VAT Newsletter Welcome Welcome to the latest edition of our VAT Newsletter, which provides up to date detail of significant VAT changes over the past few months. In addition, we have noticed an increased emphasis on compliance matters regarding invoicing recently so this issue includes a few key compliance points, which those who issue invoices etc may find of use. The summer months are usually a quiet time for VAT as the Courts are closed, and generally little is forthcoming from the European Commission. However, there is perhaps an element of the quiet before the storm as the United Kingdom s Finance Bill is due to be released on 30 September and a number of relevant Court cases, both domestic and from the European Court, are due to be heard in the next few months. Otherwise, both the UK and Isle of Man are preparing for a rise in the standard rate of VAT from 4 January 2011, so if either you or your customers are not able to recover all VAT charged consideration should be given as to how your VAT cost can be mitigated. Whilst the previously announced anti-avoidance legislation will curtail some planning there are still some basic arrangements that can be introduced to reduce a VAT cost. Please do not hesitate to contact any member of the VAT team (details are shown on the last page) if you require any assistance relating to a VAT matter. October 2010 In this issue: UK News VAT news from the Isle of Man Compliance review News from the EU VAT news from elsewhere Contacts I hope you enjoy our newsletter. Peter Duchars Director of VAT Services Accounting & Tax trusted to deliver...
UK News UK Finance Bill The UK Finance Bill is expected to be published on 30 September and will provide further detail on many of the aspects covered in the last edition of the newsletter. Of particular importance to our clients will be consideration of the changes to the zero rating of aircraft and the non-business treatment of business assets, previously covered under the so called Lennartz accounting. Compliance reviews HMRC have recently issued a suite of factsheets, within Business Brief 36/10, regarding the visits they may make to inspect the records of VAT registered businesses. In common with many HMRC policies nowadays, the factsheets refer to all taxes, but have a specific relevance to VAT and these sheets detail how HMRC will conduct the compliance checks, what powers it can use, how HMRC will seek to reach agreement about the tax liability and what penalties HMRC may charge and what businesses can do to reduce them. Interest compound or simple? The UK Court of Appeal has recently found in favour of five taxpayers that their case involving statutory interest being paid by HMRC on a simple or compound basis was in time. This means that the case should now be referred to the ECJ, but it is likely to be several more years before the case is concluded. In the meantime simple interest will continue to be paid, but protective claims may still be submitted if relevant. On line filing of VAT returns With effect from 1 April 2010 all newly registered businesses and those with a turnover in excess of 100,000 have been obliged to file their VAT returns on line. As part of the original proposal remaining businesses would be obliged to file on line from 1 April 2012. This proposal has now been ratified. Payment handling fees The High Court in the UK have referred a series of questions to the ECJ relating to the charging of a Separate Payment Handling Charge that is levied by T-Mobile to customers who do not pay their bills by direct debit or BACS. The argument put forward by T-Mobile is that this charge is an exempt service of receiving and dealing with money, whilst HMRC maintain it is part of their telecommunication service. The outcome will be viewed with interest by many businesses that currently include similar charges in their main supply.
VAT news from the Isle of Man Impact of the fall back provision changes As announced in the previous VAT newsletter the ECJ case of Facet Trading is likely to have an impact on businesses that receive intra-community supplies of goods, particularly where the goods do not go to the country where the customer is registered for VAT. In an Isle of Man context this will be particularly relevant in the yacht sector, where the supply of the yacht is zero rated by the yard, on provision of an Isle of Man VAT registration number. Currently the acquisition VAT is accounted for (and recovered) in the Isle of Man. The impact of the Facet case is that acquisition tax can only be recovered in the country where the transport of the goods ends, usually the first country after leaving the yard. UK and Isle of Man legislation currently provides for recovery of the acquisition tax in such circumstances, but this is likely to change. Isle of Man Customs & Excise are currently considering whether there is any additional relief provided from these provisions for a supply of a means of transport. 5% rate on certain services The Isle of Man agreed a derogation from the VAT rate applied in the UK several years ago on certain labour intensive services, most noticeably relating to domestic property repairs. The latest extension in this regard was agreed in 2006 and is due to expire on 31 December 2010. At this time no comment or reassurance has been issued by Isle of Man Customs & Excise as to whether a further extension is likely. As such, it may be worth considering accelerating payment and or purchase for such services prior to the year end. Importation of goods into the EU The revised documentation evidencing the import of goods into the EU has now been fully implemented by Isle of Man Customs & Excise. The previous situation of obtaining a second, certified, copy of the C88 has now been replaced with the issue of a monthly certificate of VAT paid on import, form C79. This is a process importers of goods into the UK have been familiar with for several years. Also, we have seen instances of businesses having problems recovering import VAT where businesses fail to apply for an EORI number ahead of the importation of the goods. This is a straightforward process on which we can provide further advice.
Compliance review HMRC have recently updated the penalty regime as they seek to streamline penalties across the various taxes. Increasingly penalties are being introduced for any form of failure, so ensuring compliance with the legislation and regulations on invoicing and reporting is essential. The key areas where compliance errors can occur include: EC Sales Whilst the implementation of the VAT package on 1 January 2010 and the changes to the EC Sales List ( ESL ) regime appears to have gone smoothly, we would like to remind you of the following: if you are making sales of goods within the EC, you must ensure your customer has a valid VAT number in order to zero rate the supply and the number is quoted on your sales invoice. It is not necessary to quote a foreign VAT number for the provision of services, but this is considered the most appropriate evidence to confirm your customer s business status. Also, we would recommend that the VAT number be checked and a confirmation of checking be retained. The VAT numbers can be verified on the European Commission s website: http://ec.europa.eu/taxation_customs/vies/ vieshome.do ESLs must be submitted on time, must be factually correct and include all of the relevant sales for the period of the ESL. Whilst HMRC have indicated that they will not issue penalties in the early stages of the new ESL regime, the legislation is in force to enable them to do so at any time. VAT invoicing It has been some time since the UK/IoM Law relating to VAT invoicing was amended so that it was in accordance with EU Law and properly implemented the VAT invoicing requirements in Council Directive 2006/112/EC. The following list details the mandatory information to be included on VAT invoices: Date of invoice; Unique sequential number; Supplier s VAT number (i.e. the company issuing the invoice); Customer s VAT number (if sales are within the EC); Name and address of the supplier and the customer; Quantity and nature of goods and services supplied; Time of supply; Unit price and total amount per rate; VAT rate; VAT amount payable. If VAT not zero-rated or exempt, then the amount must be declared in pounds sterling as well as the currency used for the invoice; An indication that an exemption or reverse charge has been applied; An indication that the margin scheme for second-hand goods, antiques and collectors items has been applied.
We would like to take this opportunity to remind you that systems need to be in place to ensure that the invoicing rules are applied correctly. The main areas of concern that we have noticed are with respect to sequential numbering, details of the customer and the reason why VAT is not being charged on the supply. There have been recent cases brought against companies by HMRC where valid VAT invoices have not been issued. In such cases HMRC can also restrict input VAT recovery. As part of our compliance process we will be reviewing our client invoices on an ongoing basis and will inform clients of any changes that need to be made in this regard. If you need any assistance with the information that should be detailed on an invoice especially with regard to sequential numbering or regarding the appropriate disclosures that should be included, please contact us for further advice. VAT Penalties Following the review of penalties in our last VAT newsletter the publishing of the Finance Bill will bring closer the implementation of the changes to the penalty regime on the late submission of VAT returns and failure to make payments on time. It is envisaged that the penalties will start at 100 regardless of whether the company has a VAT liability. Also, with regard to the changes regarding correction of errors made on previous returns, whilst a penalty shouldn t apply if the business takes reasonable care, we would like to remind you that a declaration should be made to HMRC or IoMC&E to mitigate any potential penalty. The method of declaration depends on the value of the error (and on other factors) as to whether it can be included on the VAT return or requires a separate declaration. The preferred method of notification of an error correction (when below the relevant threshold) is to make an adjustment to the next return. As a belt and braces measure we would still recommend that a disclosure be made to the relevant authority even where adjustments to the VAT return is made in this regard. If you need any assistance with disclosures or on penalty matters please contact any member of the VAT department. Refunds of VAT paid in other EC Member States If you buy goods or services in another EC Member State, you may have to pay VAT there. You cannot treat this VAT as input tax but you may be able to reclaim the VAT from the authorities in that Member State subject to certain conditions. The previous system, known as the 8th VAT Directive refund system, was a lengthy, cumbersome, paper-based system. The new system allows a company to make an electronic claim which can be completed and submitted in the Member State in which the company is established. Our experience so far is that the system works efficiently and has allowed us to successfully reclaim VAT for some of our clients. Should you wish to use this service please contact a member of the VAT department for further advice, but please see below regarding filing deadlines.
News from the EU VAT 8th Directive reclaim deadlines An EU based working party has been considering the position of the 8th Directive reclaims, under which a business established in one member state can, under certain conditions, recover VAT incurred in another state. The proposal from the working party is likely to be that the proposed deadline for such submissions to be made for the current year should be extended from 30 September until 31 March 2011. The reason for this proposal is due to the delay many states experienced in implementing the scheme. The proposal was due to be considered on 20 September, but can only be ratified by the next ECOFIN meeting that is due to meet on 19 October. Stop press EU Member States have now unanimously supported a European Commission proposal to extend the deadline for submitting 8th Directive reclaims until 31 March 2011. Relevant legislation is expected to be adopted during October and will be applied retrospectively to 1 October 2010. Simplification of the collection of VAT and Customs Duty on imports A short while ago the European Commission announced a period of consultation looking at the possibility of a centralised Customs clearance for both Customs Duty and VAT. Currently it is possible to account for Customs Duty in any state (usually where the business is established) that may differ from where the goods are actually imported. The same though cannot be said of VAT and it is currently necessary for VAT to be accounted for where the goods are actually imported. The consultation runs until 31 October and can be found at the attached link http://ec.europa.eu/taxation_customs/ resources/documents/common/consultations/customs/2010/customs_clearance/consultation_paper_en.pdf French Commercial Exemption for yachts The EC has recently announced infringement proceedings against France in respect of their domestic treatment of yachts. In general, exemption is available in France where a yacht is commercially registered, has a permanent crew on board and undertakes charters under charter contracts. The EC has ruled that this stance is contrary to Article 148 of Council Directive 2006/112/EC which provides for exemption of vessels used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial activities. The EC have requested that France change their domestic legislation to bring it in line with the Directive, but details of the changes are still awaited. However, the inconsistency is thought to relate to the phrase on the high seas. Whilst most yachts are capable of doing so it is thought that there may be an expectation from the EC that yachts, whether used commercially or for pleasure purposes should be liable to VAT, rather than benefitting from some form of exemption. VAT and yachts in Italy Meanwhile in Italy the confusion and uncertainty over the treatment of yachts continues, which will probably not be helped by the changes likely to be introduced in France. After a spate of high profile seizures of yachts, and subsequent release of most, the disparity between legislation and practice continues, but the Guardia di Finenza continues to inspect yachts. This is likely to continue, especially bearing in mind the French changes and how this may impact the interpretation of the Italian legislation in this regard.
VAT rate increases Already the table produced in the previous edition of the VAT newsletter is out of date as Poland has been the latest Member State to introduce an increase in the standard rate of VAT. The rate will increase to 23% with effect from 1 January 2011, with further 1% increases due in July 2011 and 2012 if the budget deficit does not fall significantly. Elsewhere within the EC, further increases are being considered which will include: a 1% increase to the standard rate of VAT (to 20%) is to be introduced in Slovakia during 2011; a removal of some exemptions in Germany; the 11% lower rate of VAT in Greece to be increased to 13%; Cyprus is considering a 1% increase in its standard rate to 16%; and Ireland will be considering a further increase in its standard rate as the increase to 20% in the United Kingdom makes the competitive disadvantage less, which was the reason a similar increase in 2009 was rejected. VAT news from elsewhere Changes or the introduction of VAT or GST are also issues facing many non-ec countries: Andorra is to introduce a 4.5% rate of VAT (albeit not EU VAT). Meanwhile in India the three rate GST regime has extended the taxable base and implementation is now planned for April 2011, although this remains subject to ongoing debate; The existing 5% Business Tax is to be replaced with VAT on some services; and Ontario will permit voters to have their say on the recently introduced Harmonised Sales Tax that was introduced in July
Contacts SMP Accounting & Tax have a dedicated team of four staff working full time on VAT. The VAT team are able to provide VAT compliance services for businesses based in the Isle of Man, UK and Ireland. At a time when revenue authorities are reviewing (and applying) penalties ensuring VAT returns are completed correctly and on a timely basis is becoming increasingly important. In addition, VAT consultancy can be provided in respect of any situation from structuring a business to advice on particular transactions or dealing with the relevant Revenue authorities. For further detail on any VAT related matter please contact: Peter Duchars, Head of VAT Services Tel: +44 (0)1624 683283 Email: peter.duchars@smppartners.com David Booker, VAT Manager Tel: +44 (0)1624 683249 Email: david.booker@smppartners.com Rachel Purnell, VAT Manager Tel: +44 (0)1624 683205 Email: rachel.purnell@smppartners.com SMP Accounting & Tax Limited P.O. Box 227, Clinch s House Lord Street Douglas Isle of Man IM99 1RZ Tel: + 44 (0)1624 683 229 Fax: + 44 (0)1624 612 624 Email: info@smpaccountingandtax.com www.smpaccountingandtax.com SMP Partners Group of Companies: SMP Partners Limited, SMP Trustees Limited and SMP Fund Services Limited are licensed by the Isle of Man Financial Supervision Commission. SMP Accounting & Tax Limited is a member of the ICAEW Practice Assurance Scheme. SMP Capital Markets Limited. SMP Yacht and Aircraft Limited. The information in this newsletter is intended for general guidance only and should not be applied to individual circumstances without professional advice. No liability or responsibility for loss to any person acting, or refraining from action, on the basis of any material in this publication can be accepted by any member of the SMP Partners Group of Companies.