(scotland) Limited
  • 0141 636 9353
  • 0141 636 9490
  • 0141 636 9492
UK Government Promise
“VAT will be a simple tax”
(Anthony Barber
Chancellor of the Exchequer)
The Reality
(since 1973)
“VAT is like a fiscal theme park, in which factual
and legal realities are suspended or inverted”
(Lord Justice Sedley 2001)
The Solution
Promises and reality are often different in Government.
Our mission at VAT Services (Scotland) Ltd is to try to make the reality simple and
understandable for your staff, so that your business or organisation complies with VAT regulations
with as little difficulty as possible. We do this by offering:


As HMRC’s Option to Tax Unit is now taking 120 working days to process notifications, it is recommended business submit all notifications by email.

HMRC’s Option to Tax (‘OTT’) unit are currently taking 120 working days to process OTT notifications
These delays are not helpful when a party to a transaction requires confirmation that an OTT has been notified to HMRC. We recommend that all OTT notifications are submitted by email as HMRC will acknowledge receipt of the email by sending an automatic standard reply. Providing a party to a transaction with a copy of the email sent to HMRC notifying the OTT and HMRC’s automatic standard reply may help to move a transaction forward. Where additional paperwork is available, i.e. draft sale/purchase agreement for a property or a draft TOGC agreement, this can be sent with the OTT notification and may assist HMRC in processing the notification in a prompt and efficient manner.

New HM Revenue & Customs Briefs
HMRC did not issue any new Revenue & Customs Briefs during September 2021.

Other updates from HMRC
New Making Tax Digital (‘MTD’) regulations for VAT to businesses that voluntarily registered for VAT (from 1 April 2022)
There are approximately 1.1m VAT registered businesses in the United Kingdom with taxable turnover below the VAT registration threshold. These businesses currently do not require to operate MTD for their VAT submissions and record keeping obligations.

This changes from 1 April 2022. All such businesses whose VAT accounting period commences on or after 1 April 2022 require to keep digital records and use third party software to submit VAT returns to HMRC. Many businesses have chosen to use Xero or Sage accounting packages to do so. We recommend if this affects you that you speak to your accountants to assist with this rather than ourselves as this is more of an IT/systems issue than a VAT consultancy issue. More details in connection with this change have been provided by HMRC and can be accessed HERE

Updated guidance from HMRC re VAT return implications for Imports and Monthly Statements
HMRC has recognised that some importers are having issues when trying to access their Monthly Statements in order to prepare and submit their VAT returns. As such, HMRC has issued a document with guidance and this can be accessed HERE . HMRC have advised where a business takes reasonable care to follow the guidance, HMRC will not issue a penalty for any errors.

Update from HMRC re Monthly Postponed Import VAT Statements (‘PIVS’)
As PIVS are relatively new (introduced from 1 January 2021), HMRC has released some guidance on how to ‘understand’ the content of the statements and what the content means for the business receiving them. This guidance can be accessed HERE

New rules re penalties for VAT periods commencing on or after 1 April 2022
On 27 September 2021, HMRC released a policy document advising a reform to sanctions for late submission and late payment of VAT and Income Tax Self Assessment (‘ITSA’), i.e. taxes with regular submission obligations. Taxpayers will no longer receive an automatic financial penalty if they fail to make a submission deadline. Instead, they will incur a certain number of points for missed obligations before a financial penalty is levied. HMRC advise this new points-based regime is designed to be proportionate, penalising only the small minority who persistently miss their submission obligations rather than those who make occasional mistakes.

On first reading, this new penalty regime appears to be quite convoluted and may take some time to get used to. However, as this guidance document has been released more than 6 months before implementation it gives everyone, taxpayers and their advisers, time to consider the nuances of the new penalty regime. We attach a link to the policy document HERE

Update of HMRC Notice 723A - Refunds of UK VAT for non-UK businesses or EU VAT for UK businesses
HMRC updated Notice 723A - Refunds of UK VAT for non-UK businesses or EU VAT for UK businesses on 9 September 2021. The update adds a section on “Electronic submission of claims by agents”. This Notice can be accessed HERE

Update of HMRC Notice 700/56 - Insolvency
HMRC updated Notice 700/56 - Insolvency. A new section, section 23, has been added and this concerns unincorporated associations and clubs, and payment of Corporation Tax. This sets out the steps insolvency practitioners need to take when appointed to an unincorporated club or association. This Notice can be accessed HERE

Update of HMRC Notice 725 – How to charge and account for VAT on the movement of goods between Northern Ireland and the EU
HMRC updated Notice 725 on movements of goods between Northern Ireland and the EU. Section 6 of Notice 725 has been updated following the changes to the VAT treatment of distance selling, i.e. from businesses to consumers (B2C) between Northern Ireland and the EU from 1 July 2021. Should you or your client be involved in distance selling between Northern Ireland and the EU we recommend you read Section 6 via the link HERE

HMRC updated its guidance on distance sales from Northern Ireland to the EU and from the EU to Northern Ireland, including the following:

  • How to report and pay VAT on distance sales from Northern Ireland to the EU – it now contains information on how to complete and submit a One Stop Shop VAT return from 1 October 2021;
  • How to register for the One Stop Shop (OSS) Union scheme to report and pay VAT on distance sales of goods from Northern Ireland to the EU - information on record keeping has been removed; and
  • The EU e-commerce package – with information on the One Stop Shop Union scheme and the VAT Import One Stop Shop.

The above changes will affect businesses:

  • selling or supplying goods from Northern Ireland to non-VAT registered customers in the EU;
  • making supplies of goods from the EU to non-VAT registered customers in Northern Ireland;
  • sending low value goods to Northern Ireland (or the EU) from outside the EU and Northern Ireland (including from Great Britain (England, Wales and Scotland); and
  • non-EU businesses with goods located in Northern Ireland at the point of sale.

It also affects online marketplaces that facilitate the sale of goods:

  • located in Northern Ireland (or the EU) by non-EU businesses to non-VAT registered customers in EU and Northern Ireland consumers; and
  • from Great Britain to consumers in Northern Ireland and the EU

If your business is involved in distance sales to or from Northern Ireland, or from or to the EU, then it is recommended you read the updated guidance in detail.

HMRC guidance on ‘how’ and ‘when’ to submit your One Stop Shop Union Scheme VAT return
HMRC has issued guidance on ‘how’ and crucially ‘when’ a GB business requires to submit a One Stop Shop Union Scheme VAT return. This is important for GB businesses which make distance sales to customers (B2C supplies) in the EU as the Union Scheme allows the GB business to submit one single return. However, if you miss the deadline for submission and payment you can be excluded for 2 years and will require to submit and pay VAT returns in all EU countries in which you make distance sales. We attach a link to HMRC’s guidance HERE

Update of Notice 701/20 – Caravans and houseboats
This notice has been updated to included details of the reduced rate for tourism and hospitality. Therefore, supplies that include either stays in caravans or pitch fees for caravans are subject to the reduced rate of VAT of 5% up to 30 September 2021 and 12.5% from 1 October 2021 to 31 March 2022.

Update of Notice 707 – Personal Export Scheme
This notice explains the procedures for zero rating the supply of a motor vehicle that is removed from the UK by the purchaser. It explains which vehicle purchases are eligible and who is entitled to use the scheme. This notice applies to supplies of motor vehicles made in Great Britain (England, Wales and Scotland) exported out of the UK and to supplies made in Northern Ireland exported out of the UK to non-EU destinations. Form 410 requires to be completed for the motor vehicle to be exported. HMRC have updated this notice to allow Form 410 to be downloaded direct from the notice. This notice and Form 410 can be accessed via the link HERE

First-tier Tribunal case
Richmond Hill Developments (Jersey Ltd) v Revenue & Customs [2021] UKFTT 290 (TC)
This FTT case concerns Richmond Hills Developments (Jersey) LTD, (‘RHDL’). RHDL purchased a listed building called The Royal Star and Garter Home (‘RSGH’) in 2013 to convert the building into flats that would then be sold. The issue in the appeal by RHDL was whether the onward supply of the flats was zero rated or an exempt supply. This was crucial as an onward zero-rated supply would allow RHDL to recover all the input tax incurred on the conversion works. However, an exempt supply would allow no VAT recovery. The works undertaken by RDHL were substantial, taking over two and half years and costing £95m plus VAT.

RSGH was originally built in 1920 and was used as nursing facilities for servicemen returning from war. It was subsequently sold to RHDL in 2013. Prior to conversion, the building consisted of five storeys on some parts and up to 9 storeys on other parts, with space for some 60 rooms on each floor. Following conversion, the building contained 86 flats.

VATA 1994, Sch 8, Group 6, Item 1 allows the first grant by a person ‘substantially reconstructing’ a protected building, of a major interest in, or in any part of, the building or its site to be zero rated. There was no dubiety that the reconstruction/conversion was substantial. The issue for debate was Item 1, Note 4 which states that a protected building is not to be regarded as substantially reconstructed for the purposes of zero-rating unless the reconstructed building incorporated no more of the original building than the external walls, together other external features of architectural or historic interest.

During the conversion, RHDL not only left the walls and roofs intact, but also retained additional features including a chapel, a marble staircase, majority of reinforced concrete floor slabs and the chimney stacks. HMRC’s opinion was that the retention of those parts of the existing building did not allow RHDL the benefit of zero rating under Note 4, and the onward sales of the 86 flats were therefore exempt supplies. Crucially, if the supplies were exempt and not zero-rated, RHDL did not qualify to recover the VAT on the costs of reconstruction/conversion.

In response to HMRC, RHDL argued that the provisions of Note 4 permitted the retention of those internal features which form part of the external walls or are structurally necessary to provide them. RHDL also argued that ‘external walls’ cannot just mean the external skin of the building because there is an interior element to any wall. In addition, the FTT also considered if the retained items were de minimis, and the concept of proportionality.

The FTT considered the scale of the whole building, the retention of the original marble-lined grand entrance and staircase and the passage to the formal garden were three significant features of the building both before and after the construction and therefore found that the de minimis exemption would not apply. As such, the FTT found the reconstruction works did not qualify as a substantial reconstruction, therefore the onward sale of the flats was not a zero-rated supply but an exempt supply. Therefore, as the onward supply was exempt RHDL had no right to VAT recovery on the reconstruction costs.

This decision of the FTT clearly highlights the need for careful consideration of the VAT legislation in advance of planning consent being sought and work commencing as RHDL’s profit margins will have been greatly affected by VAT not being recoverable on the considerable reconstruction costs. In summary, VAT advice should be sought at as early a stage as possible, and in this case potentially before the building was purchased in the first place.

Contact us

Should you wish further information on the above, please do not hesitate to contact us using the details outlined below.

Gary Moore
Direct line 0141 636 9353
Mobile 07812 061582
Email This email address is being protected from spambots. You need JavaScript enabled to view it.