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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 HMRC investigations.

VAT initiative campaign 

HMRC are investigating all businesses who they believe might be trading above the VAT registration threshold but are not VAT registered.  They are offering an amnesty if businesses voluntarily disclose their liability by 30 September 2011.  As far as we know, the amnesty will lead to reduced or no penalties and greater flexibility to pay any VAT due, but HMRC are not forthcoming on the details.  If you are unsure about your VAT position or know of someone who may need help, let us know and we will be pleased to assist where we can.  

VAT on merger & takeover costs 

The Upper Tribunal has recently overturned a decision of the First Tier Tribunal and ruled in the BAA case that VAT incurred on takeover costs was not recoverable after all.  However, the structure of the BAA takeover was complex so the underlying message from the decision is to consider the VAT position at an early stage. 

Wrongly registered for VAT 

Recent examples have highlighted the problems caused if a business registers for VAT unnecessarily or does not request the most favourable date to be registered from.  In these situations HMRC are not obliged to correct the position and Tribunals have failed to offer any assistance to taxpayers.  We strongly recommend that you seek specialist advice on your VAT position as it may not be possible to correct mistakes later. 

Insolvency Practitioners

In a recent surprising Tribunal decision, it has been held that the services of Insolvency Practitioners in Individual Voluntary Arrangements (IVAs) are exempt from VAT, not standard-rated.  This will probably also apply to CVAs.  HMRC are currently considering their position but if it stands, this decision means not only that IPs will become partially exempt but also that previous clients may be able to claim back from the IP the VAT they were ‘wrongly’ charged.

Sports clubs 

A recent Tribunal decision has held that UK legislation on differential charges to members and non-members was discriminatory and did not comply with EU law.  For the golf club in question, the tribunal held that green fees for non-members are exempt from VAT and not standard-rated as HMRC maintained.  Since the legislation is worded more generally, this could also apply to all sports clubs who account for VAT on sporting services to non-members and, although HMRC can be expected to resist claims, affected clubs may be able to claim back the VAT they have accounted for incorrectly. 

Restaurant & catering

As an update on the developing saga of hot take-away food following the German case of Mr Bog (see our June VATflash for more information), recent EU regulations have also confirmed that supplies of prepared food without any other service elements, ignoring delivery, are not supplies of catering.  This throws further doubt on the UK’s taxing of hot take-away food and whether it should still be zero-rated.  A lead case is lodging an appeal to the UK Tribunal and further developments are expected in due course.  In the meantime, any businesses that supply hot take-away food are advised to consider their VAT position as they may have overpaid VAT for many years and therefore could be entitled to claim it back from HMRC with interest.

Occupation of property      

When a business owns a commercial property over which it has opted to tax, the rent charged to tenants is subject to VAT rather than being exempt.  That part is pretty straightforward and the option to tax allows the landlord to reclaim VAT incurred on associated costs.  But what if the tenant vacates and the landlord does not receive any more rental income?  Well, the First Tier Tribunal has recently held that such periods of non-occupation do not count as taxable use for VAT purposes unless the landlord continues to actively market the property or occupies it themselves for taxable activities.  The effect is to block continued recovery of input VAT, even for an otherwise opted property, which could have significant VAT consequences.