Filename: VATflash-August-2011-Website.pdf

File Size: 151 KB

As always, there have been a number of  developments in the VAT world recently.  This month’s VATflash covers a range of issues, from Tribunal decisions to EU VAT fraud.

Penalties

HMRC have been losing a series of cases before the First Tier Tribunal recently when attempting to fine businesses for late payment of their VAT returns.  The Tribunal has held on repeated occasions that in certain circumstances the levels of fines are disproportionate to the scale of the offences and therefore overturned penalties.  Before you all jump for joy, note that HMRC ignored the Tribunal’s findings and are continuing to issue fines for the slightest default and forcing taxpayers to appeal (ie. hoping the taxpayer will back down on grounds of cost allowing HMRC to win by default).

Golf clubs

In our July VATflash we informed you of the recent Tribunal decision concerning green fees charged to non club members and discussed whether they should be subject to VAT, as HMRC argue, or exempt from VAT as held by the Tribunal.  HMRC have appealed the decision to the Upper Tier Tribunal and are at present ignoring the decision of the First Tier Tribunal.  We would recommend that affected clubs continue accounting for VAT on green fees charged to non club members but file protective claims to HMRC in case of the event whereby HMRC eventually concede the matter.

Salary sacrifice/ deduction arrangements  

In 2010 there was a case at the European Court of Justice (ECJ) involving retail vouchers given to employees under salary sacrifice arrangements.  The ECJ held that the employer was liable for    VAT on the value of the retail vouchers and we have been awaiting HMRC’s formal response.  It has now been issued that HMRC have interpreted the ECJ’s findings more widely to include not only specific salary sacrifice arrangements but all arrangements involving goods or services    provided to employees in return for deductions from salary.  With effect from 1 January 2012, affected businesses will have to account for VAT on taxable goods or services provided to employees and we recommend that clients with any such arrangements should review their VAT position in the interim.

Italian VAT

The Italian authorities have introduced changes to the Italian VAT registration system which means that many Italian VAT numbers will no longer be valid.  This will affect any UK businesses that trade with Italian suppliers or customers, who need to quote an Italian VAT number on sales invoices, or on their EC Sales List or Intrastat declarations in the UK.  The likelihood for increased EU VAT fraud is extremely high and we recommend that affected clients contact their Italian suppliers and customers to confirm their VAT number, or use the EU VAT Information Exchange System (VIES) to verify numbers.

Input VAT claims – alternative evidence 

When a business, for whatever reason, does not have a valid VAT invoice from its supplier, it may still be able to reclaim the input VAT if the business has sufficient alternative evidence.  The evidence must demonstrate that the supplier was a taxable person and that the supplies actually took place.  Specifically, HMRC are legally obliged to exercise their discretion to consider such alternative evidence and cannot reject it unreasonably.  Not surprisingly though, HMRC find fault with alternative evidence on many occasions.  A recent decision at the First Tier Tribunal found not only that it regarded the alternative evidence put forward by the business as reasonable, but also that HMRC and the two specific Officers concerned acted unreasonably in rejecting the input VAT claim.  Obviously, a VAT invoice is the best evidence to claim input VAT but if you do not have one and HMRC reject your VAT claim, they may be doing so unlawfully.  Contact us and we will be pleased to review your circumstances.