VATease Monthly VAT Newsletter November 2006
This month's newsletter covers issues on TOGC, Private Tuition and Default Surcharges
Simone's Trek to Peru
In our last newsletter we told you about Simone's trek to Peru for the ADHD charity, ADDISS. Simone has chosen this charity, because her 8 year old son Max has ADHD and she is passionate about raising awareness of the condition and breaking down the prejudices, not only for Max but the thousands of other families who live with the daily struggle of ADHD.
If you wish to support Simone in this challenge, (she finally bought her walking boots last week after realising her battered desert boots aren't going to be sufficient for hiking over the Andes) please visit www.justgiving.com/simonehurst for more details or alternatively you can send a cheque to us made payable to ADDISS. Every penny is very gratefully received and Simone would like to thank immensely all those who have sponsored her so far.
Now to VAT business…….
TOGC
MPH Leisure Limited took out a lease in respect of a private members club and ran it as such after the owners sold the club to a third party, (who then became MPH's landlord).
On the VAT registration application, MPH stated the business had been taken over as a going concern on 5.11.04. In a subsequent letter from MPH's representative this was said to be incorrect (i.e. they had mistakenly said it was a transfer of a going concern).
MPH contended that despite running the same business, there was no transfer of a going concern because they were not party to the actual sale of the club. However, the Tribunal found that MPH was put in possession of a business as a going concern and furthermore at the time of completing the VAT registration application, believed it was taking on a business as a going concern, with the result that it was liable to be VAT registered from an earlier date with VAT on takings due from that date.
The moral of the story is firstly to ensure VAT registration applications are completed carefully and secondly always get advice in respect of transactions that involve the sale/purchase of a business, as often large sums are involved and the consequences can be costly.
Private Tuition Clarification
Some time ago, a VAT Tribunal found, (in the case of Empowerment Enterprise) that the VAT exemption for private tuition should extend to tuition provided by directors of limited companies and those employed by sole proprietors, partnerships and limited companies.
However HMRC appealed against this decision and the Court of Session recently confirmed that VAT exemption for private tuition is indeed only available to sole proprietors and partnerships.
In Business Brief 16/2006, HMRC have advised suppliers of private tuition to confirm their VAT treatment is correct and notify of any errors exceeding £2,000.
Pinball Wizard
On 1 November, two new Treasury Orders came into effect. As well as ensuring any game of chance, which is not played for a prize does not fall within VAT exemption, the Orders also bring pinball machines back into the VAT realm.
Pinball machine takings had mistakenly been brought within the scope of VAT exemption on 6.12.05, when the Gambling Act's concept of gaming was introduced into VAT Law.
HMRC are inviting claims from those businesses who have accounted for VAT on pinball machine takings in the period 6.12.05 to 31.10.06. Remember though, partial exemption will apply and there may be a restriction on input tax claimed.
HMRC Lose Appeal on Insurance Intermediaries
Morganash Limited's acceptability. sole business was to telephone customers of insurance companies to enable completion of health questionnaires. They made no recommendations as to acceptability.
HMRC decided the services supplied were VATable at the standard rate because of Article 13B (2) of the EC Sixth Directive.
The Tribunal agreed with HMC but pointed out that UK law was much more detailed than EC law and therefore carried more relevance.
It therefore ruled in Morganash Limited's favour.
Should any of your Clients believe they may benefit from this ruling, please contact us for advice prior to taking any action.
Property Transactions Clarified - AGAIN
Two parties entered into a contract (sale/buy) whereby the completion date was agreed. The same contract allowed for compensation should either party delay beyond the completion date.
The purchaser had to provide a warranty that it was registered for VAT by the completion date.
It was not registered by that date so the vendor sought compensation. The Tribunal awarded the compensation plus interest.
VATease comment:
It is imperative that ALL aspects of property contracts are reviewed whenever VAT is involved because even the negatives can bite.
Default Surcharge (1)
Moorim UK Limited appealed against a 2% default surcharge penalty imposed because it was two weeks late rendering payment for its December VAT Return.
The Company's largest customer held stock on a "drawdown" basis and was supposed, by contract, to provide details at each month end of what stock had actually been used.
It was a new process, started in that quarter, and the customer was very tardy in providing the figures to enable the VAT Return to be completed accurately
The Tribunal ruled there was no reasonable excuse on this occasion despite the obvious difficulties of Moorim UK Limited. It had failed to render the return on time and had not conducted any reasonable contact with either the customer or HMRC.
Default Surcharge (2)
The appellant had failed to pay on time (being one day late) and a £2,266 surcharge was imposed.
They appealed on the grounds an employee responsible for the accounts, including the VAT Return, had deliberately arranged for the payment to be made late prior to her leaving the Company.
It is written into the law that "reliance upon a third party is not a reasonable excuse".
At first glance the Company could not win but the depth and quality of the evidence submitted persuaded the Tribunal there were exceptional circumstances in this case and it found in favour of the company. HMRC have decided not to appeal the decision.
VATease comment:
It is possible to win cases against HMRC, even with the automatic penalties, but the grounds must be good and the evidence clear. Please contact VATease for advice where your Clients believe there to be a reasonable excuse should they receive any penalty.
EC Sales List Penalty
The Appellant Company failed to render its European Sales Listings (ESL's) on time. HMRC issued a Penalty Liability Notice (PLN) on 09/11/05 and the 05/02 ESL was received by HMRC within the specified time of the PLN.
The Appellant Company failed to render its European Sales Listings (ESL's) on time. HMRC issued a Penalty Liability Notice (PLN) on 09/11/05 and the 05/02 ESL was received by HMRC within the specified time of the PLN.
The Company did not send a representative to the Tribunal, although the hearing proceeded with the Chairman acting for the company.
The Tribunal ruled against the Company because:
i) It is specifically excluded by law that insufficient funds can be a reasonable excuse.
ii) The fact that the only ESL to be submitted was done so immediately after the issue of the PLN did not support the Company's contention that it did not receive the PLN.
VATease comment:
It is important to note two things here. VATease does not know of any case where the Tribunal have ruled for the Appellant when the Appellant did not attend the Hearings, and secondly, it is absolutely essential that proper evidence be presented.
Please contact VATease for advice when wishing to dispute any HMRC decision.
If you require further information please contact us on 0121 778 4299.
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