VAT Update – March 2020

28 Mar 2020

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HMRC has announced that all UK VAT registered businesses may defer VAT payments between 20 March and 30 June in response to the Coronavirus. In other news, we provide a recap of the key VAT related items in the recent Budget and an overview of recent VAT cases.

HMRC’s response to Coronavirus

The government announced on Friday 20 March that all UK businesses may defer VAT payments from 20 March until 30 June 2020.

There is no application required and the deferral can be applied automatically. VAT refunds and claims will be paid as usual under normal rules.

The deferred VAT will need to be repaid no later than the end of the 2020-2021 tax year.

HMRC had previously opened a dedicated helpline (details below) for taxpayers to call into, if they have concerns about a tax/VAT payment due.

Comment: The deferral, or ‘VAT Holiday’ as it has been dubbed, still leaves a number of questions.

Firstly, if a VAT liability arose between 20 March and 30 June 2020, it is not clear if it can be deferred, even if the latest date you would have to pay falls after 30 June. For example, a May VAT return liability would not be due until 30 June 2020 under basic rules, but the extension if you pay electronically would push the due date out until 7 July 2020, and later if paid by direct debit. We are seeking clarification through our professional body on these and other practical points.

Secondly, the measure was announced for all UK VAT registered businesses. It is not clear if the deferral will apply to overseas established UK VAT registered businesses.

HMRC’s helpline number for time to pay discussions is 0800 0159 559. Whilst this was announced before the VAT deferral on 20 March, it will be useful for businesses wishing to seek time to pay agreements for existing VAT arrears or payments due after 30 June 2020.

Please speak with your usual Saffery Champness contact to discuss the support that is available generally for businesses hit by the Coronavirus crisis.

More information is available at www.gov.uk

Budget 2020 announcements

Rishi Sunak’s first budget earlier this month already feels like a time ago, however here is a recap of the main VAT points:

E-publications: The extension of the zero-rate for books, magazines, newspapers, and academic journals, to the equivalent electronic versions, from 1 December 2020.

Comment: The move to amend the current legislation regarding the zero-rating of books is a welcome one. HMRC has long since been of the view that the scope of the legislation only applies to printed versions of books and newspapers and not to their electronic counterparts. A period of consultation will now follow and it will be interesting to see how wide the scope of the amendments will be. Consistent with the judgement passed in the recent News Corp Upper Tribunal case, which we commented on several months ago, the law may only be amended to allow electronic publications which are essentially the same as or identical to their printed counter parts to be zero-rated, rather than any type of publication being eligible for the zero-rate come 1 December 2020.

Import VAT postponement from 1 January 2021.

Comment: This is a Brexit-related measure that was originally to be introduced in the case of a no-deal Brexit. The postponement of paying import VAT as part of a VAT return filing will provide welcome cash flow benefits to UK importers. At this stage, no special registrations or licences are required other than the standard VAT and EORI registrations.

The VAT exemption for the management of Special Investment Funds is being widened to include management of pension fund investments and investment funds containing property assets.

Comment: This change has been in the pipeline since last year and it provides a real opportunity for discretionary investment managers to treat more of their income as exempt from VAT. Associated input tax recovery issues aside, this change is a significant one in the sector and clients operating in this space should review the changes to see if their services are impacted.

Other measures introduced include:

  • Women’s sanitary products are to be zero-rated from 1 January 2021.
  • Legislation is now enacted in relation to the call-off stocks provisions introduced with the EU Quick Fixes.
  • New entry and exit rules for the Agricultural Flat Rate Scheme from 1 January 2021.

Read our full Budget analysis here.

Update on recent VAT cases

To finish, there have been some recent interesting VAT developments in the courts, as follows:

  • In Italian Tax Authorities v San Domenico Vetraria S.p.a.(C-94/19) the European Court of Justice (ECJ) has concluded that a secondment or loan of an employee by a parent company to a subsidiary is a supply for VAT purposes, even when there is just a reimbursement of costs by the subsidiary back to the parent company in return.
  • The Advocate General (AG) in the case Stichting Schoonzicht (C 791/18), has opined on the interaction between the capital goods scheme and the clawback provisions within partial exemption rules. Here, the first use of an asset was an exempt one (when it was originally planned that it would be a taxable one) and the AG concluded that the clawback provision was the appropriate mechanism to use to adjust the input tax recovery position and not the capital goods scheme.
  • The Upper Tribunal in D Moulsdale t/a Moulsdale Properties v HMRC [2019] UKUT 72 has concluded that an option to tax is not disapplied in instances where there is no evidence that the seller of land or property either intended or expected the land/property to become a capital item. This case is concerned with complex anti-avoidance rules around the disapplication of an option to tax.
  • The AG in the case BlackRock Investment Management (UK) Limited (C-231/19) has opined that a single supply of investment management services (of the type under consideration in this case), which is supplied to a fund management company by a third-party, via its software platform, and which includes special investment funds and other funds, does not fall within the scope of the exemption for special investment management services contain within the EU VAT Directive.

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

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