May / June 2003

Businesses dealing in goods accepting cash payment in excess of £10,000 for single transactions are to be required to register with Customs and have anti money laundering procedures. The only way to avoid these rules will be to refuse large payments in cash and request payment by card or cheque.

Laws enacting these rules may be made as early as June 2003 with 3 months grace to amend systems and 4 months allowed for registration. Penalties of £5,000 or criminal charges face businesses failing to implement the rules.

A recent tribunal ruling has confirmed Customs' belief that to ignore a ruling they have given is a fraudulent act. In an appeal against a Civil Penalty, a couple who had continued to treat some income as exempt despite a ruling from Customs that it was taxable were told by Tribunal it was "dishonest according to the standards of reasonable and honest persons".

Tucked away in the forward to Customs' spring report is the announcement that they have appointed a Small Business Champion "to drive forward our objective of simplifying the indirect tax system for small businesses".

They also announced their aim to collect and additional £2 billion of additional revenue by reducing "VAT Losses".

1 July 2003 sees big changes to the taxation of electronic and broadcasting services. Currently deemed to be supplied where the supplier belongs, they will become taxable in the country where the customer belongs, subject, in certain circumstances, to where the services are effectively used and enjoyed. UK businesses should continue to charge UK VAT services provided to private individuals or non-business organisations in other Member States. The changes will mainly affect non-EU business supplying services in the EU.

Anyone who delays obtaining all information required to zero-rate exports or dispatches should pay heed to a recent court of appeal ruling. A company that made massive dispatches to EC customers did not obtain, or quote on invoices, the customers' VAT registration numbers. Customs raised a huge assessment but later withdrew it when the company obtained the appropriate information. Customs charged interest of £40,000 saying VAT had been due up to the point at which the evidence was produced and the Court of Appeal agreed. Interest was therefore chargeable over that period.

A December Court of Appeal ruling will have reduced significantly the possibility of getting a VAT assessment overturned on "best judgement" grounds. Assessments of underpaid VAT have to be made to a Customs Officer's "best judgment" and previously, where that judgement has been proven to be less than perfect, whole assessments have been overturned. Tribunals will now rarely agree with this approach preferring instead to see an agreement to reduce the amount of the assessment.

Many will have noticed retailers displaying notices saying "2.5% of the total paid is a service charge by XXXX Credit Company" and many will have realised that this is a VAT scam to avoid paying VAT on that 2.5%. A recent Tribunal ruling stated that the retailer had "invited the customers to offer to purchase the goods at the ticket price". VAT is due on that price and nothing can be attributed to an exempt supply of "card handling".

May 2004 will see the accession of 10 new Member States to the EC. This will affect any business trading with these countries and preparation should be made now to ensure the change goes smoothly. The new states are:

Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia.

On a lighter note, a recent case reminiscent of the famous Jaffa Cake Tribunal was decided in the other direction and once again highlights one of the absurdities of UK VAT law.

Cakes and biscuits are zero rated as food but chocolate covered biscuits are standard rated as a luxury food. The Jaffa Cake debate centred on whether it was a small cake (Z/R) or a chocolate covered biscuit (S/R). In the end a 12" Jaffa Cake convinced the Tribunal that it was a cake.

United Biscuits this month argued that a "tartelette" was a cake. The offending item had a biscuit base with raised edges and UB contended it was "filled" with chocolate as opposed to "covered". C&E, and the tribunal, decided it was a biscuit "partly covered" with chocolate.

Finally, the ECJ has issued its ruling on Sinclair Collis, throwing out C&E's argument that the commission paid to landlords from cigarette machines is an exempt rent. Expect a statement from C&E soon saying VAT should be charged. It is thought unlikely that C&E will expect pubs & clubs to apply this retrospectively.

If you require further information please contact us on 0121 778 4299.

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