VAT and Vouchers Response by the Chartered Institute of Taxation

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Brooke Hunter
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1 VAT and Vouchers Response by the Chartered Institute of Taxation 1 Introduction 1.1 This is a response from the Chartered Institute of Taxation (CIOT) to HM Revenue and Customs consultation: VAT and Vouchers. 1.2 As an educational charity, our primary purpose is to promote education in taxation. One of the key aims of the CIOT is to work for a better, more efficient, tax system for all affected by it taxpayers, their advisers and the authorities. Our comments and recommendations on tax issues are made solely in order to achieve this aim; we are a non-party-political organisation. 1.3 Our stated objectives for the tax system include: A legislative process which translates policy intentions into statute accurately and effectively, without unintended consequences. Greater simplicity and clarity, so people can understand how much tax they should be paying and why. Greater certainty, so businesses and individuals can plan ahead with confidence. A fair balance between the powers of tax collectors and the rights of taxpayers (both represented and unrepresented). Responsive and competent tax administration, with a minimum of bureaucracy. 2 Executive summary 2.1 We note that several of the questions posed in the consultation specifically relate to costs and administrative burdens for affected businesses, which we are not able to answer. 2.2 The VAT and voucher rules have been an area where taxpayers have experienced complexity and the CIOT would like to see simplification and clarity for taxpayers in the new legislation and guidance published by HMRC. While we think that the new definitions of Single Purpose Voucher and Multi Purpose Voucher are more intuitive

2 to understand that this will still be a hugely complex area of tax where taxpayers will need clear guidance with as many examples as possible. The possible move to agency structures will introduce new complexity that particularly small enterprises may not have the understanding or access to advisers to adopt correctly or without risk. 2.3 The CIOT would like to see the legislation and associated guidance published as early as possible so that businesses have certainty for any changes that they must implement. 3 Definition of a voucher 3.1 Question 1: These new rules do not include transport and admission tickets, postage stamps, or the electronic products and payment mechanisms referred to above. Does this raise any concerns for your business or organisation? There are distinctions between SPV s and MPV s; between payment mechanisms and vouchers and between transport and admission tickets and vouchers. There is still a lot of complexity for suppliers and intermediaries and scope to get it wrong particularly in an online world or mobile phone app environment. We would like to see a much wider range of examples in guidance to make it much clearer to taxpayers and help them get it right. 3.2 Question 2: These new rules do not include on-line credits and telephone SIM cards. Does this raise any concerns for your business or organisation? See above. 3.3 Question 3: Will applying the new definition of a voucher increase the both one-off and ongoing costs. Businesses are likely to incur the costs of professional advice (eg tax and IT) and internal resource in reviewing their current SPV/MPV voucher portfolio and implementing any required changes. There may also be costs when training staff in the revised procedures and understanding the new terminology. There will be a VAT cashflow impact where the tax point for an SPV as defined under the new rules (formerly an MPV for use for different goods with the same VAT rate), is brought forward from the date of redemption to the date of purchase. Overall the new SPV and MPV rules seem to be a better approach to the current voucher legislation and seem easier to understand apply. As mentioned above the complexity may not be between an SPV and MPV but what is a vouchers versus not. 4 Single Purpose Vouchers SPVs 4.1 Question 4: Are there any concerns over the wider definition of an SPV that you wish to bring to our attention? P/tech/subsfinal/ITX/2018 2

3 Schedule 10A of the VAT Act 1994 uses the terms face-value vouchers, retailer vouchers and credit vouchers, with only paragraph 7A referring to single purpose vouchers, whereas the Directive uses the terms single purpose voucher and multipurpose voucher, so affected taxpayers will need clear and straightforward legislation and guidance to understand how the proposed EU terminology supersedes the existing descriptions. The current rules for vouchers in legislation and guidance have been seen as a more complicated area of VAT and we welcome greater simplicity and clarity for taxpayers when the legislation and guidance are updated eg that the word purpose in single purpose voucher refers not to the types of goods and/or services that could be bought with the voucher but that such goods and/or services have the same VAT rate. 4.2 Question 5: Are there any concerns over the taxation of SPVs that you wish to bring to our attention? If businesses take steps to ensure that vouchers that would have fallen within the new definition of an SPV effective from 1 January 2019, meet the definition of an MPV, and hence the tax point for declaring VAT remains at the date of redemption, will there be risk of a challenge of abuse from HMRC? Some idea of HMRC s approach would be helpful and while some may no doubt use this to decide where the safe side of any change to an MPV is, it may also act as a deterrent and prevent something similar to the toothbrush partial exemption planning of past years happening. 4.3 Question 6: Will applying the new rules for SPVs increase the administrative burdens or cost for your business? Please provide details of both one-off and ongoing costs. Affected businesses will experience a VAT cashflow cost where the tax point for an SPV as defined under the new rules (formerly an MPV for use for different goods with the same VAT rate), is brought forward from the date of redemption to the date of purchase. 5 Multi-Purpose Vouchers MPVs 5.1 Question 7: Are there any concerns over the valuation of goods and services, provided in respect of MPVs when they are redeemed, that you wish to bring to our attention? Article 30b 2(2) of Council Directive (EU) 2016/1065 and paragraph 2.23 of the consultation document state that, in the absence of other information, the taxable output value can in certain circumstances be the MPV s face value. This can apply where the consideration paid for the MPV is less than its face value. To mirror the position for SPVs, and in the interests of equity generally, the redeemer should not have to account for VAT for more than the total consideration received, being the sum of the amount it was given (excluding the voucher) at the point of sale plus the amount it actually received in respect of the voucher ie that the amount received for the voucher should be the amount on which output tax should be accounted for on redemption, regardless of the price reduction accepted for it when it is presented. P/tech/subsfinal/ITX/2018 3

4 5.2 Question 8: Will applying the new rules for MPVs [we assume the acronym SPVs in question 8 of the consultation document is an oversight] increase the both one-off and ongoing costs At 2.28 you say The issue and any transfer are not subject to VAT. And at 2.29 that as a consequence The issuer and distributors will not be entitled to deduct any input VAT incurred on related overheads. If there is no supply should any VAT incurred on overheads not fall to be treated as residual overhead VAT and thus recoverable to the extent the distributor has some other taxable activity? It would be helpful to provide some examples or example calculations to help taxpayers account for VAT correctly on overheads. 6 SPV intermediaries 6.1 Question 9: Are there any concerns over the position of intermediaries that you wish to bring to our attention? See question 10 below. 6.2 Question 10: Do you agree that the existing rules in section 47 of the VAT Act 1994 are sufficient to accommodate the requirements of the Directive? The subsection in section 47 of the VAT Act 1994 specifically refer to goods or services but not both. It may not be clear to SPV intermediaries who have new definition SPVs that can be used for a combined purchase of goods and services at a single VAT rate, which subsections apply. 7 MPV intermediaries 7.1 Question 11: Some distributors may wish to change from a buy/sell arrangement to an agency arrangement. This would allow them to charge commission and deduct VAT under normal rules. It would also allow the price paid by the final buyer to be identified. Do you think that the new rules for the treatment of intermediaries will lead to you changing your business model in the way described above? Agency has been an area of the law fraught with disagreements over interpretations and how much weight should be placed on one factor against another. Bad agency structures are easy to set up and taxpayers and even some advisers do not always understand the difference between disclosed and undisclosed agency. For example, in a disclosed agency arrangement, many distributors will pay the proceeds into their own business back account, may be responsible for theft or loss, may have unclearly worded distributor agreements. We feel it would be very helpful to set out some of the basic criteria that HMRC will expect to see. P/tech/subsfinal/ITX/2018 4

5 7.2 Question 12: Are there any concerns over the position of intermediaries transferring MPVs that you wish to bring to our attention? Intermediaries transferring MPVs may incur the costs of professional advice and internal resource to achieve the same VAT recovery position in the future as they have currently. Costs incurred may affect the SME sector disproportionately. 7.3 Question 13: Will applying the new rules for the treatment of intermediaries increase the administrative burdens or cost for your business? Please provide details of both one-off and ongoing costs. If a distributor chooses to use a disclosed agency structure then the issue of VAT invoices, their delivery to the upstream supplier and invoice retention may be significant administrative burdens for small taxpayers. If small distributors do not issue such invoices, then the effort of enforcing to avoid VAT input tax loss may be a burden on the upstream seller. 8 Part payments 8.1 Question 14: Will applying these rules for part payments increase the both one-off and ongoing costs. We have no comments. 9 Retail Schemes 9.1 Q15. Will applying the rules for vouchers to your retail scheme increase the both one-off and ongoing costs. We have no comments. 10 Vouchers issued before 1 January Question 16: Will retaining Schedule 10A for vouchers issued before 1 January 2019 create any difficulty for your business or organisation? We have no comments. 11 Vouchers issued after 1 January Question 17: Are there any concerns over timing that you wish to bring to our attention? We note that the draft legislation should be published by summer 2018 for the implementation date of 1 January We would like to see the legislation P/tech/subsfinal/ITX/2018 5

6 published as early as possible so that businesses have certainty for any changes that they must implement. 12 Acknowledgement of submission 12.1 We would be grateful if you could acknowledge safe receipt of this submission, and ensure that the Chartered Institute of Taxation is included in the List of Respondents when any outcome of the consultation is published. 13 The Chartered Institute of Taxation 13.1 The Chartered Institute of Taxation (CIOT) is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it taxpayers, their advisers and the authorities. The CIOT s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer. The CIOT draws on our members experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work. The CIOT s 18,000 members have the practising title of Chartered Tax Adviser and the designatory letters CTA, to represent the leading tax qualification. The Chartered Institute of Taxation 1 March 2018 P/tech/subsfinal/ITX/2018 6

1 Introduction. 1.4 Our stated objectives for the tax system include:

1 Introduction. 1.4 Our stated objectives for the tax system include: HMRC Technical Consultation: The Value Added Tax (Section 55A) (Specified Services and Excepted Supplies) Order 2019 Response by the Chartered Institute of Taxation 1 Introduction 1.1 The Chartered Institute