VAT Update – February 2020

15 Feb 2020

VAT Update

This month HM Revenue & Customs (HMRC) has had a relatively poor showing in court, with losses on a staff supply case and a reasonable excuse case. However, it secured another win on payment handling charges.

There is also some Making Tax Digital news and HMRC confirms it is appealing its loss in the recent decision that electronic newspapers are zero-rated. Finally, a number of HMRC publications on Brexit transition have been withdrawn for review and update against a background of warnings from Ministers that businesses should be getting ready for Brexit from 1 January 2021.

Carry-on Doctor

Archus Trading Ltd has successfully argued at the First Tier Tribunal (FTT), that its services in relation to medical care of prisoners at HMP Kilmarnock were exempt medical services and not a taxable supply of staff.

The concepts of direction, control, and supervision, are the ones generally key to determining whether a supply is one of staff or of services. In this case, the facts surrounding the appellant’s supply of services indicate that Archus was indeed supplying services and those services were exempt medical services. HMRC’s position was that the services were supplies of staff and therefore taxable.

The FTT, on considering all of the facts, was satisfied they did not work under the direction, control or supervision of the party receiving the service and the GPs themselves were not acting autonomously.

Comment: Whilst this case was very much decided on the specific facts, it does serve to highlight the importance of considering all details to a supply before concluding on the appropriate VAT treatment to apply. The contracts are a starting point for the VAT analysis, but it is important to look at the economic reality of the situation and how the services are actually delivered. Modern working practices means that many professionals work with little direct monitoring and supervision, which means the dividing line between a supply of staff and supply of services for VAT can be a fine one.

For details of this case and concerns about supplies of staff vs services for VAT purposes, please contact Sean McGinness.

Spotlight on payment handling services again

The VAT treatment of payment handling services has once again been the subject of an FTT case. In the case of Virgin Media Limited, the FTT concluded there was no supply of handling or dealing with money (which is an exempt supply under Schedule 9 Group 5).

In this case, the FTT concluded a £5 payment handling charge was part of the consideration for the service supplied by the representative member of the Virgin VAT group and that supply, overall, was a taxable one.

Comment: This has always been a contentious area of VAT law. Specialist professional advice is a necessity when trying to determine the correct VAT treatment.

If you make a separate charge to customers for allowing a particular method of payment, please discuss the possible implications with Nick Hart.

Reliance on expert advice can provide a reasonable excuse

In the recent Marlow Rowing Club appeal, the Upper Tribunal has concluded that reliance on third party professional advice was reasonable excuse for incorrectly issuing a zero-rate certificate in relation to construction services for a charitable purpose building, and that HMRC was therefore incorrect to issue a penalty.

The Upper Tribunal believed HMRC was not in a better position to provide a clear direction on the issues and accepted that it was reasonable for the taxpayer not to have sought a VAT ruling. This was due to the issues at the time being dependent on the outcome of separate litigation by a third party.

Comment: The Upper Tribunal’s comments support our experience that it can be very difficult to get a clear VAT ruling from HMRC using the non-statutory ruling process. The taxpayers sought the opinion of an appropriately qualified professional and the Upper Tribunal has endorsed that as a basis for determining if there was a reasonable excuse when it was subsequently determined the decision was incorrect.

Let’s get digital

The date from which the first entrants into the Making Tax Digital (MTD) regime for VAT reporting need to incorporate digital links into their VAT reporting process is on the horizon.

From 1 April 2020, people who are VAT registered, and who had a requirement to register for MTD from 1 April 2019, need to ensure they are also meeting the digital links requirements. The extent to which this represents a challenge for traders depends on the complexity of their business from a VAT perspective and how integrated their current systems are in terms of the transference of transitional data. For some, meeting the digital links requirement will be relatively straightforward and, indeed, seamless. However, for others, it represents more of a concern, as they may need to invest in new systems in order to comply.

For those businesses which have not yet considered the digital links element of MTD, urgent action is now required and the starting point is to map out the current VAT reporting process and identify where digital links need to be incorporated

Comment: The attention of businesses may have been focused on Brexit-related issued in the latter half of 2019, and more recently on potential tax changes to be introduced in the forthcoming March Budget, so the digital links effective date may have been overlooked. Certainly, now is the time to concentrate again on MTD requirements to ensure VAT reporting processes are compliant from 1 April 2020 onwards. Businesses that had the benefit of the six-month deferral to register for MTD have until 1 October 2020 to address the position.

Please discuss the matter with your usual Saffery contact if there are any concerns regarding the digital links requirement, as we can assist in ensuring you remain compliant.

HMRC reaction to the News Corp case

HMRC has published its view following the successful appeal by News Corp that its electronic newspapers should be zero-rated for VAT. HMRC is appealing and has published a business brief to state that its policy has not changed and any claims made on the back of the News Corp decision will be rejected.

Brexit: cross border trading from 1 January 2021

The UK is set to leave the EU Customs and VAT Unions at the end of 2020. HMRC has reacted to the government’s recent announcements regarding ‘inevitable’ trade barriers following the end of the Brexit transition period, with its own statement confirming import controls applicable from 1 January 2021. From this date we have been warned that all UK exports and imports will be treated equally, mean trade with the EU will be subject to customs procedures.

In addition, some previously published transitional guidance on a range of customs issues has been withdrawn to be reviewed and updated. It still remains to be seen what the UK’s final Customs Duty regime and import VAT position will be once HMRC publishes its final plans.

For advice regarding any of the issues raised here, please speak to your usual Saffery partner.