Thank goodness it’s April and it has been such a relief to have this some lovely weather recently over recent weeks.
I know that most of you will have been bombarded with information about the Budget from the accountancy press, but if you need to know more about the VAT changes, then you can check it out here http://www.hmrc.gov.uk/budget2011/taxes-duties.htm on the HMRC website.
This month, I’ve concentrated on 3 specific issues in a bit more detail than usual as they could affect many of your clients:
* Changes to VAT recovery rules
One of the most important developments over recent months has been the introduction of new rules relating to input tax recovery. The changes came into effect in January, but HMRC have only recently issued detailed guidance in VAT Information Sheet 06/11 here http://tinyurl.com/42oxgfl.
The fundamental input tax principles haven’t changed, but the new rules mean that organisations who have both business and non-business expenditure – mostly charities and some educational establishments – have to change the way that they deal with VAT on non-business expenditure. The new rules also affect the recovery of VAT on goods or services acquired for both private and business – which would probably apply to owners of boats, planes and other large items.
The changes are as a result of the withdrawal of the Lennartz VAT accounting procedure. They include extending the VAT Capital Goods Scheme to planes, boats and other large value items and also changes to the payback/clawback provisions.
Please feel free to call me if you are at all confused about how to proceed. I personally have found the guidance challenging so I wouldn’t be at all surprised if others find it difficult to follow.
* Charities and Construction Work
The rules relating to VAT and construction are complicated. Even more so when they involve construction work for charities.
I’ve recently dealt with a situation where a charity has ended up with a £60k VAT bill on construction work, which could have been avoided or significantly reduced if the project had been designed differently. None of the professional parties involved – the accountants, the solicitors, or the builders, an established company, failed to recognise the potential to minimise or avoid the VAT cost. So the work was planned without any thought as to the potential VAT reliefs. And as the contract doesn’t adequately deal with VAT, both supplier and customer believe that the other party is liable to pay any VAT due.
After nearly 40 years since VAT was introduced, I still see examples of this sort of thing regularly and I’m so frustrated that none of the professionals involved gave proper attention to the issue of VAT either in terms of the wording of the contract, or the potential VAT reliefs.
This is a situation where VAT consultants can add real value and I really hope that it is a timely reminder to encourage you to take advice when any client, especially a charity, is planning construction work. Any one of us would be willing to have a no-obligation discussion about such situations, but you do have to bring us in at the planning stage to maximise the benefit from our advice.
* Zero-rated fish and chips?
The anticipation of VAT free fish and chips put a spring to the steps of UK VAT consultants last month!
We all got a bit excited last month when the ECJ ruling in Manfred Bog which dealt with the VAT liability of certain catered food supplies was released. The word on the street was that it meant that take-out fish and chips should be zero-rated.
I’ll admit, I was a bit excited when I first heard the news, picturing a life-long supply of free fish and chips from my local chippie as a result of a big VAT refund and a shiny new car funded by the proceeds from lots of contingency fees!
Unfortunately this isn’t the case. As always, the devil of these rulings was in the detail and as far as I can see, the principle part of the decision doesn’t have any direct bearing on UK rules. This is because the UK zero-rating and the German treatment of food are based on different parts of the EC legislation, and the ECJ’s decision concerned the German rules. HMRC have since confirmed that they have no intention of accepting that take out fish and chips or other catered/hot food is zero-rated as a result of the ruling
However, there was one aspect of the ruling that may still have implications in the UK. Much of the technical dicussion in the judgement concerns the application of the composite supply rules and I think that the implications of this aspect of the ruling could still be used to challenge the VAT liability of catered food in the UK. But it is a somewhat unusual way of applying this particular principle and I certainly wouldn’t advise to submitting protective claims for overpaid VAT at this stage and it’s probably not worth getting your clients’ hopes up. And of course the unjust enrichment rules would apply so it won’t be an easy process even if HMRC accepts that VAT has been overpaid.
I will, of course, keep an eye on developments following this judgement and let you know if and when I’d recommend taking any such action.
And finally…
The VAT world is very busy and HMRC are issuing new versions of the public notices to keep up with the 20% VAT rate and other changes, so do keep an eye out on teh HMRC website for revised notices that might affect you or your clients. Some of the most recent include Notice 733: VAT Flat Rate Scheme and Notice 60: Intrastat General Guide. VAT Info sheet 08/11 has new guidelines for calculating VAT on private use of company cars, so do check this out if you have any clients who may be affected.
If you’re stuck on anything in particular, please feel free to give me a call to discuss it on 0113 246 1668 or contact me at marie@vatexchange.co.uk.
And in the meantime, Happy Easter and I hope you enjoy the two long weekends we have coming up! I guess my invitation to the Royal Wedding has got lost in the post, but then that’s what big screen HD tvs are for!
Marie
www.vatexchange.co.uk
0113 246 1668