Tax VAT Briefing January 2019

News Updates

January is a very busy month for accountants and tax advisers. Here is a summary of some of the January tax news you may have missed.


TAX

Entrepreneurs’ Relief

As a result of representations, the Government has issued further proposed amendments to the Finance Bill 2018-19 entrepreneurs’ relief provisions. The original proposals would have denied relief to individuals owning certain company shares with varying or unascertainable rights. The latest proposals are designed to enable such shareholders to apply the ‘personal company’ test by reference to the claimant’s entitlement to a share of sales proceeds when the company is sold.

Company Registration

It is possible to register a company and register that company for tax at the same time using the Streamlined Company Registration Service. This is the result of collaboration between Companies House and HMRC which removes the need to send duplicate documentation to both departments.

The registration process can be accessed from the GOV.UK guidance on setting up limited companies here.

Updated HMRC Tools

HMRC has updated a large number of online checking tools during January including:

Whether claiming simplified expenses will be beneficial

Calculating an employee’s statutory sick pay

Calculating an employee’s statutory redundancy pay

Calculating an employee’s statutory maternity, paternity or adoption pay

Calculating married couple’s allowance

Estimating late Self-Assessment return and payments penalties

Employer Rates and Thresholds

HMRC has published a comprehensive list of 2019-20 income tax, PAYE, NIC, and other rates and thresholds which are relevant to employers in a single document here.

Pension Allowance Guidance

HMRC has published guidance and a calculator for individuals who have ‘flexibly accessed’ their pensions by withdrawing money from a defined contribution pension or an overseas pension which has qualified for UK tax relief.

The calculator, which can be found here, is designed to determine whether annual allowances have been exceeded and tax is payable.

UK-Guernsey Tax Treaty

The new UK-Guernsey double tax treaty has entered into force. It takes effect from 1 March for the purposes of tax withheld at source, 1 April for corporation tax and 6 April for income tax.

LBTT Rates and Thresholds

Revenue Scotland has updated its Land and Buildings Transaction Tax guidance for the new rates applying to non-residential property and second homes which came into force on 25 January.

Spring Statement

The Chancellor’s Spring Statement will be delivered on 13 March. The Spring Statement is not intended to be an occasion for making significant tax announcements unless required by economic circumstances.

Off-Payroll Working in the Private Sector

HMRC have issued some guidance in relation to the purposed changes to be introduced to Off Payroll Working in the Private Sector, in their December 2018 Employer Bulletin. This includes that the definition of a ‘Small Business’ will follow that of the Companies Act 2006 and the commencement of consultations in early 2019. See page 5

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/764292/Employer_Bulletin_December_2018_Issue_75.pdf 

TAX CASE DECISIONS

Dennis [2018] UKFTT 0735 (TC) – Loans to traders

 Many areas of UK tax legislation contain provisions to ensure that relief for losses is restricted to cases of real economic loss. In the case of Mr. Dennis, although he suffered a real and substantial commercial loss as a result of providing funding to a failed joint venture, his losses arose from an indemnity rather than a guarantee so capital gains tax loss relief was not available. The case serves as a reminder that tax planning for investing in a business should not be confined to investments in a company’s share capital.

Dennis


Petrol Services Ltd [2019] UKFTT 0773 (TC) – Earnings from employment

 Two directors and their wives each owned 25% of the share capital of the company. Payments were made by the company, not to the directors but to two partnerships, each comprising a director and his wife, in accordance with two longstanding consultancy agreements. The Tribunal decided the payments arose as a result of the directors’ office or employment with the company and not as a result of the consultancy agreements. Although it was not necessary in reaching the decision, the Tribunal undertook a useful examination of the factors which would be taken into account had it been necessary to decide whether the agreements were contracts of service or contracts for services.

Petrol Services Ltd



VAT

VAT Mini One Stop Shop changes from 1 January 2019

We would like to remind readers about two changes to the VAT Mini One Stop Shop (MOSS) rules from 1 January 2019.

New EU sales threshold: Businesses whose sales accounted for through MOSS are less than £8,818 (€10,000) in a calendar year and in the previous calendar year can account for those sales as if made in the UK and deregister from MOSS. A business can choose to stay in MOSS but must elect to do so. The threshold does not apply to businesses based outside the EU and so if the UK leaves the EU without a deal UK businesses will not be able to take advantage of this threshold after 29 March 2019

Non-EU businesses: Businesses based outside the EU that are VAT registered in an EU member state for other purposes will also be able to use MOSS from 1 January 2019.

HMRC Updates

VAT Notice 723A: Claim back VAT paid in the EU updated

HMRC has updated VAT Notice 723A to reflect new information about certifying the country of registration.

VAT Notice 723A explains how to claim a refund of VAT incurred in EU countries for businesses established in another member state, or incurred in the UK for businesses established outside the EU. The notice has been updated at paragraph 6.2 Certificate of status proving your business activity to include new paragraphs 6.2.1 Information that the certificate must contain, 6.2.2 Submitting an electronic certificate and 6.2.3 Business address to clarify what is required on a certificate of status, whether an electronic certificate can be submitted and what a business address is.

VAT Notice 701/41: Sponsorship

VAT Notice 701/41 explains how VAT applies for persons who give or receive sponsorship. Following consultation with external users, paragraphs 1.1 What this notice is about; 1.2 Definition of sponsorship; 2.1 When you’re making taxable supplies if you get sponsorship; 2.2 Types of support that are not liable to VAT; 4.3 Claiming input tax on the prizes you receive for competitions have been amended to provide clarity on the existing information and a new section 5 has been added on crowdfunding.

VAT Notice 733: Flat rate scheme for small businesses

HMRC has published an updated version of VAT Notice 733. The updated version has been amended at section 4.1 to help clarify the process for choosing the appropriate flat rate sector.

HMRC update guidance about VAT relief on disability goods

HMRC have updated online guidance about VAT relief for disability goods to clarify the meaning of ‘designated solely for disable people’ and ‘computer equipment’.

‘Get VAT relief on certain goods if you have a disability’ explains how to get VAT relief when buying goods because of a disability. VAT relief is available on a limited range of goods and services for disabled people. Goods that can be bought VAT-free include medical and surgical appliances; invalid wheelchairs and mobility scooters; equipment to aid the hard of hearing, and low vision aids; specialist beds, chair and stair lifts, rise and recline chairs and other lifting equipment and sanitary devices; goods that have been designed solely for disabled people; computer equipment; emergency alarm call systems; boats and parts and accessories. The guidance has been updated at the sections ‘What HMRC means by ‘designed solely for disabled people’ and ‘Computer equipment’

https://www.gov.uk/guidance/vat-relief-on-certain-goods-if-you-have-a-disability

TRIBUNAL DECISIONS

Upper Tier Tribunal: The Learning Centre (Romford) Ltd & L.I.F.E Services Ltd [2019] BVC 504

The Learning Centre Romford and LIFE Services are private companies limited by shares which are run for profit. They provide day care for vulnerable adults with learning disabilities (TLC) and adults with a range of disabilities (LIFE).

It was common ground that the services provided were ‘welfare services’ for the purposes of the exemption set out in VAT Act 1994, Schedule 9, Group 7, Item 9. However, the exemption in item 9 only applies to services provided by charities and ‘state-regulated private welfare institutions’. The First Tier Tribunal (FTT) found that the restriction in Item 9 represented a breach of the principle of fiscal neutrality.

In the TLC case, the FTT agreed with TLC that the fact that the same service was taxed differently in Scotland and Northern Ireland compared to England and Wales did represent a breach of fiscal neutrality. HMRC appealed this decision to the Upper Tribunal (UT). In the LIFE case, the FTT found that fiscal neutrality had been breached because exemption extended to charities but not providers like LIFE. HMRC appealed to the UT which disagreed with the FTT on and overturned its decision. But, LIFE introduced the ‘devolved nations’ argument at the UT so its appeal was joined with TLC’s in order that they might be considered together. The UT considered ECJ case law on fiscal neutrality and the purpose and history of the VAT exemption. The UT allowed HMRC’s appeal and concluded that there was no breach of fiscal neutrality. The UT accepted HMRC’s argument that VAT law was the same across the United Kingdom, state-regulated providers qualify for the exemption and non-regulated providers do not. Differences in VAT treatment are caused not by any lack of neutrality in VAT legislation but by the fact that regulation of this sector has been devolved to the different nations and they have made different decisions ‘as they are entitled to do’. The UT went on to conclude that there was an intrinsic difference between regulated services and non-regulated services because even if, on a voluntary basis, a non-regulated provider met the standards expected of a regulated one, ‘the system of regulation provides a system of protections and guarantees which is absent in the case of unregulated services’.

https://assets.publishing.service.gov.uk/media/5c4853d3e5274a6e6b6716fa/HMRC_v_Learning_Centre_Romford_and_LIFE_Services.pdf


Upper Tier Tribunal: Greenisland Football Club [2018] UKUT 0440

In HMRC v Greenisland Football Club (GFC), the UT overturned the FTT decision to allow a club to zero-rate construction of a clubhouse. However, it agreed that no penalties were due.

GFC was a not-for-profit organisation which built a clubhouse on leased land. The clubhouse was to be available for use by the whole community in a similar way to a village hall. GFC issued a certificate to the builder confirming that the building was intended for use ‘solely for a relevant charitable purpose’. On the basis of this certificate, the builder zero-rated the construction services. HMRC decided that the construction works should have been standard rated and GFC’s certificate was issued incorrectly. It assessed GFC for a penalty of £53,101.

GFC appealed on the basis that it had no priority over the building and that the building was promoted as a facility for the whole community rather than a specific group. Furthermore, if the work was standard rated, rendering the certificate incorrect, there was a reasonable excuse and as such the penalty should not have been issued.

The FTT agreed with GFC on both counts; that the clubhouse was used in a similar manner to a village hall and so the supply should have been zero-rated but also that if this decision is incorrect GFC had a reasonable excuse for issuing the certificate and so the penalty should be withdrawn.

HMRC appealed to the UTT. The UT found that:

• The football club built a new clubhouse whose facilities were extensively used by local community groups including many unrelated to sport. Although the club maintained that it was not running a business as their use was no more than 20% of the facilities, and the club had no booking priority over other users. The UT decided that this was still sufficient to establish an economic activity and it exceeded the “modest incidental use” for the clubhouse to qualify for zero-rating as a village hall or similar.
• It also found that use of the facilities for a subscription is not compatible with a charity. Economic activity extends beyond commercial and profit-making bodies.

However, the UTT agreed that GFC had a reasonable excuse in respect of believing its issue of the certificate was correct and therefore no penalty could apply.

https://www.bailii.org/uk/cases/UKFTT/TC/2018/TC06321.html


First Tier Tribunal: Adullam Homes Housing Association Limited

Adullam Homes is a housing association providing services to local authorities. These include support services with accommodation and the same support services without accommodation.

The FTT was asked to determine if the appellant was entitled to recover VAT on costs related to the provision of residential accommodation. The letting of residential accommodation is VAT exempt and therefore VAT incurred in the course of providing this is normally irrecoverable. However, in this case, the appellant argued that the VAT was an overhead because there was a direct and immediate link between the costs of providing the accommodation and the taxable support services provided to the local authority.

The Tribunal gave extensive consideration to case law around the issue of attribution of input VAT incurred by a partially exempt business. The conclusion was reached that the costs, whilst related to the provision of accommodation, were incurred in order that the taxpayer had clean, safe and secure premises to enable it to bid for accommodation based support contracts. This constituted a direct and immediate link with the provision of support services. It follows from this conclusion that the inputs incurred by Adullam Homes in order to maintain the accommodation was residual and fell to be recovered in line with their partial exemption calculations.

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j10883/TC06921.pdf


At Croner Taxwise we have a team of more than 35 Tax and VAT consultants with over 750 years’ experience. Please get in touch with a member of the Croner Taxwise team if you would like to discuss any Tax or VAT issues.


Contacts:

Tax Advice Lines 0844 892 2470 taxadvice@cronertaxwise.com

VAT Advice Lines 0844 892 2470 vatadvice@cronertaxwise.com

VAT & Tax Consultancy 0844 728 0120 consultancy@cronertaxwise.com


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Colin began to specialise in tax in 1983. He has previously spent time as a tax partner with two leading accountancy firms and, more recently, as partner in a specialist tax consultancy business providing planning advice and problem solving for successful owner-managed businesses and their owners across the UK.

Julie joined the team in 2007 where she has gained extensive knowledge of many aspects of VAT and advises clients at Croner Taxwise on the VAT advice line, undertakes bespoke consultancy and has editorial responsibility for the team’s journal VAT Voice.

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