VATflash November 2011

This month’s VATflash includes a warning about VAT scams, some updates from the Courts, HMRC’s latest targeting exercises and some Government announcements.

VAT scams

Beware of fake VAT registration letters coming from Belgium seeking payment for your Euro VAT registration. They could appear very genuine to new businesses uncertain of VAT rules. The fraudulent website, however, seeks credit card information and so is quite clearly a phishing attempt.

Fiscal neutrality

What was seen to be an obscure EU principle in the past, fiscal neutrality is now becoming more important in UK VAT analysis. A recent case was heard at the European Court of Justice in respect of Rank and different VAT treatments for different forms of bingo games. The exact details are not of relevance; however what the Court said is as follows:

“The principle of fiscal neutrality must be interpreted as meaning a difference in treatment for the purposes of value added tax of two supplies of services which are identical or similar from the point of view of the consumer and meet the same needs of the consumer is sufficient to establish an infringement of that principle.”

To simplify the above, if you believe you are suffering because HMRC say your supplies have a different VAT treatment to those of your competitors, or perhaps even where you supply the same product in two different forms, this is likely to breach European principles and therefore one of the VAT treatments has to be changed. Getting HMRC to address your particular situation and rectify their own mistake may prove difficult, but if you believe you are being disadvantaged speak to our VAT specialists who will be pleased to advise you on your VAT position.

HMRC targeting …

New on HMRC’s list of supposed black-market targets are after hours tutors such as private tutors and fitness instructors and all small businesses trading at or just below the VAT registration threshold. We believe that HMRC must have more lucrative targets to focus on, but it does follow previous and still ongoing investigations into doctors and plumbers.

Low value consignment relief

The Government has announced that the low value consignment relief is to be abolished in April 2012.  This relief has allowed UK individuals to import low value goods from outside the EU without payment of import duty and VAT. It has been exploited, however, by large retailers setting up establishments in the Channel Islands selling DVDs, CDs and low value goods by internet shopping. The Government has been under pressure from UK retailers for some time to solve the problem, so this announcement comes with no surprise. There are, however, concerns that European law would prevent the Government from removing this concession from one geographical location only, but for now we await the announcement in the 2012 Budget. Insolvency In a previous VATflash we mentioned a recent case, Paymex, which held that work by insolvency practitioners on IVAs (individual voluntary arrangements) was exempt from VAT not standardrated as had previously been generally accepted. Despite the decision clearly applying to the work carried out by the IP not the nature of the client, HMRC wrongly maintained that the decision did not apply to CVAs or PVAs, the company or partnership equivalents. HMRC have now given in to concerted pressure from insolvency practitioners and the professional tax bodies and accepted that exemption from VAT does also extend to CVAs and PVAs.

Cosmetic surgery

For anyone considering cosmetic surgery, you may be aware of the recent press coverage suggesting that the Government is to add VAT to such procedures. This is inaccurate as the relevant VAT law has not changed and such procedures, if not for medical purposes, should already be subject to VAT. The Courts have held that medical servicesmust ‘protect, maintain or restore’ the health of the individual to qualify for exemption, although HMRC have frequently adopted a ‘light touch’ approach to the cosmetic surgery industry to date.

Clubs: non-payment of subscriptions

An interesting case at the First Tier Tribunal has held that when a club bars a member who has not paid their fees from using the club’s facilities, but then is successful in recouping the outstanding subscriptions at a later date, the payments received are not subject to VAT because there was no supply of services at the time. This decision is perhaps arguable and heavily dependent on the precise wording of the membership terms and conditions, but expectations are that HMRC will appeal it to the Upper Tribunal. For now though, any clubs that have accounted for VAT in the past on outstanding subscriptions from barred members may be able to claim that VAT back. We would be pleased to advise further on this.

If you wish to review your circumstances or would like advice on any of the above please contact your usual UHY partner. Alternatively, view the profiles and contact details of our specialists in the Locations & people or VAT sections of our website.