VAT Newsletter April & May 2004

As of 1 May 2004 the following countries have become part of the European Union. Businesses dealing with businesses in these New Member States will have to change their procedures to take account of this. Further advice can be provided by VATease.

• Cyprus
• Czech Republic
• Estonia
• Hungary
• Latvia
• Lithuania
• Malta
• Poland
• Slovakia
• Slovenia

HM C&E have released further guidance to employment bureaux in Business Brief 10/04. In brief, the stated position, until HM C&E complete a review, is that:

• Employment bureaux hiring out their own employees can exclude the salary and associated costs from the VAT charge.
• Employment bureaux hiring out self-employed staff can choose whether to act as agents or principals for VAT purposes (even though the new DTI regulations may mean that they are in reality acting as principals).
• Those that act as agents for VAT purposes account for VAT only on the commission or margin element of their charges to the hirer.
• Employment bureaux that choose to act as principals for VAT purposes account for VAT on the total charges made to the hirer.

HM C&E have won a House of Lords judgement restricting the zero-rating of approved alterations to listed buildings to a single building. This means it will exclude any outbuilding except certain garages and buildings that is, or will become, a dwelling.

The Budget releases hinted at a measure to combat VAT avoidance using ToGC rules. It appears these rules will have some affect on all ToGCs that include a commercial building on which the vendor has opted to tax.

Purchasers, in addition to making an option themselves must notify the vendors that, following the transfer, the purchaser's option will not be "disapplied" under previous anti-avoidance rules. If they cannot make such a notification the property must be excluded from the ToGC treatment and VAT declared.

This new treatment has applied since 18 March 2004 although publicity has been slow in coming from HM C&E and notifications should have been made for all ToGCs since then. Until 1st May 2004 HM C&E will allow ToGC treatment even where a notification has not been made provided the purchasers option is not disapplied.

HM C&E have announced that they have been "successful in a challenge to its policy" that refunds are not due where a part residential / part non-residential building (such as a pub with living quarters for the landlord) is converted into a dwelling. Refunds are due for conversion of wholly non-residential properties into dwellings, subject to the normal scheme rules.

HM C&E have changed the way in which they deal with 3rd parties who contact them on behalf of a registered business. A specific form of words for a letter of authority has been issued and is available from the website or from VATease.

VATease has become aware of rumours that HM C&E are to force some types of business to submit VAT Returns via the Internet. These rumours go on to speculate that the first businesses this may affect will be Software Re-sellers, presumably because they are likely to have the technology.

Back in September 2003 VATease issued a newsflash scotching rumours that the EC was to rule that the UK's 50% restriction on input VAT on lease cars was illegal. The German case to which those rumours referred has been decided. The ECJ has ruled that the derogation that allowed Germany's similar 50% restriction is legal (although its original backdating was not). As VATease predicted, it is therefore extremely unlikely that any similar challenge to the UK's restriction would succeed.