VAT has seen another relatively quiet month. There have been developments that
will interest distance learning providers, funded pension scheme providers, charities,
large retailers and betting shops / casinos.
Distance Learning Packages
A recent House of Lords decision will disappoint providers of distance
learning courses. The College of Estate Management ran distance learning courses
and had historically treated them as exempt from VAT as a supply of education.
The College decided that the supply was in fact 2 supplies, one of education and
one of zero-rated printed matter. This treatment allowed them to recover VAT on
costs associated with the supply of printed matter and a percentage of their
overheads.
The VAT Tribunal disagreed with the College, as did the High Court, but the
Court of Appeal agreed. HM Revenue & Customs appealed to the House of
Lords. The House of Lords overturned the Court of Appeal decision this month and
ruled that the College had in fact made a single VAT exempt supply of education.
Purchasing Goods Online
HM Revenue & Customs have recently been alerting the public to the VAT and Duty implications
of purchasing goods online from outside of the EU.
If the total value of any package is more than £18 then VAT will have to be
paid. If any Duty due is more than £7 then it too must be paid. Goods delivered
by post have the VAT and Duty charged at the Customs Postal Depot and will not
be released to customers until the Royal Mail has been paid.
Channel Islands tax loophole may be closed
We have covered in previous newsletters how large retailers are using the £18
limit for VAT and Duty free goods, as mentioned above, to undercut high street stores
by retailing items such as CDs, DVDs and other goods from online stores based
outside of the EU, usually in the Channel Islands.
HM Revenue & Customs, which is losing an estimated £200 million per year,
has 2 possible options available to it. Firstly it could reduce the £18 limit to
a value below that of the usual goods bought through these online sites.
Secondly it could request dispensation from the EU to close the loophole
completely, as the Danish Government has already been granted.
Funded Pension Schemes
In Business Brief 15/05, covered in our September
VAT Newsletter , HM Revenue & Customs announced that they were
withdrawing the agreement that allowed employers to recover 30% of the VAT
incurred on fund management charges. Initially due to take effect from 1 October
2005, the change was put back to 1 January 2006. HMRC have now announced that
the change will be put off indefinitely. Employers can continue with current VAT
recovery arrangements until a possible further announcement is made.
Charity Fundraising Activities
Also covered in our September
VAT Newsletter was the outcome of an appeal regarding costs incurred by
charities on its fundraising activities. HM Revenue & Customs have published
its opinion of the appeal ruling and how it views the effect on charities'
activities. Very briefly; where a charity incurs VAT on the cost of a
fundraising activity and that activity is not a business activity in its own
right, that VAT can be attributed to and apportioned in the ratio of the
charity's whole activities. Again, the details of the ruling are complex and its
implications will be different for every charity. However, there is an
opportunity to revisit costs incurred over the last 3 years and to ensure that
VAT is recovered correctly.
HMRC's Policy on Email Correspondence
It is understood that HM Revenue & Customs has confirmed its policy
regarding communication with taxpayers and their advisors by email.
HMRC is concerned that email is not a secure form of communication and, if it
should send confidential information, it will not be meeting its requirements to
protect the confidentiality of taxpayers. HMRC will send general, non-taxpayer
specific information by email but, regardless of authorities given by taxpayers,
will not send anything that may break confidentiality rules. If you require
immediate communication with HMRC you should request documents to be sent by
facsimile.
HMRC will continue to accept communication by email as this is sent at the
sender's risk.
HMRC are trialling a secure form of online, shared workspace that Officers of
Revenue & Customs and taxpayers or their advisors can access. This limited
trial is currently restricted to former Inland Revenue Officers undertaking
investigations in specific geographical areas but it is said to be going well.
HMRC strike back at High Street VAT Avoidance Schemes
Following its success in the "Debenhams Credit Card Handling Case" at the Court
of Appeal, covered in our August
VAT Newsletter, HMRC are looking to strike back at those who implemented
similar schemes, possibly leaving them worse off than if they hadn't
implemented the schemes at all.
The schemes required those operating them to set up separate companies that
were to provide card handling services to the shop's customers. These card
handling companies were making exempt supplies and will not be able to recover
VAT on any costs they incur. HMRC are likely to ensure that all costs proper to
the card handling companies are correctly invoiced at appropriate values.
Meanwhile, Debenhams is requesting leave to appeal the Court of Appeal's
decision to the House of Lords. Further developments are also reported in the EU
where we believe a new regulation may be introduced with effect from 1 January
2006. It states that where the total amount payable for goods or services remains
unchanged, regardless of the method of payment, the amount of VAT due will not
be affected if a card handling fee is charged.
Touch Bet / Fixed Odds Betting Machines
Touch Bet / Fixed Odds Betting machines allow users to gamble on a video
roulette wheel using a machine very similar to a Fruit Machine. For Gaming Duty
/ Licence purposes these machines are treated similarly to Fruit Machines and
are allowed within betting shops. For VAT purposes they are treated similarly to
"hard gambling" and income is exempt from VAT.
There are rumours that The Chancellor may address this perceived imbalance in
the next Budget by making income from these machines subject to VAT.
HMRC Fraud investigation procedures
HM Revenue & Customs have published details of its new, merged procedures
for investigating serious tax fraud that will apply to all taxes collected by the
Department.
There are 2 main changes of interest. Firstly, there will be just a single
opportunity for the taxpayer to make a full disclosure of all undisclosed tax to
obtain the maximum reduction of any penalties. Secondly, and probably most
importantly, any disclosure will be expected to cover both Direct Tax and
Indirect Tax underdeclarations at the same time.
The Guardian Newspaper reports on Carousel Fraud
VAT "carousel" or "missing trader" fraud has been in the news a lot of late.
The Guardian published
an article last week with an in depth look at 4 fraudsters, including a
former member of pop group Living in a Box, convicted of perpetrating such a
fraud. Sentences totalling 21 years were given.
HMRC officers looking for industry secondments
HM Revenue & Customs are looking to increase the commercial awareness of some
of their senior managers by placing them on short-term secondments in business.
The scheme, referred to as the "Week in Business Scheme", will see officers
identifying their own prospective targets but HMRC are welcoming volunteer
businesses.
If you require further information please contact us on 0121 778 4299.
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