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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.

VAT and Financial Services post Brexit

HM Treasury has confirmed that from 1 January 2021, taxpayers will be able to reclaim input VAT related to the exports of certain financial services products to the EU (on par with current rules for supplies to non-EU countries). The government will legislate this by using a Commencement Order to bring into force the VAT (Input Tax) (Specified Supplies) (EU Exit) (No. 2) Regulations 2019.

New VAT rules post Brexit for trading in goods with N.Ireland

The Northern Ireland Protocol means that Northern Ireland maintains alignment with the EU VAT rules for goods, including on goods moving to, from and within Northern Ireland. However, Northern Ireland is, and will remain, part of the UK’s VAT system.
UK VAT rules related to transactions in services will apply across the whole of the UK. HMRC will continue to be responsible for the operation of VAT and collection of revenues in Northern Ireland.
Under the obligations in the Protocol, import VAT will be due on goods that enter Northern Ireland from Great Britain.

Postponed import VAT

Postponed accounting will be introduced on 1 January 2021. This will mean that a VAT registered business will not pay VAT on imported goods when they arrive in the UK. The VAT payment will be postponed and instead declared in Box 1 and Box 4 of the next VAT return submitted by the business. The net payment for the goods and any duty will be included in the Box 7 inputs box.

VAT: temporary reduced rates for tourism and hospitality-related activities

As announced in the Government’s Economic Statement on 8 July 2020, the rate of VAT applied on most tourism and hospitality-related activities will be cut from 20% to 5%.
The Government says this measure will save households around £160 per year on average.
Further details on the measures announced in the Economic Statement can be found at https://www.gov.uk/government/news/rishis-plan-for-jobs-will-help-britain-bounce-back.

Delay in implementation: VAT reverse charge for construction services

The introduction of the domestic reverse charge for construction services is to be delayed again because of the impact of coronavirus on the construction sector. Revenue and Customs Brief 7 (2020) announces that the measure will now come into force on 1 March 2021, rather than 1 October 2020. The Brief also notes that the VAT (Section 55A) (Specified Services and Excepted Supplies) Order, SI 2019/892 will be amended to require end users and intermediary suppliers, in order to be excluded from the reverse charge, to notify their sub-contractors of their end user or intermediary supplier status in writing.

Making Tax Digital programme to be extended

HMRC has announced that the Making Tax Digital programme will be extended to firms with turnover below the VAT threshold of £85,000 from April 2022. Taxpayers who file self-assessment returns for business or property income of more than £10,000 a year will be brought into the programme the following year.

Private Equity Firm succesful in full VAT recovery

In Melford Capital General Partner Ltd [2020] TC07514 the FTT permitted a VAT group to recover input VAT incurred by the general partner of a limited partnership which undertook investment activities. The general partner was registered for VAT as part of a VAT group with an LLP which provided management services to the special purpose vehicles incorporated to hold the investments

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.

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