VAT Update – January 2020

1 Jan 2020

VAT Update

This month HM Revenue & Customs (HMRC) loses an important case on the VAT treatment of newspapers. The EU introduce some ‘quick fixes’ for cross-border trade, but Brexit may result in the UK’s participation being short.

The Tax Tribunal looks at what a dating ‘consultant’ might be. We also note that though the Brexit withdrawal agreement comes into force at the end of the month, the UK will remain part of the EU VAT and Customs Union until at least 31 December 2020.

Zero-rating of electronic newspapers

In a case with potentially significant implications for a variety of sectors, the Upper Tribunal has ruled electronic versions of newspapers can be zero-rated.

The debate around e-books and electronic publications has raged for many years. HMRC’s view has always been that supplies of e-publications are supplies of services (rather than goods) and fall outside the zero-rate which covers newspapers and books (etc) in their printed form.

In 2019, changes in the EU eventually materialised, enabling Member States to apply a reduced rate of VAT to e-books. HMRC is yet to implement any such changes, however this Upper Tribunal judgement goes one step further, suggesting e-books can be zero-rated if they are essentially the same as their printed counterparts, which are eligible for zero-rating under UK legislation.

Comment: Whilst we fully expect HMRC to appeal, the judgement presents a real opportunity for businesses and organisations that provide electronic versions of publications, to review their position going forward and also consider submitting a claim for over paid VAT for the previous four years. Membership organisations that offer electronic publications to their members as one of the benefits of membership should also review their position carefully, particularly if they apply the extra statutory concession of apportioning their membership fees for VAT purposes.

For further details of the opportunities that have arisen as a result of the Upper Tribunal case, please contact Nick Hart.

News Corp UK & Ireland Ltd v HMRC

EU VAT ‘quick fixes’ now a reality

The EU VAT quick fixes (last reported on in our October VAT Update) take effect from 1 January 2020. How long these new provisions will apply to the UK is dependent on the final outcome of the Brexit negotiations. Currently, the UK is expected to remain part of the EU VAT and Customs unions until the end of the transitional period on 31 December 2020. The EU has published helpful explanatory notes on the details of the new legislation and implementing regulations.

Comment: The quick fixes will need to be considered by the UK for at least this calendar year and potentially beyond. However much Brexit fatigue has set in, these changes could cause some significant VAT issues for UK traders doing business with the EU. To recap, the four quick fixes relate to:

  • VAT treatment of EU chain transactions;
  • Call-off stock rules;
  • Evidence to support the removal of goods for zero-rating; and
  • Customer VAT numbers and EC Sales List compliance.

Businesses that trade goods with the EU need to be mindful of the new measures. Supply chain and internal process reviews are highly recommended considering the new requirements and that failure to adopt the correct approach to EU trading could result in additional VAT liabilities.

Please speak to your usual Saffery contact or Nick Hart for further assistance.

To consult or not consult?

The term ‘consultancy’ is widely used to apply to a wide categorisation of services when considering the place of supply for VAT purposes. In some instances, scratching beneath the surface reveals a service being performed that is not one of consultancy and this has had implications in a recent First Tier Tribunal (FTT) case.

Consultancy services supplied to private individuals who reside outside the EU are not subject to UK VAT, as the place of supply is considered to be where the recipient of the service resides. Services that are not consultancy services may therefore have a place of supply in the UK, regardless of where the customer lives and this was the case in the Gray & Farrar case, when the FTT concluded its supplies of high end dating services were not consultancy services.

Comment: The act of ‘consultancy’ involves the provision of expertise and knowledge by appropriately qualified or experienced persons in a particular field, and in the Gray & Farrar case staff who had the day-to-day contact with the customers were deemed to be not appropriately qualified in the field of human relationships to be able to provide dating consultancy services to the customers.

Businesses that supply services to customers overseas should be ensure they are classifying their services correctly when applying the appropriate place of supply treatment for VAT purposes.

For further details please contact Nick Hart.

Gray & Farrar International LLP v HM Revenue & Customs

EU VAT refunds

HMRC has advised UK companies incurring costs within the EU that they are still able to file EU VAT refund claim applications through the existing portal. This facility will remain open until March 2021 to cover claims for 2020. The position after this time is not yet clear and the details of the UK’s trade negotiations with the EU will certainly shape the future in this respect.

Comment: The continued availability of the EU VAT refund portal for UK businesses in 2020 is welcome. Businesses that have claims to submit should do so in a timely manner, particularly for 2020. For those businesses that generally only submit one claim a year, we recommend lodging the claim for 2020 as early in January as possible to avoid any last-minute complications should the mechanism become unavailable to the UK from 31 March 2021 onwards. We await the release of the official confirmation that the VAT refund portal remains open until this date.

Please speak with your regular Saffery contact about EU VAT refund opportunities.

EU withdrawal bill

It is important to note that the UK will leave the EU on 31 January 2020. However, until the end of the transitional period on 31 December 2020, the UK remains fully part of the EU VAT and Customs unions.

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