Deeks VAT News Issue 11

Deeks VAT News

Keeping you up to date on VAT changes

Issue 10                            18 December 2020

Welcome to Deeks VAT News

In this week’s issue we look at the following areas:

With the end of a very turbulent year in sight, now is a good time to catch up with a final update of 2020.

In this week’s issue we look at the following areas:

• Brexit: Countdown to the end of the 11 month transition period
• Excise Goods to The EU from 1 January 2021
• Trading and Moving Goods in and out of Northern Ireland
• Revenue & Customs Brief 21 (2020): the withdrawal of tax-free shopping
• Revenue and Customs Brief 12 (2020): VAT early termination fees and compensation payments
• Revenue and Customs Brief 13 (2020): VAT charity digital advertising relief
• Revenue and Customs Brief 18 (2020): VAT liability of school holiday clubs First-tier Tribunal decision
• Additional RCB Publications over the last few months
• Default Surcharge Regime

Brexit: Countdown to the end of the 11 month transition period

As always, Brexit continues to dominate the European agenda. While information is being released in selected areas (e.g. UK introduction of delayed import VAT accounting), the final position is, at the time of writing, still uncertain. However, there are many steps that businesses can take to ensure that they are compliant with expected VAT treatments and prepared for any changes required to treatments of supplies from 1 January 2021.

Exporting Excise Goods to The EU from 1 January 2021

Check the changes coming into effect regarding how you export and declare excise goods – alcohol, tobacco and certain oils.

Trading and Moving Goods in and out of Northern Ireland

Information has been added about where there may be changes to some processes from 1 January 2021; bringing goods into Northern Ireland from Great Britain and from outside the EU, what you need to do if you import goods into Northern Ireland and want to declare your goods not ‘at risk’, making declarations for bringing or receiving goods into Northern Ireland, transporting and carrying goods if you’re a haulier or a carrier and moving goods under transit.

Revenue & Customs Brief 21 (2020): the withdrawal of tax-free shopping

This confirms the withdrawal of ‘airside’ tax-free shopping in the UK and the VAT Retail Export Scheme from Great Britain, following the UK transition

 Revenue and Customs Brief 12 (2020): VAT early termination fees and compensation payments

HMRC guidance on charges described as compensation or early termination fees in a contract have been changed to make it clear that they are generally liable for VAT.

Following recent CJEU judgments, it is evident that these charges are normally considered as being for the supply of goods or services for which the customer has contracted for. Most early termination and cancellation fees are therefore liable for VAT. HMRC has changed its internal guidance at VATSC05910, VATSC05920 and VATSC05930 to reflect these changes, while the full business brief can be found here: Revenue and Customs Brief 12 (2020). HMRC are withdrawing this business brief and a new version will be published in February 2021. This is a welcome change that HMRC will not be applying these changes retrospectively.

Revenue and Customs Brief 13 (2020): VAT charity digital advertising relief

Zero rate VAT applies for advertising services supplied by a third party to a charity when the services are designed for the general public. It has always been accepted that advertisements supplied by digital methods have the potential to fall within the zero rate. HMRC has reviewed a range of digital advertising situations, including several targeting indicators. This latest brief sets out the policy for these and reiterates the treatment previously stated in RCB 25/10. Amendments will be made to HMRC’s guidance in “VAT Notice 701/58: goods or services supplied to charities” and the VAT Charities guidance manual to reflect this information, and businesses that have accounted for and paid VAT on supplies of charity advertisements that are now considered to be zero rated can submit claims for overpaid tax. All claims will be subject to the 4 year time limit.

The business brief can be read in full here: Revenue and Customs Brief 13 (2020)

Revenue and Customs Brief 18 (2020): VAT liability of school holiday clubs First-tier Tribunal (FTT) decision

This brief clarifies HMRC’s policy concerning the VAT treatment of school holiday clubs following the FTT decision of 7 November 2019 in RSR Sports Limited (RSR) (Decision No TC07453). RSR provided holiday camp services to parents and their children and argued that these services were exempt from VAT as the provision of welfare during the school holidays. This was agreed by the FTT.

The important key features were:

• members of staff were merely supervising activities
• they did not hold any coaching or teaching qualifications
• there was no external standard to which the services were being provided
• activities were merely an adjunct to the essential service, which was childcare

In future, HMRC will not interpret activity-based clubs to include clubs exhibiting these key features. Such clubs will be included within the welfare exemption. HMRC invite anyone who considers that they have received an incorrect ruling prior to the decision in RSR to seek a corrected ruling and a refund of any tax incorrectly overpaid. Any business that has accounted for too much VAT may correct this by following the normal error correction procedure. It is important to note that such adjustments are subject to a 4-year cap starting from the accounting period in which the error was made.

The Brief can be read in full here: Revenue and Customs Brief 18 (2020).

Additional RCB Publications over the last few months

Revenue and Customs Brief 19 (2020) : Repeal of the VAT (Treatment of Transactions) Order 1992

This repeal will impact government departments and NHS bodies that supply cars to their employees under salary sacrifice arrangements.           This brief is silent on the timing of the changes, but it is thought that the changes will be prospective only.

Revenue and Customs Brief 17 (2020): VAT Liability of Private Sonography Services.

This case concerned whether the supplies of various ultrasound scanning services to pregnant women fell under the medical care exemption from VAT. It was held that it did and the appeal was allowed. This Brief restates HMRC’s Policy to reflect this judgement, and invites claims from businesses with the same fact pattern, subject to the 4 year cap.

Revenue and Customs Brief 16 (2020): VAT liability of payroll services

The effect of an Appellant’s withdrawal of its appeal in the Upper Tribunal, arguing that the supply of payroll services is ancillary to the supply of exempt care, is that these services remain taxable. As there is no change to the current guidance, HMRC do not expect any further claims and will be contacting any businesses with claims “stood behind” the lead case shortly.

Revenue and Customs Brief 15 (2020): VAT – Conclusion of review of Import VAT deducted as input tax by non-owners

HMRC published Revenue and Customs Brief 2 (2019) in April 2019. This restated the long-standing policy of who is entitled to reclaim VAT paid on imports under current UK legislation. This led to issues being raised, which have been reviewed. HMRC states that this review is now complete and confirms the policy outlined within Revenue and Customs Brief 2 (2019) is correct. HMRC allowed a transitional period for businesses to put in place correct procedures up to 15 July 2019. This transitional period has now ended and HMRC will only allow claims for input tax deduction made using the correct procedures. A claim under Part XXI of the VAT Regulations 1995 (SI 1995/2518) can be made provided there is no other VAT relief available at import.

Revenue and Customs Brief 14 (2020): changes to the methods used by opticians and sellers of hearing aids to account for VAT on their supplies.

This brief tells you about simplifications to the processes used by opticians and dispensers of hearing aids to account for VAT on their supplies. The changes take effect from 1 October 2020.

Default Surcharge Regime

The UK courts have passed down several judgements over the last few months concerning default surcharges and consideration of various appeals against the application of such surcharges. With each case we learn more about how much of a fine line there is between a reasonable excuse for a delay, and an upheld charge. While the percentage charge levied in earlier defaults is a much smaller amount (and may even be waived in the case of the 2% and 5% rates), this can soon accelerate into the higher bands of 10% and 15%, where the charges are not so easily borne. With this in mind, it would always be worth reviewing your position with respect to any default surcharge notifications that you have on file, and whether these may be challenged in order to reset or improve any risk to the business of increasing surcharge percentages applicable in the future.

Christmas Break

While 2020 has been an incredibly challenging year, it has not been without its successes, and Deeks VAT Consultancy has continued to thrive within a tumultuous time. We would like to take this opportunity to wish you a very Merry Christmas and send our best wishes to you for a happy and healthy new year. With this in mind, our offices will be closed this year from 23 December 2020 until 4 January 2021 in order to make the most of some well-deserved family time.

We trust that you will find this of interest. If you would like to discuss any of the issues in this newsletter or any other VAT issue, please do contact me on 07710 553831 or jane@deeksvat.co.uk.