VAT updates: July 2014

The latest roundup of VAT news and cases, including HMRC’s online registration of EU VAT Mini One Stop Shop, reverse charges for wholesale gas and electricity, Subway loses zero-rated VAT argument and defining ‘hire purchase’ in the Mercedes-Benz case

MOSS online service for digital services suppliers

HMRC has set up the online registration system for the EU’s new VAT Mini One Stop Shop (VAT MOSS) although businesses will not be able to register on the online service until October 2014 ahead of new VAT taxation rules for supplies of broadcasting, telecommunications and e-services (BTE) to be introduced on 1 January 2015.

The optional VAT MOSS service has now been set up by HMRC and it will be available to use from 1 January 2015. It allows businesses to register once for VAT across all member states.

From 1 January 2015, the place of taxation for BTE services involving business-to-consumer (B2C) supplies will be determined by the location of the consumer.

MOSS is an IT system that will give businesses the option of registering in the UK from where they can account for VAT due in all member states by submitting a single return to HMRC. Other EU member states will be building their own systems.

Sally Beggs, deputy director indirect tax, HMRC, said: ‘The VAT MOSS is a tool that saves digital services suppliers from having to register for VAT in every member state in which they sell such services.

‘Businesses with their main operation or headquarters in the UK will register with HMRC to use the service. They can register for the online service [once] and then authorise an agent to act on their behalf.’

Case: Subway loses zero-rated VAT argument

Subway has lost its VAT case at appeal after the judge ruled that toasted sandwiches should not be treated as zero-rated for VAT purposes.

Lord Justice McCombe said that the broad approach was to ‘zero rate’ food – exempt it from VAT – except food supplied in the course of catering. That renders food from takeaways and restaurants subject to standard VAT at 20%.

‘The policy seems clear,’ said Mr Justice Arnold. ‘Human beings have to eat, but they don’t have to eat in restaurants or to have their food cooked by others. It all seems tantalisingly simple.’

Case: defining ‘HP’ at Mercedes-Benz

The FTT decision in the case of Mercedes-Benz Financial Services UK (UKUT0200) has been overturned by the Upper Tribunal. The FTT had decided that the Mercedes-Benz leasing arrangement amounted to hire purchase, and thus was a supply of goods from the outset, giving rise to VAT being applicable on the full consideration for the goods at the time the cars were made available to the user.

The taxpayer had argued that it should have been treated as an operating lease until such time as the customer decided whether or not to make the purchase of the car. This was because the Mercedes-Benz lease product allows the customer the choice of buying the car without there being a presumption in favour of his doing so. In the meantime, he pays more or less the appropriate operating lease value, and therefore has a genuinely balanced choice at the end of the lease period as to whether to buy the car at a realistic price or to pass it back to Mercedes instead.

The taxpayer argued that this did not mean that title to the goods would pass to the hirer ‘in the normal course of events’ and thus it did not qualify as a finance purchase agreement.

The Upper Tribunal thought that analysis was correct and the way to determine if the lease arrangement fell within the hire purchase category or the operating lease category, was to consider the genuine ‘economic purpose’ of the arrangement.

The tribunal did not believe it was essentially payment by instalments for what was in effect the supply of goods, but rather to provide a simple right to purchase on prearranged terms after the cessation of what was more akin to an operating lease.

On that basis, there appeared to be no reason to apply the view that it was a supply of goods from the outset. HMRC is likely to appeal, but the decision does appear sound.

Reverse charge for wholesale gas and electricity

Revenue and Customs Brief 23/14 announces a new reverse charge to apply to wholesale transactions in gas and electricity within the UK. This is to apply with effect from 1 July 2014. The measure is intended to counter incidences of missing trader fraud.

Although the introductory date is more or less imminent, HMRC intends to apply a ‘light touch’ where any failure to implement does not itself lead to a loss of tax.

Since this is intended to cover wholesale supplies, the reverse charge will not apply to supplies of gas and electricity made under supply licence or metered arrangements to domestic and business premises.

VAT-registered businesses, which do not trade in gas or electricity, will thus not be affected by the changes.

For those who are affected, there are detailed notes within the Brief concerning classes of supply which are caught by the arrangement, and classes which are excluded.

Where a wholesale supplier is concerned, there will no longer be any output tax to enter into box one of the return, but the sales value needs to be entered into box six.

Customers for such supplies must enter the reverse charge for VAT liability in box one, but this is not then reflected in any supply value for box six. The box one figure will then (presumably) be reclaimed as input tax in box four. The value of the purchase is then shown in box seven.

Companies issuing invoices under this regime need to annotate the invoice to show that it falls within the domestic reverse charge.

Physiotherapists and podiatrists’ zero rate

HMRC has issued Brief 21/14 which announces a change in the VAT treatment of certain supplies of pharmaceuticals with effect from 21 May 2014. Up until that date prescriptions drawn up by physiotherapists and podiatrists would not be regarded as being of sufficient authority to access the zero rate specifically for prescription drugs. However, with the inception of the Human Medicine (Amendment) Regulations 2013, this restriction is no longer justifiable.

VAT updates by Graham Elliott, transaction tax consultant, Withers LLP

Graham Elliott |CTA (Fellow), Director, City & Cambridge Consultancy Ltd

Graham Elliott CTA (Fellow) MBA, is director of City & Cambridge Consultancy, established in May 2015, through which he provides...

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