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The world of taxation never stands still - and our aim in these pages is to keep you up to date with the very latest changes to UK tax and customs legislation, with particular reference to Value Added Tax.

Making Tax Digital effective from 1 April 2019

Making tax digital (MTD) becomes mandatory from April 2019 for VAT purposes only, and will apply to businesses with a turnover above the VAT threshold. MTD will be available on a voluntary basis for businesses below the VAT threshold and for taxes other than VAT. Those businesses to whom MTD will apply to will need to sign up for the new scheme.

"Unfulfilled" supplies" deemed taxable as of 1 March 2019

On 1 March 2019, the VAT accounting treatment for part and full payments for supplies that are retained/non-refundable where a customer does not take the supply changes from VAT free compensation to taxable consideration. Where a service is not used or goods are not collected by the customer, these are known as "unfulfilled supplies".

Import Tax Guidance if no Brexit Deal

HMRC has published guidance to help stakeholders prepare for a no deal Brexit. The guidance covers how VAT-registered businesses can account for import VAT on all goods brought into the UK if the UK leaves the EU with no deal.
The guidance states that businesses registered for VAT in the UK will be able to account for import VAT on their VAT return rather than pay when, or soon after, the goods arrive at the UK border. This will apply to goods from both EU and non-EU countries.
It also states businesses or individuals who are not VAT registered in the UK will not be able to account for import VAT in this way. Instead, they will need to pay import VAT up front at the time of import.
All businesses importing goods into the UK will also need a UK economic operator registration and identification (EORI) number from 29 March 2019.

Case: Credit note ineffective for VAT purposes

In Inventive Tax Strategies Ltd [2017] TC 06094, the First-tier Tribunal (FTT) dismissed the appeals against HMRC’s refusal to refund VAT, because a requirement to refund a customer is not sufficient to reduce the taxable amount and create a right to a repayment of VAT until the refund is paid to the customer, or any credit given is used by the customer.

Changes to the VAT treatment applicable on the management of certain pension schemes

Following its review of the CJEU judgment in ATP Pension Service, HMRC now accepts that pension funds meeting certain specific criteria are Special Investment Funds for the purposes of the fund management exemption. Management and administration services integral to the operation of such funds should therefore always have been exempt from VAT. This treatment will apply to funds containing the pooled assets of defined contribution occupational schemes as well as personal pension schemes. HMRC is still considering whether the judgment could have wider application, although taxpayers may rely directly on EU law to exempt services in accordance with this Brief pending amendments to UK legislation. Separately, R&C Brief 43/2014 sets out HMRC’s revised policy on the right to deduct input tax on these services.

Changes to the Recovery of VAT on Entertainment

HMRC has changed its position on input tax on entertaining expenses.

HMRC has changed its position relating to input tax on entertaining expenses following a case in the European Court of Justice.

Input tax on business entertaining has never been claimable since VAT was first introduced in the UK, and it has been some years since recovery of input tax on entertaining an overseas customer was also blocked.

However, following the Danfoss and Astra Zeneca case, HMRC has concluded that the UK’s block on the recovery of input tax on the business entertainment of overseas clients is inconsistent with EU law.

The block on claiming input tax on entertaining UK customers (and overseas contacts who are not customers) remains in place. But going forward, businesses can now claim the input tax incurred when entertaining overseas customers. Subject to the normal four year limit, HMRC will also now allow claims for previously restricted input tax on entertainment of overseas customers.

HMRC Brief 44/10 details this and also sets out three scenarios to help businesses to ascertain whether the input tax on entertainment costs is claimable:

1) Meetings in the office: HMRC considers that when an overseas customer is entertained in a staff canteen or similar to facilitate a business meeting, the input tax on such entertaining will be recoverable. HMRC takes the view that any private benefit derived by the overseas customer is accessory to the needs of the business

2) External meetings or events: where meetings cannot be held in house due to lack of space or facilities, the same general principle will apply as for meetings in the office, and the input tax will be recoverable. This will apply only to the basic provision of refreshments and food. If the expenditure goes beyond that, there should be a private use charge, or, alternatively, no claiming of the input tax

3) Corporate hospitality events: businesses sometimes offer customers or potential customers general hospitality, such as golf days and the like. HMRC will not allow the input tax deduction as such events are unlikely to have a strict business purpose.

Alternative Dispute Resolution service

HMRC launched the Alternative Dispute Resolution (ADR) service as a way for small businesses and individuals to resolve disputes with HMRC.

The ADR service, which covers both VAT and direct tax disputes, uses independent HMRC facilitators from its Local Compliance SME and Local Compliance Individuals and Public Bodies business units to resolve disputes between HMRC and taxpayers during a compliance check. It aims to find a fair and quick outcome for both parties, helping to reduce their costs and avoid a tribunal.

HMRC say that entering into the ADR process will not affect the taxpayer’s existing review and appeal rights.

Although the new service will not guarantee resolution of the dispute, HMRC say that by the end of the process, taxpayers will have clarity on the outstanding issues and what happens next.

ADR is available to small business and individual taxpayers where a tax issue is in dispute, whether or not an appealable tax decision or assessment has been made by HMRC.

For a case to be considered for the ADR process, an application form available on HMRC’s website must be completed.