Deeks VAT News Issue 14

Deeks VAT News

Keeping you up to date on VAT changes

March 2021

Issue 13

Welcome to the March edition of Deeks VAT News. With the close of the tax year fast approaching, and all that the Chancellor’s budget promised on 3 March 2021, there are many interesting points to pick up on in the world of VAT.

In this edition, we cover the following:

• Budget 2021
• Covid-19 Potential to recover output tax where customers make donations
• Tax Day – 23 March 2021
• HMRC Guidance Update – Accounting for Import VAT
• Revenue and Customs Brief 2 (2021): temporary reduced rate of VAT for hospitality, holiday accommodation and attractions
• Revenue and Customs Brief 3 (2021): VAT liability of digital publications

·       Revenue and Customs Brief 4 (2021): partially exempt VAT registered businesses affected by coronavirus (COVID-19)

• CIS, Off Payroll Working and VAT Domestic Reverse Charge
• RCB 12/20 – Guidance for VAT on early termination fees and similar payments
• Easter Break – Office closure 12-18 April

• Budget 2021

This year’s Budget speech was delivered on Wednesday 3 March and on 11 March 2020, the Finance (No. 2) Bill 2019-21 and Explanatory Notes were published. The items introduced from an indirect tax perspective were largely as expected with highlights including:

• The temporary reduced rate of VAT of 5% for supplies of hospitality, holiday accommodation and attractions has been extended until 30 September 2021. (From 1 October 2021 to 31 March 2022, a temporary 12.5% rate of VAT will apply to these sectors before reverting to the 20% standard VAT rate.)
• VAT payment deferral scheme – As mentioned in our February newsletter, businesses have the option to pay the VAT they deferred between 20 March and 30 June 2020 in up to 11 instalments, ending by 31 March 2022, or it can be paid in full by 31 March 2021. A 5% penalty may apply where a business does not pay the deferred VAT in full by 31 March 2021; opt into the new payment scheme by 21 June 2021; or agree an alternative arrangement to pay with HMRC by 30 June 2021.
• Making Tax Digital (MTD) – the Finance Bill extends the MTD for VAT requirements to VAT registered businesses below the VAT registration threshold from 1 April 2022.
• A plastics packaging tax is being introduced from April 2022.
• A new penalty regime for VAT will apply (from periods on or after 1 April 2022). This applies to late submission and late payment.

The timetable for the passage of the Finance Bill through Parliament has not yet been published, with no guide as to when scrutiny of the Bill in Committee might take place. It is currently not possible to say when Third Reading will take place.

Royal Assent usually takes place in July before Summer recess.

• Covid-19 Potential to recover output tax where customers make donations

HMRC’s manual on VAT Supply and Consideration at VATSC06110 states: “If a monetary donation is freely given, it is not consideration for any supply and so is outside the scope of VAT.”

A number of cases have crossed our desks over the last 12 months where businesses who have been forced to temporarily close by Covid 19 measures have continued to receive funds from previous customers by way of donations. These have been given with no expectation of receiving a supply, but for the benefit of businesses who have been unable to access adequate support via Government measures, in the hope that the business will continue to survive and reopen once Government-mandated closures have passed.

Examples include the refusal/return of season ticket refunds where sports have been forced to close out the 19-20 season early, and gyms with customers who have opted not to freeze memberships during periods of closure.

The output tax amounts involved in ensuring the correct treatment of your receipts are not insignificant and can make all the difference to businesses who are mothballed and eager to trade.  If this opportunity is of interest to you, please get in touch.

• Tax Day – 23 March 2021

23 March 2021 marked the UK’s first “Tax Day”, as the government published consultation documents, calls for evidence, and other documents relating to the future shape of the UK tax regime. Little was known in advance what to expect from Tax Day, and speculation had been mounting that some significant reforms could be announced. However, many of the announcements were either technical in nature or intended to start discussions.

There was some good news for businesses with a design and build subsidiary, as within the various announcements there was confirmation that proposals to change VAT grouping rules will not go ahead. In August 2020 HMRC had consulted on various VAT grouping matters including compulsory VAT grouping, but confirmed that in light of the responses, it will not take this further.

Services between a separately VAT-registered entity and other members of a corporate group will continue to be treated in the same way.

HMRC’s website setting out all “Tax policies and consultations (Spring 2021)” publications can be found HERE.

• HMRC Guidance Update – Accounting for import VAT

HMRC updated its guidance on this topic for a third time this month (16 March 2021). Earlier updates concerned difficulties with creating statements for January and February. The third update changes the date by which VAT must be accounted for on a VAT return for delayed customs declarations. This has been changed from 31 June 2021 to 31 December 2021.

HMRC also updated its guidance on checking when import VAT can be reported on a VAT return for the change of date mentioned above.

The updated guidance can be found HERE.

·       Revenue and Customs Brief 2 (2021): temporary reduced rate of VAT for hospitality, holiday accommodation and attractions

This brief explains the changes in the VAT treatment of certain supplies of hospitality, hotel and holiday accommodation, and admission to certain attractions.

The Chancellor announced at Budget 2021 that the temporary reduced rate of 5% will be extended to 30 September 2021.

From 1 October 2021 the reduced rate for these supplies will be replaced by the introduction of a new reduced rate of VAT of 12.5% which will remain in effect until 31 March 2022.

The brief can be read in full HERE.

• Revenue and Customs Brief 3 (2021): VAT liability of digital publications

HMRC has published ‘Revenue and Customs Brief 3 (2021): VAT liability of digital publications – update on litigation in News Corp and Ireland Ltd’. This brief, which replaces Revenue and Customs Brief 1(2020), gives an update on the VAT treatment of supplies of digital newspapers and other digital publications before 1 May 2020 following the Court of Appeal decision in News Corp UK and Ireland Ltd.

News Corp argued that the digital editions of its publications should be zero-rated for VAT purposes, claiming that they are the digital equivalent of the daily editions produced on ordinary newsprint. However, the Court of Appeal disagreed.

This Brief reiterates that the Court of Appeal decision supports HMRC’s policy. But, on the basis that News Corp has sought permission to appeal the decision to the Supreme Court, HMRC will accept retrospective protective claims up to May 2020 (when the Government introduced a new zero rate for supplies of certain e-publications, including e-newspapers).

The brief can be read in full HERE.

·       Revenue and Customs Brief 4 (2021): partially exempt VAT registered businesses affected by coronavirus (COVID-19)

On 23 March 2021, HMRC published its policy paper on what a partly exempt business needs to do if its partial exemption method is not providing a fair and reasonable outcome because of the impact of the pandemic on its trading. This is set out in Revenue & Customs Brief 4/2021.

This brief gives information about an accelerated process for VAT registered businesses to request temporary alterations to their partial exemption methods (including combined methods) to reflect changes to their business practices because of the coronavirus pandemic.

You should read this brief if you are a partially exempt business whose trading activities have been affected by coronavirus and, as a result of which, your existing partial exemption method does not have a fair and reasonable result.

The brief can be read in full HERE.

• CIS, Off Payroll Working and the VAT Domestic Reverse Charge

As a follow up to our last edition, no sooner have we adopted the new domestic reverse charge rules for construction, than additional rules are on the horizon which may give businesses more to consider. On 6 April, new rules are coming into force with respect to the construction industry scheme (CIS), and off payroll working/IR35.

HMRC Policy is that the rules surrounding IR35 and off-payroll working will take precedence over CIS rules from 6 April 2021. Where off payroll working rules apply, and tax/NIC needs to be deducted prior to payment, the business customer will not need to consider CIS. But where the off-payroll working rules do not apply, the business receiving services will need to consider whether to withhold tax on payments made under CIS.

Where a contract is inside the off payroll working rules, and therefore not within CIS, then the VAT reverse charge will not apply.

https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services

• RCB 12/20 – Guidance for VAT on early termination fees and similar payments

We have been keeping a close eye out for updates on RCB 12/20, which caused many issues to businesses on its publication. The latest we have heard is that HMRC are still considering the feedback on the proposed policy line in the draft guidance. We understand HMRC are taking further legal advice on whether there is scope to amend the position set out in RCB 12/20. This will take several weeks.

HMRC should then provide an update on a timetable to provide revised guidance for comment and any other steps necessary prior to publication.

We do appreciate that this is an important issue for many businesses and the ongoing uncertainty has real impacts for those affected. We are happy to discuss this matter with you should you need advice in the interim.

• Option to Tax notification update

As a follow up to the item reported in our January newsletter, on 19 March 2021 HMRC further updated its guidance on the extension to the time limit for notifying an option-to-tax has been made. The period to which the extension now applies is for decisions made from 15 February 2020 to 30 June 2021. The temporarily extended time limit is 90 days.

The guidance can be found HERE.

And finally, Easter Breaks

Spring has definitely sprung here at Deeks VAT, and what better way to welcome the longer and warmer days, Easter, and the new tax year, than making time to take a break.

Our offices will be closed over the Bank Holiday weekend (2 – 5 April inclusive).

In addition, the offices will also be closed from 12 – 18 April inclusive, reopening on Monday 19 April 2021.

Wishing you all a healthy and happy Easter.