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July may have been a relatively quiet month on the VAT front but there were still a few significant developments to be aware of.

There are to be changes to the rules on insurance repair services and vouchers, together with proposed changes to the VAT liability of electronically supplied publications. This month's VAT article covers these changes, plus some recent VAT case decisions.

VAT use and enjoyment provisions for insurance repair services
As reported in our Summer Budget 2015 news article (please see here) the changes to the VAT place of supply rule for indemnity repairs to moveable goods carried out under insurance contracts are being introduced with effect from 1 October 2016. This new VAT Order is a new exception to the general VAT place of supply rule for business to business ('B2B') transactions and made to counter avoidance involving the provision of repair services to insurers located outside the EU and the new VAT legislation, together with the Explanatory Memorandum can be accessed here

The effect of the changes is that supplies of repair services will be viewed as taking place where they are effectively used and enjoyed, rather than where the recipient is located. For completeness, this exception applies where the supply is made to a business which is not the insured person (e.g. by a repairer to an insurance provider).

As we also previously reported, the UK Government is also considering a wider review of off-shore based avoidance in VAT exempt sectors, with a view to introducing additional VAT use and enjoyment measures for services such as advertising in 2017.

VAT rules on vouchers approved by European Council
The European Council has adopted a Directive aimed at increasing legal certainty for transactions involving vouchers by harmonising national VAT rules around vouchers. The Directive sets out to reduce the risk of mismatches in national tax rules across the EU Member States leading to double taxation, non-taxation, or other consequences.

For example, this can happen where a voucher is issued in one EU Member State and used in another and, particularly, where vouchers are traded. For completeness, vouchers include pre-paid telecom cards, gift cards and price discount coupons for the purchase of goods or services. The Directive defines single-purpose vouchers and multi-purpose vouchers and sets rules to determine the taxable value of transactions in both cases.

The UK has been instrumental in agreeing these EU voucher proposals. The voucher rules within the UK are complex and, it may be argued, outdated. It is expected that the UK will wish to implement the actions in the vouchers Directive, irrespective of Brexit.

HMRC met with businesses and advisors on 5 July 2016 to discuss the proposals in detail. Within the Directive, single-purpose vouchers are defined as vouchers where the place of supply of the goods or services to which the voucher relates, and VAT due on those goods or services, is known at the time of issue of the voucher. A multi-purpose voucher is any voucher which is not a single-purpose voucher. That is, a transfer of a single-purpose voucher will be treated as a supply of goods or services to which the voucher relates (i.e. it is treated as a supply), and VAT should be accounted for accordingly. Multi-purpose vouchers will only be subject to VAT when the voucher is redeemed (i.e. no VAT will be due when the voucher is transferred through the supply chain).

The value on which VAT should be accounted for is either the price paid by the consumer, or if that is not known, the face value of the voucher, less the amount of VAT relating to the goods or services supplied.
The EU Member States will have until 31 December 2018 to transpose the directive into their national laws and regulations and applying its provisions with effect from 1 January 2019.

Consultation launched on VAT rates for electronically supplied publications
The European Commission ('EC') has recently launched a consultation on reduced and super-reduced VAT rates for electronically supplied publications, which can be accessed here

This consultation aims to obtain the views on the VAT treatment of electronically supplied publications ('e-publications'). Under current rules, e-publications must be taxed at the standard VAT rate, whereas for printed publications, EU Member States are allowed to apply lower VAT rates (i.e. the UK zero-rates printed books). Responses must be submitted in the form of an online questionnaire by 19 September 2016. The questionnaire is within the link provided above.

VAT case decisions
In the recent case of Fairway Lakes Limited ('FLL') , the taxpayer arranged for the construction of holiday lodges and the lease of the plot on which the lodge was to be constructed. Here, FLL contended that the services provided to the buyer of the lodges were separate supplies with the construction services being zero-rated.

In finding against FLL, the Upper Tribunal upheld the First-tier Tribunal decision and determined that the agreement, as drafted between the taxpayer and the customer, did not support a separate supply argument and that in fact the construction and the leasehold of the land were intrinsically linked as one supply in the mind of the customer and, consequently, FLL made a taxable composite supply of construction services and procuring the transfer of leasehold of a holiday lodge, rather than a single zero-rated supply of construction services.

This case serves as a reminder that accurate wording in the contract may have led to more clarity over the supplies being made and to the extent that the contract supports the economic reality, which would provide a different VAT outcome.

In the case involving Caithness Rugby Football Club, the Upper Tribunal dismissed HMRC's appeal that the construction of a new clubhouse for a rugby club did not qualify for zero-rating on the grounds that the building was not, in HMRC's view, intended for use by a charity as a village hall or similarly in providing social or recreational facilities for a local community.

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
Email  gmooreThis email address is being protected from spambots. You need JavaScript enabled to view it.