x-vat x-vat budget update 2015

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1 x-vat x-vat budget update 2015 march 2015

2 x-vat budget update 2015 Welcome to the x-vat budget update, a summary of the key points in the 2015 Budget. In this issue: increase in the registration threshold; deductions relating to foreign branches; power to provide refunds to certain persons; refunds for search and rescue charities; refunds for palliative care charities; refunds for medical courier charities. Martin Kaney Director

3 vat registration threshold Revalorisation of the VAT registration and deregistration thresholds From 1 st April 2015 the VAT registration threshold will be increased from 81,000 to 82,000 and the de-registration threshold from 79,000 to 80,000. foreign branches Deductions relating to Foreign Branches This measure will have effect on or after 1 st August 2015 and means that partly exempt businesses with foreign branches will have to exclude VAT incurred in relation to the foreign branches from the partial exemption calculation. It will result in an amendment to the VAT Regulations 1995 (SI 1995/2518) (the VAT Regulations), and will mean that supplies made by foreign branches can no longer be taken into account when calculating how much VAT incurred on overhead costs can be deducted by partly exempt businesses in the UK. HMRC intends that it will simplify the tax system and make it fairer by mitigating the risk that some partly exempt businesses could artificially increase the amount of input tax that they are entitled to deduct. It also implements a 2013 decision of the Court of Justice of the European Union (CJEU) (Credit Lyonnais) /TIIN_1005_VAT_deductions_foreign_branches.pdf non-departmental public bodies Refunds of VAT to NDPBs This measure will be effective from the date of the Royal Assent and effectively extends the relief under S.41(3) VAT Act 1994 currently available to the NHS and Government Departments in relation to non-business activities to NDPBs (and possibly other organisations) operating in a shared service context. Currently, NDPBs have no special VAT relief and the VAT incurred has been an irrecoverable cost (partial exemption still applies). The overall policy is for public bodies to enter into shared services arrangements. Where this happens the body or bodies providing services to the others engages in a business activity for VAT purposes, just as any supplier of this type of service does, and

4 VAT is charged to the purchasers of the services. To date these services have mainly been in the fields of HR, recruitment and training, and IT services. Government departments and NHS bodies recover the VAT incurred on certain outsourced services purchased for their statutory, non-business purposes. This is under section 41(3) of VATA. The eligible services are listed in a Treasury direction, and they include the type of service common to shared services arrangements. Local government bodies recover VAT under section 33 VATA. There has been no provision to refund VAT to non-departmental public bodies sharing services with their parent department or between themselves. Many such bodies are not engaged in business activities which would allow the recovery of VAT under the normal VAT provisions. With the expected wider take-up of shared services, the Government wishes to ensure that these bodies are not at a VAT disadvantage when they enter into such arrangements. Because of competition issues, this will also include situations where they procure an eligible service directly from a private sector provider. A new section 33E VATA will refund VAT incurred by named bodies on goods and services purchased, and goods imported or acquired, for their non-business purposes. Before a body can be named, it (or its parent department) must have entered into an agreement with HM Treasury to adjust the overall level of its public funding to take into account the VAT that will be recoverable. This is because such funding includes tax liabilities. Because it will not be possible to name bodies in primary legislation as and when such agreements are made with HM Treasury, the measure contains a power to make Treasury Orders to name the bodies. While it is expected that most bodies will be nondepartmental public bodies, the measure is not limited to them as there are other types of arms-length public body that may qualify. It is considered sensible for these bodies to have the same level of VAT recovery as is available to government departments under section 41(3) VATA. Consequently, the Treasury direction made under that provision, which lists the eligible services upon which VAT can be recovered, will also become the direction made for the same purpose under this measure. In common with government departments, eligible bodies will have a shorter period in which to claim a refund /VAT_-_power_to_provide_for_refunds_to_certain_persons.pdf search and rescue charities Refunds of VAT to search and rescue charities From 1 st April 2015 search and rescue charities will benefit from VAT relief under S.33C and S.33D of the VAT Act 1994 which means they will be eligible to recover VAT incurred on goods and services in relation to non-business activities (partial exemption still applies).

5 Legislation will be introduced in Finance Bill 2015 to add two new sections 33C and 33D to the Value Added Tax Act 1994 refunding VAT to search and rescue charities. These will be defined as charities whose main purpose is carrying out co-ordinated search and rescue, whose main purpose is to support, develop and promote the activities of charities established to search for and rescue people; or whose main purpose is to provide an air ambulance service. The term charity will take its meaning from Schedule 6 of the Finance Act /Refunds_of_VAT_to_search_and_rescue_charities.pdf palliative care charities Refunds of VAT to palliative care charities From 1 st April 2015 palliative care charities will benefit from VAT relief under S.33C and S.33D of the VAT Act 1994 which means they will be eligible to recover VAT incurred on goods and services in relation to non-business activities (partial exemption still applies). Legislation will be introduced in Finance Bill 2015 to add new sections 33C and 33D to the Value Added Tax Act 1994 which will allow palliative care charities to claim a refund of VAT incurred for the purpose of their non-business activities. The legislation will define palliative care charities. The term 'charity' will take its meaning from Schedule 6 of the Finance Act /TIIN_2187_VAT_refunds_palliative_care_charities.pdf medical courier charities Refunds of VAT to medical courier charities From 1 st April 2015 medical courier charities will benefit from VAT relief under S.33C and S.33D of the VAT Act 1994 which means they will be eligible to recover VAT incurred on goods and services in relation to non-business activities (partial exemption still applies). Legislation will be introduced in Finance Bill 2015 to add new sections 33C and 33D to the Value Added Tax Act 1994 which will allow medical courier charities to claim a refund of VAT incurred for the purpose of their non-business activities. The legislation will define medical courier charities. The term 'charity' will take its meaning from Schedule 6 of the Finance Act /TIIN_4157_VAT_refunds_medical_courier_charities.pdf

6 x-vat Martin Kaney is the founder and Director of x-vat online services. He has over 30 years experience in the tax including 8 years with HM Customs & Excise (4 years in Investigation Division), and various senior roles with Liaison, RSM Tenon and latterly, Deloitte. He is a graduate of Edinburgh University, a member of the VAT Practitioners Group, a council member of the Gerson Lehrman Group, a provisional member of the Expert Witness Institute and an associate member of the Healthcare Financial Management Association, as well as holding an external law degree from Strathclyde University. He is also the author of VAT & the NHS (Spiramus 2012) with a second edition due in mid 2015 together with the companion volume: VAT & Government Departments.