In this month’s update we take stock on Brexit matters and highlight the opportunity that Returned Goods Relief may provide. We also consider a financial services case in which the taxpayer’s appeal was rejected and we highlight again that OSS and IOSS are now live as part of e-commerce VAT reforms in the EU. Finally, we remind readers of the land and property consultation that HM Revenue & Customs (HMRC) is currently undertaking.
Brexit: time to take stock
The UK left the EU VAT system, Customs Union and single market on 1 January 2021. Since then UK businesses have enjoyed the benefits of postponed import VAT accounting and the chance to delay customs declarations. Challenges have been encountered with these measures and with import/export matters more generally. Now is the time to take stock and review what has happened in the year to date, the current state of play with regards to supply chains with the EU, and also look ahead to further changes next year.
Our latest article on Brexit provides more details on the issues businesses need to be aware of and outlines how we can assist with reviewing imports, the structure of supply chains and to determine whether any efficiencies can be made.
It is fair to say Brexit has impacted the service sector less than it has the manufacturing, wholesale and retail sectors, however for some business-to-business services, there are use and enjoyment rules to now consider when transacting with the EU, and when determining where the supply is taxed. You can read more about these use and enjoyment rules, and how and when they apply, here.
Bringing it back home. Returned Goods Relief could help
As a consequence of Brexit, goods that are shipped between the UK (excluding Northern Ireland in this case) and the EU, are subject to customs controls, Customs Duty and import VAT. There are many reasons why goods are shipped overseas, including situations where the goods are to be returned. In these circumstances, there are reliefs available so that either the duty or the import VAT (or indeed both) are not levied when goods are shipped back to the UK.
One such mechanism is Returned Goods Relief (RGR) which applies where goods are exported, and are then re-imported within three years by the same party. For RGR to apply, the goods must be in an unaltered state, except for anything that has been applied to them to keep them in condition. RGR is applied when the goods are being imported back into the UK.
RGR is not new and it is not a specific Brexit-related measure, however it is now more widely applied given shipments to and from the EU are subject to customs controls. One interesting aspect of RGR is that goods removed to the EU, and still in the EU on 31 December 2020, can still be subject to RGR if they are shipped back to the UK post-Brexit. Here, the normal time limit of three years, is extended indefinitely if the goods are returned to the UK by 30 June 2022.
Comment: There is an opportunity to return goods to the UK from the EU by 30 June 2022, even if they were originally shipped to the EU more than three years ago. In other circumstances, HMRC may also apply discretion in allowing RGR when the three-year limit has expired and the personal effects of returning UK expats is one such example.
RGR provides a real opportunity to bring goods back to the UK without incurring Customs Duty and import VAT, which could be significant if the value of the goods is high.
Please contact Nick Hart, VAT Director if you intend to bring any items back to the UK, but are worried about the potential tax costs.
When a supply in the financial services sector is not exempt from VAT: The Target Group case
The Court of Appeal (COA) has found in favour of HMRC in the case of Target Group Ltd (Target) v HMRC  ECWA Civ 1043. It found that Target’s supply of outsourced loan servicing is taxable and not exempt from VAT. The COA, whose judgement is consistent with that of the First Tier and Upper Tier Tribunals, concluded the services supplied by Target to Shawbrook Bank with respect to loans granted by the bank, do not form a distinct whole, which would put the service within the scope of the VAT exemption for certain financial services. The COA observed that Target was not directly involved in the payments from the borrower to the provider of the loan or in debiting and crediting the appropriate bank accounts with respect to the original loan payment and the subsequent repayments. In addition, as its services were supplied after a loan had been originated, there was no indication Target was supplying an intermediary financial service.
In reaching its conclusion, the COA relied largely on the European court case of DPAS Limited (C-5/17) and in doing so it applied EU Retained Law without deviation.
Comment: This judgement will be of interest to suppliers providing loan-related services and services that involve handling third party payments, and is a reflection of how complex VAT in the financial services sector can be. The COA resisted calls from counsel representing the taxpayer to apply UK law over EU Retained Law, which is permitted only in very narrow circumstances. It remains to be seen how far the courts choose, over time, to diverge from EU Retained Law when deliberating on complex VAT matters. UK businesses should assess the risk of applying a VAT position that may appear correct under current UK legislation or HMRC guidance, but which it is not-consistent with EU jurisprudence.
Read more at: www.gov.uk
All change in e-commerce in the EU
The VAT e-commerce reforms in the EU were introduced on 1 July 2021, seeing the introduction of new compliance concepts such as the One-Stop Shop (OSS) and the Import One-Stop Shop (IOSS), the abolition of low consignment relief on imported goods, and placing additional compliance obligations onto online marketplaces.
The reforms are far reaching and in places are difficult to implement particularly in terms of non-EU suppliers of consumer goods which are imported into the EU.
You can read more about the reforms and how they impact UK companies here.
Comment: The VAT changes in the EU have been introduced at a difficult time, whilst businesses are still getting to grips with Brexit and the economic impact of the pandemic. Whilst the implementation of the reforms had been delayed from 1 January 2021, the EU chose not to delay further and the new rules came into effect on 1 July.
The new rules are complex in places and UK businesses are impacted. Online retailers, in particular, are encouraged to review their position to ensure they are aware of how reforms relate to them and what changes to current processes are required.
HMRC’s land consultation
As we previously reported, HMRC has asked for views on how aspects of VAT in the land and property sector can be simplified. This is an important opportunity for HMRC to hear the views of stakeholders on how the current legislation is too complex in places and how HMRC’s interpretation of it is perhaps unclear and to an extent behind the times.
Saffery Champness advises clients across all aspects of land and property, from large housebuilders to landowning estates, and from developers to building contractors. Our submission to HMRC’s call for evidence is in the final stages of its drafting ahead of the deadline of 3 August 2021.
We would be happy to share our response to HMRC. If you would like to receive a copy, please contact Sean McGinness.