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Deeks VAT News

Deeks VAT News

Keeping you up to date on VAT changes

 February 2021

Issue 12

Welcome to the February edition of Deeks VAT News. We are nearly 8 weeks into 2021 already, and as always there are many interesting points emerging in the world of VAT.

In this edition, we cover the following:

  • Domestic Reverse Charge – Building and Construction Works
  • Postponed VAT Accounting (PVA) Guidance
  • EC Sales Lists and Intrastat Reporting
  • VAT Deferral Payment Scheme
  • Land and Property – Ongoing Updates
  • Case Law – Upper Tribunal – Westow Cricket Club v HMRC [2021] UKUT 0023 (TCC)
  • Case Law – Upper Tribunal HMRC v Anna Cook  (2021) UKUT 0015 (TCC)
  • Domestic Reverse Charge – Building and Construction Works

The VAT domestic reverse charge will finally apply to most supplies of building and construction services from 1 March 2021. The rules cover standard and reduced rated supplies between VAT-registered sub-contractors and contractors where reporting is required under the construction industry scheme (CIS).

The definition of construction services is based on the CIS definition, with various professional services excluded. However, unlike the CIS, the reverse charge applies to the total supply (including goods) if any element in the supply is within the definition, subject to a 5% disregard.

Sub-contractors

The reverse charge applies if the following conditions are all met:

  • The supply is within the scope of the CIS.
  • The supply is standard or reduced rated (zero-rated supplies are excluded).
  • The customer is VAT registered.
  • The customer is CIS registered.
  • The customer is not the end user (the final customer who does not make an onward supply – typically, the property developer).

Sub-contractors will no longer charge or account for output VAT, and invoices must state that the reverse charge applies.

Cashflow is likely to be affected for sub-contractors who will no longer benefit from retaining VAT before paying it over to HMRC. Moving to monthly VAT returns could be the best option for managing repayments.

Main contractor

The main contractor accounts for the VAT on the services of sub-contractors as output VAT, but can also usually claim a corresponding input VAT deduction at the same time.

The end user will then be invoiced as normal. The main contractor will therefore now be responsible for accounting for the full amount of VAT in the chain.

This means adjustments for subcontractors and contractors. Detailed technical guidance from HMRC, including supplier and buyer flowcharts, can be found here.

  • Postponed VAT Accounting (PVA) Guidance

With effect from 1 January 2021, VAT has become payable on imports coming into the UK from anywhere in the world where the value is over £135. This will now include imports from the EU.

The postponed VAT accounting system should allow importers to avoid the negative cash flow impact on businesses that would normally be subject to an additional VAT bill at the point of entry of goods into the UK, and will avoid having goods held in customs until import VAT is paid.

Practically, the impact of these measures are very similar to the reverse charge mechanism used for EU trade prior to Brexit. Instead of physically paying import VAT and then reclaiming it on the business’ subsequent VAT return, the VAT is accounted for as input and output VAT on the same return.

HMRC has issued Guidance on PVA allowing taxpayers to “check when you can account for import VAT on your VAT Return from 1 January 2021” and “complete your VAT Return to account for import VAT from 1 January 2021”.

  • EC Sales Lists and Intrastat Reporting

With effect from 1 January 2021, businesses are no longer required to complete EC Sales Lists. However, Intrastat declarations are in certain circumstances.

Government guidance and more detail on the Intrastat reporting requirements is available here.

  • VAT deferral payment scheme

HMRC have updated their guidance in relation to the payment of deferred VAT amounts during the Covid-19 pandemic.

If you deferred VAT payments due between 20 March and 30 June 2020 and still have payments to make, you can:

  • pay the deferred VAT in full, on or before 31 March 2021
  • join the VAT deferral new payment scheme – the online service is open between 23 February and 21 June 2021
  • contact HMRC on Telephone: 0800 024 1222 by 30 June if you need extra help to pay

You may be charged interest or a penalty if you do not pay the deferred VAT in full by 31 March 2021, opt into the new payment scheme by 21 June 2021, or agree extra help to pay with HMRC by 30 June 2021.

HMRC’s full guidance is available here.

  • Land and Property – Ongoing Updates

With the introduction of the domestic reverse charge for construction services, it is timely to remind ourselves of the reason much of this treatment has been passed into law. A tale of caution follows, which could have been averted by consulting with the right specialist at the right time. Accounting for VAT in the construction sector is a complex area and working with a VAT specialist is always advised.

In the 2019 Upper Tribunal case of J&B Hopkins (“J&B”) Upper Tier Tax Tribunal VAT case, a business was left with a £221k VAT bill to pay, while acting in good faith based upon the information passed to it by the main contractor.

A charity engaged the main contractor to construct a place of worship. The charity provided a VAT certificate to the main contractor advising that the construction services should be zero-rated. The main contractor provided the certificate to J&B, who zero-rated their supplies of construction services to the main contractor.

It was not known until a later HMRC inspection that the charity’s certificate only permitted its main contractor to zero-rate their supplies. The certificate was irrelevant to sub-contractors who should have accounted for VAT at the normal rate, in this instance 20% standard rate VAT. Unfortunately, by this point the main contractor had been liquidated. Had it remained solvent and trading as normal, J&B could have issued a VAT only invoice to the main contractor, the VAT accounting chain would have flowed though as normal, and J&B would not have been out of pocket paying HMRC’s VAT assessment.

In association with Bell Howley Perrotton, I was pleased to speak as a guest on Rod Turner’s latest episode of his Property, Business, and Investment podcast:

Listen to the podcast here.

  • Case Law – Upper Tribunal – Westow Cricket Club v HMRC [2021] UKUT 0023 (TCC)

The Upper Tribunal handed down its judgement in this case on 10 February 2021. This case considered the appeal by Westow Cricket Club against the First-tier Tribunal decision in Westow Cricket Club.

In this case the Upper Tribunal (UT) overturned the decision of the First-tier Tribunal (FTT) (Tax Chamber), finding that the taxpayer did have a reasonable excuse for incorrectly issuing a zero-rating certificate because it had an honest belief that the works qualified for zero rating, through its correspondence with HMRC, and the circumstances around that belief made it a reasonable one to hold.

The decision can be read in full here.

  • Case Law – Upper Tribunal – HMRC v Anna Cook [2021] UKUT 0015 (TCC)

The Upper Tribunal handed down its judgement in this case on 28 January 2021. This case considered the appeal by HMRC against the First-tier Tribunal decision in Anna Cook.

The matter concerned whether the First-tier Tribunal was right to find that a particular type of dancing, which the taxpayer taught, was one normally taught in a school or university. The Upper Tribunal ruled that the First-tier Tribunal decision was to be set aside and remade with the result that the relevant supplies were those of a distinct form or style of dance, and not exempt from VAT under the private tuition exemption.

At the end of last week, it has been confirmed that Anna Cook will be taking this matter to the Court of Appeal.

The decision can be read in full here.

 

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