Deeks VAT News Issue 27
Keeping you up to date on VAT changes November 2022 Welcome to the latest edition of Deeks VAT News. In this edition, we cover the following: Government Updates… Autumn Statement We reported the indirect tax outcomes of the Fiscal Event of 23 September in our last newsletter. In the time since publication, changes in government […]
Keeping you up to date on VAT changes
Welcome to the latest edition of Deeks VAT News.
In this edition, we cover the following:
- Government Updates… Autumn Statement
- Making Tax Digital filings live from Tuesday 1 November
- HMRC Full update on Proposed Process Changes to the Option to Tax – Notification of an OTT and Charter
- Case Law: DCM (Optical Holdings) Ltd v Commissioners for His Majesty’s Revenue and Customs (Respondent) (Scotland)
- Case Law: E-Zec Medical Transport Services Ltd v The Commissioners for Her Majesty’s Revenue and Customs  TC08574
- Revenue and Customs Brief 11 (2022): VAT and children’s face masks
- HMRC Update VAT Notice 731 – Cash Accounting Scheme
- HMRC Update Notice 708 – Buildings and Construction
- HMRC Webinars
- Holiday Notice: 17 – 24 November 2022
We reported the indirect tax outcomes of the Fiscal Event of 23 September in our last newsletter. In the time since publication, changes in government and policy have been unprecedented and substantial to the say the least.
We now await the (latest) Chancellor’s Autumn Statement, which at the time of writing is scheduled to be delivered by Jeremy Hunt on Thursday 17 November 2022.
In a statement released by the Treasury on 26 October, it was made clear that this statement will contain details as to the “UK’s medium term fiscal plan to cut public spending on a sustainable footing, get debt falling and restore stability.”
With effect from Tuesday 1 November 2022, businesses will no longer be able to use their existing VAT online account to submit VAT returns, unless HMRC has agreed they are exempt from Making Tax Digital (MTD).
All VAT-registered businesses must now be signed up to MTD and use compatible software to keep their VAT records and file their returns.
If businesses do not sign up for Making Tax Digital and file VAT returns through this software, they may have to pay a penalty.
Further to our focused newsletter released on 10 October 2022, HMRC has recently made the following text available to professional bodies:
“UPDATE on Proposed Process Changes to the Option to Tax – Notification of an OTT and Charter
We recently ran a test and learn trial against the OTT Notification and OTT Charter enquiry processes with an aim of improving the process and associated productivity. An initial evaluation of the test and learn trial confirms that implementing these changes will speed up the Option to Tax process for customers.
Given the positive impact on our own performance and largely positive feedback from external stakeholders we will now operate these revised processes as our business as usual way of dealing with such requests.
It will remain the customer’s responsibility to retain and maintain their own records.
Details of both processes tested are below:
Previously a customer notifying an Option to Tax property would be acknowledged by HMRC who would also carry out an extensive check on the notification itself.
In the new process the acknowledgement letter issued by HMRC to a person notifying an option to tax will be replaced by a receipt confirming that a notification of an Option to Tax, has been received by HMRC. HMRC will no longer carry out checks on the validity of the notification of the Option to tax as this has always been, and will continue to be, the responsibility of the opter themselves.
Should it transpire at a later stage that the notified Option to tax is indeed invalid then appropriate corrective action will be undertaken by HMRC dependent on the circumstances surrounding each case.
It is also the opter’s responsibility to maintain their own records.
Traditionally, HMRC has carried out extensive checks of our systems to find details of historic notified Options to tax. This has proved to be a time consuming and unsustainable processes.
As a result, if HMRC are unable to locate a valid notification of an Option to tax on the property in question we will request further, specific information from the Opter or an authorised representative. IF information of a valid notification of an Option to tax is found then a confirmation will be sent to the Opter or their authorised representative.
We will continue to review our Option to Tax and Charter processes in order to ensure a continued improvement to our operations. We will continue to keep you informed of relevant changes to our processes and charter work.”
In this case the First Tier Tribunal (FTT) found that the supply of non-emergency ambulance transport services was zero-rated for VAT purposes. In cases where a supply qualifies for both VAT exemption and zero rating reliefs from the standard rate of VAT, the expectation is that zero rating provisions take priority. This overrode VAT exemption and allowed the full recovery of input VAT by the appellant.
Rob Harvey, Chief Financial Officer of E-Zec, issued the following statement on the company website:
“The team here at E-zec has recently received some positive news in an ongoing case against HMRC, and whilst it’s not yet all set in stone we did want to share an update. Along with other PTS providers, we’ve been challenging HMRC on an element of VAT law and how they classify some of the vehicles used across the patient transport sector. The case was finally heard and considered, and the Judge agreed with us that the current interpretation wasn’t right, and was causing real inconsistency across the board. His judgement gave clarity for the whole industry moving forwards…
The suggested new VAT rules would allow us, and all others who transport patients in the same way, to operate to the same rules as others in allied industries. Importantly, it will also remove a key business risk that we’ve have had to invest significant time and resource to manage. This resource will now be freed up to further support our people, our clients and their patients.
For now… we’re pleased to have taken a stand for what we believe was right, and – hopefully – for a more level playing field moving forwards.”
At the time of writing this update, our understanding is that HMRC are not appealing the outcome of this case, but we are waiting to find out if they will agree that the treatment achieved here applies in all cases, or whether they will argue that it is unlikely that suppliers will be able meet the specific fact pattern presented to the FTT.
DCM, the claimant in this case is a VAT-registered business selling of dispensed spectacles and laser eye surgery under the name “Optical Express”. Optical Express is a partially exempt person for VAT purposes, as it makes both supplies on which VAT is chargeable (such as the supply of frames and lenses) and supplies which are exempt from VAT (such as dispensing services).
The first issue before the Supreme Court concerned an assessment issued to the claimant by HMRC on 20 October 2005 which was disputed in relation to under-declared output VAT (on DCM’s sales) for accounting periods from October 2002 to July 2003. When faced with an incomplete or incorrect VAT return, section 73 of VATA empowers HMRC to make an assessment of the VAT due not later than whichever is the later of (a) two years after the end of the accounting period; or (b) one year after evidence of facts comes to HMRC’s knowledge which is, in HMRC’s opinion, sufficient to justify making the assessment.
DCM argued that HMRC knew that “something was wrong” with its apportionment method by January 2004 and, from then, had one year to make their assessment. This meant that they were out of time to do so for the relevant accounting periods by October 2005, making their purported assessment invalid (“time bar challenge”).
Where VAT is charged to a taxable person on goods and services that it purchases, it is possible for that person to reclaim it as input VAT by setting it off against its output VAT. Under section 25(3) of VATA, if there is no output VAT or the amount of input VAT exceeds its output VAT, then the amount of the excess must be paid to the taxable person by HMRC as a VAT credit.
The second issue before the Supreme Court concerns disputed decisions by which HMRC reduced the VAT credits which DCM had submitted in its returns. DCM argued that HMRC did not have the power to make the relevant reductions as section 25(3) of VATA mandated HMRC to pay DCM the VAT credits which it claimed (“vires challenge”).
DCM was unsuccessful in both of its challenges before the First-Tier Tribunal, although the Upper Tribunal allowed the time bar challenge. The Inner House of the Court of Session allowed HMRC’s appeal on the time bar challenge and dismissed DCM’s appeal on the vires challenge.
At this round of hearings, DCM’s appeal was unanimously dismissed. The Supreme Court dismissed DCM’s vires challenge and found that HMRC did have the power to make the relevant reductions.
Revenue and Customs Brief 11 (2022): VAT and children’s face masks
HMRC issued its latest Business Brief, Revenue and Customs Brief 11 (2022): VAT and children’s face masks, on 24 October 2022.
This brief explains HMRC’s position on the sale of face masks designed for children under the age of 14. HMRC confirmed it has reviewed evidence currently available about the continued and widespread use of face masks. As a result, HMRC now accept that face masks should properly be considered to be items of clothing.
This means that where face masks are specifically designed and held out for sale to young children (under the age of 14), the existing zero rate of VAT can apply.
HMRC updated its published guidance on the Cash Accounting Scheme (VAT Notice 731) on 6 October 2022.
The notice explains how the VAT Cash Accounting Scheme works and the conditions you must meet if you want to use it.
Section 2.8 has now been updated to include information about the VAT domestic reverse charge.
On 10 October 2022, HMRC updated its guidance in VAT Notice 708 – Buildings and Construction.
The overview and section 2 have been updated to include information about the VAT domestic reverse charge. The certificate in section 18.1 has been updated to confirm the name and address of the organisation receiving the building work are required.
Below are some dates for the diary if you are interested in attending a selection of Webinars being hosted by HMRC.
- How to apply the VAT reverse charge for construction services
In this webinar HMRC will cover when to apply the VAT reverse charge, how to show the reverse charge on invoices, and what to do if a mistake is made when applying the reverse charge.
The webinar is available on 8 November 2022, 13:45–14:45; and 24 November 2022, 11:45–12:45.
To book on this webinar please register online.
- How to register for VAT using the VAT1 form
This webinar will explain how to register for VAT using the VAT1 form, focusing on the most common errors with completing the form and providing tips on how to avoid mistakes.
The webinar will be run on 1 November 2022, 13:45–14:45.
To book on this webinar please register online.
- Using the VAT484 form to report changes
In this webinar HMRC will explain how to complete the form VAT484 to report any changes to a client’s VAT-registered business. Within the webinar the focus will be on how to change VAT registration details concerning business contact details, bank details and VAT return dates.
Throughout the webinar HMRC will show how to complete the VAT484 form and the information that is required to prevent errors that might delay the change of VAT registration details.
The webinar will be held on 3 November 2022 at 15:45–16:45.
To book on this webinar please register online.
We wanted to include advanced notice that during the week of 17 – 24 November inclusive, Jane will be taking a much deserved holiday.
All client matters will be up to date at this point, but if you would like to discuss how this will work for the timing of your client project, please get in touch. Should any matters come up during this time that are urgent please do contact us and we will deal with it.
All other service lines will be operating as normal.