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April was a busy month for HMRC with various measures, consultation documents, draft guidance and new VAT notices issued. Additionally, as the UK debates it's future in the European Union, the European Commission has released its action plan for moving towards a more co-ordinated single EU VAT area.

European Commission news
Action Plan on VAT
On 7 April 2016, the European Commission released its Action Plan on VAT and the EU's intention to move towards a more coordinated single EU VAT area. The Action Plan was accompanied by a press release summarising the main aims, together with a more detailed Q&A document setting out the basis for the different elements of the plan.

The plan sets out the immediate and urgent actions the EU intends to take to:

  • Remove VAT obstacles to e-commerce in the Single Market by adapting the VAT system for the needs of SMEs;
  • Introduce urgent measures to tackle the VAT gap, estimated at around 170 billion euro, by improving cooperation within the EU and with non-EU countries and moving towards more efficient tax administrations, improving voluntary compliance and tax collection;
  • Move towards a robust single European VAT area to provide a definitive regime for cross-border trade; and
  • Propose options for a modernised VAT rates policy to give more freedom for EU Member States on rates policies.

Click here to access the action plan, press release and Q&A document.

HMRC news and materials
Guidance on publication of large business tax strategy and special measures
HMRC released its draft, high-level, guidance on the requirement for large businesses to prepare and publish their tax strategy. The guidance covers the qualifying criteria for publishing a tax strategy, how the tax strategy must be published, what a tax strategy must contain, when penalties may be charged (including reasonable excuse), together with the appeals process.

The qualifying criteria are complex and an exercise should be undertaken to understand the scope and impact of the legislation. Businesses affected by the legislation should consider whether their existing tax strategy meets the requirements, or if further work is required in order to comply with the new requirements. The guidance can be accessed here.

HMRC has also released guidance on a special measures regime which is aimed at tackling the small number of large businesses that engage in aggressive tax planning, or refuse to engage with HMRC in an open and collaborative manner. The guidance, which can be accessed here, covers the purpose of the special measures, the triggers relating to these special measures, the notices and process, the sanctions, together with the exit process.

Consultation on disclosure of tax avoidance schemes for indirect taxes
On 20 April 2016, HMRC has published a consultation document that seeks views on its proposals to reform the VAT avoidance disclosure regime (VADR). The document can be accessed here.  Responses to the consultation are required by 13 July 2016.

Draft updated guidance on the VAT treatment of pension scheme costs
HMRC are issuing draft updated guidance on the VAT treatment of pension scheme costs and takes into account the fairly recent VAT case law.

The transitional period for accounting for VAT on pension scheme costs comes to an end on 31 December 2016 and the latest HMRC draft guidance shall be of particular interest to parties operating defined benefit pension schemes. The draft guidance suggests that a combination of the use of a 'tripartite' arrangement, VAT grouping and a service company may enable parties to achieve both a VAT and corporation tax deduction. The draft guidance also provides clarity on what activities HMRC considers are covered by the term 'management'.

Consultation on VAT measures relating to fulfilment houses in connection with the sale of imported goods by overseas businesses using online marketplaces
Further to our Budget news article of 16 March 2016, HMRC has subsequently published a package of proposed VAT measures affecting overseas businesses using online marketplaces to sell imported goods to UK customers without accounting for VAT. These include:

  • HMRC consultation document on the Fulfilment House Due Diligence Scheme. The closing date for comments is 30 June 2016. The document can be accessed here 
  • Policy Paper for VAT Representatives of overseas businesses and joint and several liability for online marketplaces. The paper can be accessed here
  • Guidance on overseas businesses and joint and several liability for online marketplaces. The guidance can be accessed here
  • Proposed legislation for the Finance Bill 2016 (sections 112 and 113), which can be accessed here

The new VAT measures will affect businesses that provide services of storage, breaking bulk, unpacking, re-packing and making (or arranging) subsequent delivery to its clients' customers of goods imported from outside the EU. As a summary, the measures will empower HMRC to:

  • Require overseas sellers to appoint a UK agent to account for UK VAT on their behalf on goods sold to UK customers;
  • Require security from sellers, or their UK agents;
  • Make provision where fulfilment houses can be held jointly and severally liable to account for the UK VAT due by the overseas sellers; and
  • Require fulfilment houses to undertake due diligence in respect of customers.

HMRC is encouraging all businesses that may fall within the definition of a fulfilment house to respond to the consultation.

Felxibility of VAT reliefs
One key VAT measure from the Finance Bill 2016 is the flexibility enabling the future application of the VAT zero-rate (i.e.0%) on supplies of women's sanitary products, which are currently subject to VAT at the reduced rate (i.e. 5%). This measure has resulted from discussions with the European Council, in which it has been reported to have increased flexibility for EU Member States over VAT rates, although no public announcement has been made at this time. Other supplies, for example energy-saving materials and electronic books may also hope to benefit from the increased flexibility.

VAT Notice 700/11: cancelling your registration
On 22 April 2016, HMRC replaced this VAT notice, which outlines when and how to cancel your VAT registration and includes the ability to cancel a VAT registration online. The new notice can be accessed here.

New notice on VAT refunds for certain charities
On 21 April 2016, HMRC issued its updated guidance for qualifying charities to make claims for refunds of VAT in relation to their non-business activities. The revised notice can be accessed here.

Import Customs procedures
HMRC's VAT notice 702/9: VAT – import customs procedures was withdrawn on 27 April 2016 and is now obsolete. HMRC's notice 3001: customs special procedures for the Union Customs Code now contains the relevant information. This guidance can be accessed here.

Case law
VAT treatment of supplies of temporary staff
Adecco UK Ltd has appealed against the First-tier Tribunal decision which was found in favour of HMRC. As we reported last December (please click here for further details) this case concerns the VAT treatment of supplies of temporary staff. The FtT held that VAT was due on all payments received by Adecco from its clients in respect of the provision of temporary workers, including the wages paid to those temporary workers and related amounts paid in tax.

Zero-rating: Requirement to obtain VAT number for intra-community movements
On 6 April 2016, the ECJ released the Advocate General's opinion in a German referral involving Josef Plöckl. In this case, the Advocate General held that provided the substantive conditions for zero-rating intra-community movements of goods are met, then the absence of the VAT registration number in the destination EU Member State (a formal requirement laid down by EU Member States) should not preclude zero-rating. We await to see if the ECJ follows the Advocate General's opinion. If it does then businesses and organisations which have suffered and paid VAT assessments for not holding an EU VAT number in relation to intra-Community supplies of goods may wish to consider the potential to challenge such historic VAT assessments.

VAT appeal updated list
On 19 April 2016, HMRC issued an updated list of the VAT appeals that may have implications for other businesses. The listing shows that the Supreme Court will hear HMRC's appeal against the Court of Appeal's judgement in favour of Littlewoods Retail Ltd (and others) on 3-6 July 2017. The list can be accessed here.

The ECJ judgments for the UK referrals involving National Exhibition Centre Ltd (C-130/15) and Bookit Ltd (C-607/14) are due on 26 May 2016.

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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