Deeks VAT News Issue 3

Deeks VAT News

Keeping you up to date on VAT changes

Issue 3                                                                                                                        

9 July 2019

Welcome to the latest edition of Deeks VAT News.

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

• Baillie Gifford & Co [2019] – VAT Groups
• Wasteaway Shropshire Limited [2019] – Input Tax Alternative Evidence
• Richard Williams [2019]- Default Surcharge
• VAT Bill Funding

 Baillie Gifford & Co [2019] – VAT Groups

Baillie Gifford & Co (BG&Co), a financial services business, is the sole shareholder in Baillie Gifford & Co Limited, Baillie Gifford Savings Management Limited and Baillie Gifford Life Limited (subsidiaries). As the sole shareholder, BG&Co exercises control of the subsidiaries through its voting rights. If BG&Co were allowed to enter into a VAT group with its subsidiaries, it would mean that VAT would not be chargeable on inter group-supplies, VAT which, in the absence of a VAT group, is partly irrecoverable due to the partially exempt status of the group.

The First-tier Tribunal (FTT) has released its decision in this case, where HMRC refused an application from BG&Co to form a VAT Group with its subsidiaries. The principal reason for the refusal being that BG&Co, as a Scottish partnership, is not a ‘body corporate’ for the purposes of s 43A of VATA94. Consequently, at that time it failed to meet the statutory eligibility criterion to form a VAT group.

Following the CJEU judgment in Larentia + Minerva, it is clear that the literal terms of the UK legislation, in limiting the application of VAT grouping to particular legal entities (namely, bodies corporate), amounts to an unjustifiable restriction which is contrary to EU law.

The FTT acknowledged that its decision coincided with the enactment of Finance Act 2019 and that the amendments to s43 VATA94 have the effect of widening the eligibility for VAT grouping to individuals and partnerships. However, as this VAT group application occurred a number of years before the CJEU judgment in Larentia + Minerva HMRC’s decision stood and it could not be VAT grouped.

Changes regarding VAT group eligibility introduced by Finance Act 2019 are due to take effect from a date yet to be announced by Statutory Instrument. The applications for non-corporates to be allowed to be members of VAT Groups could be made without waiting for the amended criteria to come into force. Any taxpayer that has had an application rejected on grounds of not being a corporate may wish to review their application.

Wasteaway Shropshire Limited [2019] – Input Tax Alternative Evidence

This case concerns HMRC’s raising an assessment for input tax, due to missing VAT invoices. HMRC have the discretion to accept alternative evidence, but in this case they refused.

The appellant argued that it had lost it VAT invoices due to a move. After further consideration it was identified that the appellant had not kept his records in order and output tax had also been underdeclared. Furthermore, he had run a business in the past where records were not kept according to the required standard. For these reasons the alternative evidence was not allowed and HMRC upheld the assessment.

This case highlights the importance of record keeping and past behaviour. It is essential that VAT invoices are kept safe to ensure input tax claims are secure.

However, it also highlights that HMRC do have the discretion to accept alternative evidence where VAT invoices have genuinely been lost or destroyed.

Richard Williams [2019] UKFTT 0396 (TC) – Default Surcharge

This is an appeal against a default surcharge for late payment of VAT. The VAT was paid 1 day late. As the appellant had been late in the past, he was in the default surcharge regime and the applicable surcharge rate was 15%.

Mr Williams argued that he had a reasonable excuse. He explained that the payment had been due on a bank holiday and his business, a pub, was very busy over the bank holiday long weekend. The VAT return had been prepared by Mr Williams’ accountant, who had advised him of the amount to pay, and the date for payment.

It was held that this was not a reasonable excuse and the penalty was not disproportionate.

This case highlights how paying your VAT late can result in a significant cost to your business. Once in the default surcharge regime it can be hard to get out of it, thus increase costs. We would always recommend paying your VAT return on time, but if you cannot pay on time due to financial difficulty please do get in touch as we can assist with either (1) VAT funding at a lower interest rates than the potential penalties or (2) time to pay arrangements.

VAT Bill Funding

Using a finance facility can spread the cost of your VAT bill, improve your company’s cash flow and increase your spending power. Loans amount start form £1,000 for terms between 3 months and 5 years.

Please click on the following link for further information:

https://deeksvat.co.uk/services/vat-bill-funding/

Please note that Deeks VAT News is not intended to be a comprehensive guide to every development in VAT. It should not be used as a substitute for specific advice in individual circumstances. Deeks VAT Consultancy Limited cannot accept any liability for any action/inaction as a result of any reliance on Deeks VAT News’s contents.

Deeks VAT Consultancy Limited

Managing Director: Jane Deeks LLB (Hons) LPC CTA

T: 07710 553831        E: jane@deeksvat.co.uk        W: deeksvat.co.uk