The VAT Focus will highlight relevant technical developments and issues we are seeing in relation to VAT matters along with introducing you to the Smith & Williamson VAT team members. 

 

1. Recent tribunal cases

1.1 All Answers Limited 

The Upper Tribunal (UT) has ruled that an essay-writing business acted as principal for third-party writers. It was therefore liable to VAT on the full consideration for the supply. The UT reiterated that the terms of a contractual agreement and the commercial and economic reality of the arrangement need to be examined to determine if an agency relationship exists. 

The taxpayer operates an online business where third-party writers produce essays and dissertations for academic customers. The writers were not employed by the taxpayer and were often not VAT registered. Customer fees were shared between the taxpayer and the writer. The taxpayer only accounted for VAT on the element that it retained.  

HMRC argued that the supply was a single supply of academic work to a customer by the taxpayer. The full amount payable by the customer should therefore be subject to VAT at the standard rate. The taxpayer argued that it was acting as agent on behalf of the third-party writers. On that basis, it was not required to account for VAT on the amount received by the writers. The First-Tier Tribunal (FTT) had ruled in favour of HMRC that the taxpayer made the supply to the customer as principal.  

The UT examined the meaning and effect of the relevant contractual terms. It then determined whether or not these terms reflected the commercial and economic reality of the supply. It upheld the FTT’s decision, though on slightly different grounds. The contracts imposed the ‘core’ obligations on the taxpayer, not on the writers, and this was consistent with the commercial and economic reality of the arrangements. It found that the taxpayer, as principal, had been the sole supplier of the academic work. 

S&W Comment 

The case highlights the difficulties in establishing the difference between an agency or principal agreement. For VAT purposes this is a fundamental point in order to ensure that the parties account for VAT correctly. It is also interesting in that the UT disagreed with some aspects of how the FTT had reached its decision, but still agreed that the right decisions had been reached. 

Source: All Answers Limited v HMRC [2020] UKUT 0236 (TCC) 

Government and Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice from their financial adviser before making financial decisions. Sourced from gov.uk. 

NTGH61020116 

1.2 Early termination fees and compensation payments

HMRC has released Revenue and Customs Brief 12 in response to two decisions by the Court of Justice of the European Union (CJEU). The Brief sets out HMRC’s revised view that early termination fees and compensation payments are generally subject to VAT.  

The CJEU recently released its judgments in the cases of Meo (C-295/17) and Vodafone Portugal (C-43/19), which examined the VAT treatment of contract termination fees and compensation payments. Following these decisions, HMRC has published its revised Brief and guidance in respect of these types of payment. Historically, the view was that they were outside of the scope of VAT. This was on the basis that there was no supply being made in return for the consideration.  

Following the above CJEU cases, HMRC has revised its guidance to note that such payments are now considered to be in return for contracted supplies of goods or services. The payments are therefore generally within the scope of VAT. 

S&W comment 

HMRC has made it clear that this change takes retrospective effect. Businesses may need to consider how such fees and payments have been dealt with in the past, and whether or not there is now a VAT liability to settle. 

Source: Revenue and Customs Brief 12 (2020): VAT early termination fees and compensation payments  

Government and Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice from their financial adviser before making financial decisions. Sourced from gov.uk. 

NTGH61020117 

1.3  VAT Deferral and the hospitality sector 

On 24th September 2020, the Chancellor announced further aid for VAT registered businesses. Between 20th March 2020 and 30th June 2020, businesses were given the option of deferring their VAT liabilities until March 2021.  Those businesses can now spread the repayment of the deferred VAT liabilities over 11 smaller, interest free repayments.  This is designed to give businesses more time and flexibility to manager their VAT payments. 

On the same day, the Chancellor also announced an extension to the VAT rate reduction for certain supplies made in the hospitality sector. The temporary VAT rate cut, initially announced in August 2020, was scheduled to end on 12 January 2020. The 5% reduced rate has now been extended to 31 March 2021. 

Government and Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice from their financial adviser before making financial decisions. Sourced from gov.uk. 

2. Further news

2.1 Retail Export Scheme 

HM Treasury has announced that this scheme will end from 1 January 2021. Overseas visitors to the UK will no longer be able to obtain refunds of VAT on goods purchased in British shops, but tourists will still be able to make VAT-free purchases of items that are sent directly to their overseas addresses. Refunds of VAT on items taken overseas in luggage will no longer be available in airports.  

These changes will apply to England, Scotland and Wales, but not Northern Ireland. 

The same announcement also contains information regarding changes to regarding duty free shopping at British ports, airports, international train stations. Following concerns over tax concessions not being passed along to customers, tax-free sales in airports to passengers travelling to countries outside the EU will also be ended. This will apply to goods such as clothing and electronics. 

Source: Duty Free extended to the EU from January 2021  

Government and Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice from their financial adviser before making financial decisions. Sourced from gov.uk. 

2.2 HMRC letters about new trade arrangements 

HMRC has written to all UK VAT-registered businesses regarding post-Brexit trade with the EU.  

The letter focusses on import procedures and provides advice on what action needs to be taken in the lead up to the end of the transition period, such as applying for an ‘EORI’ number. 

Source: HM Revenue & Customs – Get your business ready to trade with EU from 1 January 2021 

Government and Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice from their financial adviser before making financial decisions. Sourced from gov.uk. 

2.3  Relief from import duty and VAT when re-importing goods into the UK and EU

On the 4 September 2020, HMRC announced new relief measures that can apply to goods re-imported into the UK and the EU that have previously been exported. The relief only applies where specific criteria is met, including: 

  • the goods are re-imported in their original state, apart from any works undertake to maintain the goods in working order 
  • the goods have been in free circulation in the UK and EU when they were originally exported, unless they were originally declared to inward processing or end-use 
  • the goods were not exported for repair or processing, except where the repair or processing was not actually carried out. 

Source: Pay less import duty and VAT when re-importing goods to the UK and EU  

Government and Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice from their financial adviser before making financial decisions. Sourced from gov.uk. 

3. Meet the team

3.1 David Gage

David heads up the VAT team in our Bristol office. Much of his time is spent focusing on the VAT implications of group restructures and property transactions, although his knowledge extends across all areas of VAT. He uses his knowledge to mitigate VAT risks, introduce VAT efficient structures and achieve optimal VAT recovery. He provides advice to owner-managed businesses through to some of the most recognisable public companies and knows from experience that there is no such thing as a “quick VAT question”!  

Go to David Gage's Profile

 

DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

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David Gage

Director, Business tax

Business tax
Bristol

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