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HMRC is to launch a formal written consultation which could pave the way for changes to the UK rules on VAT grouping. The news follows recent EC judgements and is featured in this latest VAT update.

News of process, which is set to take place this spring, was announced in HMRC 's Revenue and Customs Brief 3/2016 which can be accessed here

It follows recent ECJ judgements which involved Skandia America Corp (which we reported to you in our February 2015 and October 2015 VAT updates and the joint German referrals of Beteiligungsgesellschaft Larentia + Minerva GmbH & Co. KG ('Minerva') and Marenave Schiffahrts AG ('Marenave') which we reported to you in our July 2015 VAT update.

HMRC will launch its formal written consultation in spring 2016 and this will allow anyone who has an interest in VAT grouping an opportunity to give feedback on the policy options and proposals to assist HMRC in determining the updated VAT grouping provisions. The formal consultation period will last for 12 weeks, with a summary of the consultation responses to be published in summer/autumn 2016.

The proposed changes are likely to include extending VAT grouping to non-corporate bodies (i.e. partnerships) and identifying new rules to determine 'close economic, financial and organisational' links for corporate and non-corporate bodies by replacing the current 'control' test based on the company law definition of a subsidiary.

HMRC will also use this opportunity to consider other grouping related matters, particularly those where the provisions differ across EU Member States, as identified in the Skandia America Corp case.

January was a relatively busy month on the VAT front with various new publications issued by HMRC covering a wide range of issues, including new domestic reverse charge VAT rules and use and enjoyment provisions.

HMRC Publications

VAT Mini One Stop Shop ('VAT MOSS')
HMRC has issued its VAT Information Sheet 01/16 covering some of the most used currency exchange rates needed by MOSS businesses registered in the UK to allow declarations and payments to be made to HMRC in GBP £ sterling. The Information Sheet can be accessed here.

Additionally, HMRC also issued its Revenue & Customs Brief 4 (2016) which outlines the simplifications available to businesses trading below the UK VAT registration threshold (i.e. currently, £82,000) that make supplies of digital services (i.e. electronically supplied services, telecommunications or broadcasting services) to consumers or other non-business customers in other EU Member States.

This Brief announces new areas of assistance for small businesses regarding further evidential simplification allows such businesses to exercise their best judgment on what piece of information they choose to provide evidence of where their customer belongs. HMRC's Brief can be accessed here.

Domestic reverse charge for electronic communications services
On 11 January 2016, HMRC issued its Tax Information and Impact Note around VAT reverse charges and its affect for those businesses making wholesale supplies of electronic communications services. That is, a new anti-fraud measure is being introduced which will mean that customers shall be liable to account for the VAT, rather than the supplier.

The reverse charge is to apply to services of routing telephone calls and associated data (for example, text and images) over landlines, mobile networks or the internet. That is, it will not apply to non-wholesale supplies or to businesses not registered, nor liable to be registered for VAT.

Additionally, it will also not apply to supplies to a member of a corporate group for onward supply within that corporate group, where the corporate group members consume that supply.

When making a supply to which the domestic reverse charge applies, suppliers are required to annotate their sales invoice to make it clear that the domestic reverse charge applies and that it is the customer's requirement to account for the VAT. Further, the amount of VAT due, under the domestic reverse charge, is also to be clearly stated on the invoice.

HMRC is introducing the reverse charge at short notice and it will be with effective from 1 February 2016. HMRC recognise that some businesses may have difficulties in implementing the domestic reverse charge and will, therefore apply a 'light touch' regarding penalties when dealing with errors which occur in the first six months after the introduction of this new VAT measure. HMRC's Policy Paper on this new VAT rule change can be accessed here.

The EU's Economic and Financial Affairs Council ('ECOFIN') are to exchange views on the possibility of a wider use of the VAT reverse charge mechanism, in general, in order to combat VAT fraud across the EU. We shall update you on this when further information is known.

Amendments to the VAT refund scheme for museums and galleries
HMRC has issued, for external comment, a Tax Information Impact Note and draft VAT legislation adding museums and galleries to the list of bodies entitled to benefit from the VAT refund scheme (i.e. a refund of VAT attributable to the provision of free admission to which the museums and galleries operate). Comments on the draft legislation are invited by 11 February 2016. HMRC's publication on this can be accessed here.

UK intrastats
HMRC announced there will be no change to the existing UK intrastat thresholds for both arrivals and dispatches, together with the delivery term thresholds for the 2016 calendar year. Consequently, the thresholds shall remain at £1.5m for UK arrivals and £250k for UK dispatches. The delivery terms threshold will also remain at £24m.

VAT use and enjoyment provisions for insurance repair services
In the summer Budget 2015 (please click here for our article on that Budget) the Government announced that it would introduce a use and enjoyment provision to counter VAT avoidance involving the provision of repair services, carried out under a contract of insurance, to insurers located outside the EU.

HMRC has published draft secondary legislation for external comment, together with a draft explanatory memorandum, explaining the introduction of the VAT use and enjoyment provisions for insurance repair services. The consultation is open until 29 February 2016. HMRC's publications on this can be accessed here.

Recent VAT case news
The Supreme Court has granted HMRC's application for permission to appeal the Court of Appeal's judgment in favour of Littlewoods Ltd (and others) concerning the availability of compound interest on refunds of overpaid VAT.

This will be of interest to the many businesses and organisations that have submitted protective compound interest claims where the VAT was paid to HMRC in breach of EU VAT legislation.

The Supreme Court will hear the appeal of Airtours Holidays Transport Ltd ('Airtours') on 25 February 2016. This appeal against the Court of Appeal's judgement found in favour of HMRC and concerns whether Airtours was entitled to input tax (VAT) recovery on professional fees relating to independent business review costs.

European Commission news
The European Commission has proposed that the current minimum standard-rate of VAT, across all the EU Member States, of 15% should be extended for a further two years until 31 December 2017.

The Council of the European Union has authorised the UK Government to continue to set the VAT road fuel scale charges on a flat-rate basis to the proportion of VAT relating to fuel used for private use in company cars on the basis of the car's CO2 emission rating. This authorisation will apply until 31 December 2018.

Contact us

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

Gary Moore
Direct line 0141 636 9353
Mobile 07812 061 582
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