VAT and Transfer Pricing
HM Revenue & Customs have issued a draft of their upcoming guidance on the
VAT implications of balancing payments made under transfer pricing legislation.
"Virtual" Leases
Abbey National recently outsourced its property holding to a 3rd party. However,
in many cases Abbey did not have the permission of its landlord to do so. Abbey
made a "virtual" assignment to the 3rd party whilst retaining the main lease.
The effect of this was to give the 3rd party the economic benefit of any
sublease.
HMRC felt the 3rd party's charges to the tenant (whether Abbey or a sub-tenant)
were not supplies of property and could not therefore be exempt from VAT. The
VAT tribunal agreed but the High Court has this month sided with Abbey. The
3rd party's supply is a grant of a right of occupation either to Abbey or to
Abbey's former sub-tenant.
HMRC has appealed to the Court of Appeal in regard of supplies from the 3rd
Party back to Abbey (who still hold the headlease with the landlord) and expect
companies to account for VAT on the income. HMRC has not appealed in regard of
supplies by the 3rd party to non-Abbey sub-tenants.
This ruling will have effect on any company looking to re-assign a lease where
the landlord will not allow them to do so.
Recovery of VAT by employers in respect of funded pension schemes
Where companies appoint fund managers to manage employee pension schemes the
charges the managers make will cover both management services on behalf of the
company and investment services on behalf of the pension trust. HMRC have
historically allowed companies to recover 30% of the VAT on the charges.
HMRC feel that this 30/70 split is no longer appropriate due to increased
computerisation of management services and the inappropriate use of the split in
cases where the fund managers have already analysed charges separately or where
employers manage funds themselves.
From a future date HMRC will expect fund managers to, where possible, issue
separate invoices to the employer and the pension fund. Where this is not
possible HMRC will allow the 30/70 split to be applied only in cases where the
fund managers supply all the administration work. Otherwise employers must agree
an apportionment that is fair, reasonable and testable.
This change was to come in with effect from 1 October 2005. However, HMRC have
accepted representations that this should be put back to 1 January 2006.
Purchase of Goods & Services for both Business & Non-Business use
HMRC have changed their policy with regard to businesses that purchase goods or
services (mainly construction services) with the intention of using them for
business and non-business purposes. HMRC now accept that, even where this had
been previously disallowed under new legislation, businesses can reclaim VAT on
the full cost and account for VAT on a subsequent deemed supply.
This will mainly be of interest to businesses incurring significant amounts of
VAT on the construction or renovation of property that will have some private or
charitable use.
HMRC Consultation on Transfer of Going Concern
HMRC are in the closing stages of a 4 year consultation on Transfer of a Going
Concern regulations. A preliminary response has been published and is available
from HMRC's website (www.hmrc.gov.uk/consultations/).
HMRC are inviting further
comments to this response. Advisors may wish to contribute, particularly with
respect to HMRC's reluctance to issue pre-transaction rulings.
Late payment of VAT returns by electronic means
2 tribunal cases highlight important difference between payments made to HMRC by
BACS, CHAPS and bank giro credit. CHAPS is a "same-day" payment method and if a
bank fails to make the payment on the same day that can be used as a "reasonable
excuse" for late payment in an appeal against a default surcharge. However BACS
and bank giro credit normally take 3 days. HMRC were criticised for describing
all of these similarly in their notes giving the impression that they were all
"same-day". If you have recently received a default surcharge for HMRC's late
receipt of a BACS or bank giro credit payment you may be able to appeal against
it.
Construction, maintenance and renovation of memorials
The Chancellor has announced a scheme to refund the VAT cost of the construction,
maintenance or renovation of statues, monuments and similar items. This will
take the form of a grant equal to the VAT in a similar way to the Listed Places
of Worship Scheme. However, to make relief permanent the Chancellor is also
lobbying the European Parliament to allow a reduced VAT rate for such works.
Payment of appeal costs by HMRC
Many advisors have noted recently that HMRC seem to be taking appeal cases to
the wire before withdrawing the assessment. The suspicion is that HMRC are
hoping the taxpayers will back down rather than going all the way to tribunal.
In a recent case of this nature the Tribunal criticised HMRC for this behaviour
and found them "liable in expenses on an agent client basis".
Missing Trader / Carousel / Mobile Phones & Computer Chip Fraud
VAT has been in the news much this month but mostly in respect of the massive
scale of VAT fraud currently being perpetrated. Fraudsters are swindling the
revenue of massive amounts by bringing in small, high value items, mostly phones
or computer chips, from the EU and selling them in the UK with VAT but not
accounting for VAT to HMRC. This is estimated to be costing the Govt. in excess
of £2bn per year. HMRC's attempts to crack down on this trade means many of
these items are now being exported to non-EU destinations and this is
drastically affecting the UK's balance of trade to these countries.
Companies exporting small, high value items to EU Member states, Dubai,
Switzerland or Hong Kong should be prepared for HMRC to make extra, possibly
onerous, checks on the goods as they leave the UK.
Charities paying professional fundraisers
A complex appeal and cross appeal recently allowed a charity to recover VAT on
monies paid to professional fundraisers where some of the income raised had been
payment for a newsletter. This is a complicated issue and its application is likely
to differ for each charity depending upon its activities.
Stolen Goods
The ECJ recently ruled that the theft of goods is not a supply for VAT purposes
and cannot be subject to VAT, a position that is already normally adopted by
HMRC. The Belgian Tax Authorities tried to recover VAT and Duty following the
theft of cigarettes from a Duty warehouse but this was, thankfully, overruled.
Tea Cakes
A ten year battle estimated to have cost £3.5 million so far has been sent back
to the ECJ this month. The battle started, much like the infamous Jaffa Cake VAT
case, as an argument about whether Tea Cakes were cakes (zero-rated) or
chocolate biscuits (standard-rated).
Tax Inspectors go undercover in Bikinis
According to Ananova,
Italian tax authorities have recently admitted to using undercover female tax
agents dressed in bikinis to investigate whether bars and restaurants in holiday
areas are issuing customers with proper receipts. Tax receipts are seen by the
Italian Government as a major weapon in the battle against the under reporting
of income. The scheme is reported to be a huge success.
VATease Newsletter
Following the change in format of our newsletter we are not restricted by page
size as to how much information we can include each month. You may have noticed
that this month's newsletter is longer than normal. We would appreciate your
feedback on whether you prefer more articles, some of which will have limited
relevance, or fewer articles all of which have a general relevance. Please
address feedback to hq@vatease.co.uk.
If you require further information please contact us on 0121 778 4299.
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acting or refraining from action as a result of any material in this publication
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© Copyright 2005 VATease Ltd
