VAT and salary sacrifice

HMRC has issued Revenue & Customs Brief 28/11 explaining the changes to the treatment of certain supplies made by employers under salary sacrifice arrangements following the CJEU Judgement in the case of Astra Zeneca.

Astra Zeneca operated a flexible remuneration package scheme under which employees could opt to take part of their remuneration in the form of goods and/or services rather than as salary. The Court found that the provision of vouchers amounted to a supply of services for a consideration. As a consequence, whilst Astra Zeneca was able to recover VAT incurred on acquiring the vouchers, output tax was due on the consideration received from its employees.

HMRC considers that the rationale used by the CJEU goes wider than deductions from salary, and as a consequence of this there is no longer a distinction between deductions from salary and salary sacrifice. The Brief clarifies how HMRC considers this judgement will impact on certain arrangements such as Cycle to Work scheme, childcare vouchers, catering  provided by employers, motor cars etc.

Read more VAT news at http://www.ukvatadvice.com/images/stories/newsletters/110815cvcnews.pdf

Can supplies of water to tenants be zero-rated?

HMRC’s public notice 742 explains that where a landlord charges a tenant for unmetered supplies of utilities that charge is seen as further payment for the main supply of rent, which will be standard-rated if the landlord has opted to tax the property.

The First Tier Tribunal has now considered this point in the case of The Honourable Society of Middle Temple (TC01245). In this case HMRC had argued that the unmetered supply of water by the appellant was indivisible, being supplied under a single contract, from the rent. The Tribunal rejected HMRC’s arguments, pointing out that the water could be supplied separately by a third party (i.e. the water company) to the individual tenants. The fact that the water was not separately metered to each of the Chambers in the Middle Temple was an “accident of history”. 

This case potentially challenges HMRC’s view on supplies of utilities, particularly in relation to the supply of water which would ordinarily be zero-rated when supplied directly to tenants who are not engaged in industrial activities. 

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VAT Initiative Campaign

HMRC has announced details of the VAT Initiative Campaign – Your guide to taking part. This is an initiative to crack down on individuals and businesses who are trading above the VAT registration threshold but who have not yet registered for VAT. The VAT Initiative gives businesses the opportunity to come forward and tell HMRC they should be registered if they have failed to notify the liability. Approaching HMRC under this Initiative gives an opportunity to reduce penalties. However, we would recommend that any late registration should be notified after discussion with CVC to ensure maximum penalty mitigation is achieved. Read more news at http://www.ukvatadvice.com/images/stories/newsletters/110707cvcnews.pdf

HMRC issue Information Sheet regarding VAT recovery by academies

HMRC has issued an Information Sheet detailing how the VAT refund scheme for academies, free school, 16 to 19 academies, alternative provision academies and university technology colleges for 14 to 19 year olds will operate and which bodies will benefit from it.

The scheme will be effective from 1 April although no claims can made until the Finance Bill is given Royal Assent.

CVC would be happy to advise any academies needing assistance with putting these rules into operation. The Information Sheet can be read in full via our website at http://www.ukvatadvice.com/news.

VAT Cost Sharing Exemption Consultation

HMRC has published a consultation document examining how the VAT Cost Sharing Exemption might be introduced into UK legislation.

The VAT Cost Sharing Exemption is a provision in European law that allows businesses and organisations making VAT exempt and/or non-business supplies to form groups to achieve cost savings and economies of scale. Once formed the groups are relieved of a VAT charge on their supplies if all the conditions of the exemption are met.

This consultation invites comments on a possible model for a cost sharing exemption that could be introduced in the UK. It also asks specific questions to enable HMRC to assess the impacts of implementing the exemption.

Interested parties such as banks, charities, housing associations, insurance companies, residential care homes, universities and further education colleges should read the consultation, available on our website at http://www.ukvatadvice.com/news. CVC will be responding to the consultation and would be happy to incorporate any comments from interested parties into that response.

HMRC successful on appeal in take-over costs case

In early 2010 the courts considered a case where BAA was aquired via a bid vehicle ‘ADIL’. ADIL incurred significant fees in the acquisition process in spring/summer 2006 but did not join the BAA VAT group until September 2006 at which point VAT was claimed on the acquisition costs.

HMRC disallowed the input tax recovered, which was in the region of £6.7M, on the basis that there was ‘no direct and immediate link between the supplies on which this VAT was incurred and any taxable supplies made (or to be made)’ by the VAT group. BAA (as representative member of the group) appealed the decision and the Tribunal allowed that appeal on the basis that:

• ADIL did carry on an economic activity from its inception, although it never made a taxable supply in its own right,
• Applying the principles established in Faxworld that ‘the taxable supplies of the BAA VAT Group should be imputed to ADIL’, HMRC have now  successfully appealed this judgement at the Upper-tier Tribunal and that decision was published on 24 June 2011

The input tax should be linked with the outputs of the representative member of the BAA VAT group when considering recovery and as such should be part of the general overheads of that representative member.

• If you have been assessed by HMRC for VAT recovered on acquisition fees or have not recovered this input tax then please speak with your usual CVC contact who will consider the extent to which this case will support a claim.

 

HMRC appealed on the grounds that the First-tier Tribunal erred in law in holding that ADIL was entitled to recover the VAT as input tax. The Upper-tier Tribunal allowed HMRC’s appeal holding that ADIL had no intention to make onward taxable supplies at the time when ADIL incurred the VAT. The Tribunal also did not consider that BAA’s taxable supplies could be attributed to ADIL by reason of the VAT grouping provisions.

The Chairman said that while it is true that the VAT grouping provisions treat all supplies made by group members as being made by the representative member, it is only from the time at which all of the relevant companies are members of a single VAT group. At the time at which ADIL incurred the relevant VAT, ADIL was not a member of the BAA group (and was found to have no intention of joining the VAT group prior to completion of the BAA takeover). The VAT grouping provisions are not in any sense retrospective.

If you have incurred VAT in similar circumstances and are concerned about VAT recovery please contact us.

Supplies in connection with consumer IVAs can be exempt from VAT

Paymex Ltd is the representative member of a group of companies including Blair Endesby Ltd (BEL) a company who assisted individuals referred to them by an associated debt management business, Baines & Ernst (BE). Where BE felt, after analysing an individual’s financial situation, that an Individual Voluntary Arrangement (IVA) was the most appropriate way forward, they took details and referred the person to BEL who then assisted the debtor through the IVA process. This included collecting information from the debtor as regards his financial circumstances, making proposals to creditors, supervising the IVA, collecting payments from the debtor and accounting to the creditors.
BEL treated its services to its client, the debtor, as a VAT exempt service of negotiation concerning debts, rather than, as HMRC proposed, a taxable supply of professional services.
The Tribunal accepted that BEL’s service was the supply of a VAT exempt supply of negotiation. Any businesses carrying out similar activities who have been charging VAT under HMRC’s instruction should consider whether this case could provide an opportunity for VAT recovery.

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