In this monthly digest, Gerry Myton brings the latest updates from HMRC – including their recent business brief offering guidance on the repayment of VAT to overseas businesses not established in the EU and more detail on the new reduced VAT rate for hospitality. Since the Brexit transition period ended, HMRC implemented staged border controls which allowed goods to move without full customs controls. In this update Gerry explains why HMRC have now updated the timetable for introducing import border control processes in the Border Operating Model.
Read on for more updates and a summary of recent VAT cases.
What do you need to know?
In their latest business brief, HMRC have offered guidance on the repayment of VAT to overseas businesses not established in the EU. Overseas businesses incurring VAT in the UK are able to reclaim VAT using the overseas VAT refund scheme.
HMRC imposed a deadline of 31 December 2020 for these businesses to submit their claims for refunds for 2019 – 2020, but due to delays as a result of Covid-19, HMRC offered a 6 month extension for businesses to submit the certificate of status.
HMRC have now agreed to allow businesses a further 6 months to submit a valid certificate of status, and will continue to review the position regularly.
In efforts to help businesses during the Covid-19 pandemic, the government implemented a temporary 5% reduced rate of VAT to certain supplies relating to hospitality, hotel and holiday accommodation and admission to certain events.
It has been confirmed that this temporary reduced rate will be extended until 30 September 2021. After this a new rate of 12.5% will be introduced which will apply until 31 March 2022. HMRC do not have any plans to apply the anti-forestalling legislation and normal tax point rules will apply.
Following the end of the transition period, HMRC implemented staged border controls which allowed goods to move without full customs controls. HMRC have now updated the timetable for introducing import border control processes in the Border Operating Model.
The option to clear goods under delayed declarations will now be available until 1 January 2022. Under this scheme, supplementary declarations must be submitted within 175 days after the date of import. In addition, full customs controls are not required at the border.
From 1 January 2022, full customs declarations for imports will be required and the delayed declaration scheme will come to an end. For more detailed information, you can read HMRC’s published update here.
In the news…
RECENT VAT CASES
Jupiter Asset Management Group Ltd v. HMRC
The First Tier Tribunal has ruled in favour of HMRC on the value of management charges to partly exempt subsidiaries for VAT purposes.
This case concerned two separate VAT groups within the same Corporate Group (Jupiter Group). Jupiter Asset Management Group (JMAG) was the representative member of one group and they provided management services to the second VAT group, whose representative member was Jupiter Investment Management Group Limited (JMIG).
JMAG charged VAT on the management services and HMRC took the view that there had been an under declaration of VAT on the basis that the value of the management services to the connected party was too low. HMRC issued JMAG an open market value direction and assessed for additional output tax.
The FTT agreed with HMRC and offered some comments on the valuation of management charged. Where management services are provided within the same corporate group; the supply must be valued using a cost method such that the value is not less than the full cost to the supplier.
Target Group Limited v. HMRC
The Court of Appeal (COA) has now released its decision in this appeal concerning the treatment of loan administration services supplied by Target Group Limited (Target) to a UK bank. Target had treated these supplies as exempt, however HMRC contended that they were subject to VAT and the COA has agreed.
Target provided loan servicing to Shawbrook Bank which included setting up and maintaining loan accounts, facilitating payments with the borrower, processing repayments, etc. but was not involved with the initial provision of the loan – their service started after this point.
This case has gone through both the First Tier Tribunal and the Upper Tribunal where they both agreed that the loan servicing did not fall within the financial exemption and were liable to VAT. In the appeal to the COA, Target contended that their supplies were exempt payment processing services or the operation of a current, deposit or savings account. HMRC disagreed and said the services constituted management of credit to a person other than the lender and were therefore subject to VAT.
In its decision, the COA has applied CJEU case law and given that the UK has now left the EU, the COA now holds the power to depart from EU case law. Target has applied to the COA for permission to depart from the EU law retained in the case.
CMJ (Aberdeen) Ltd v. HMRC
This appeal concerned the demolition and construction of a new dwelling and whether zero rate applied. At the time CMJ began construction, they only had planning permission in place for the alteration and extension of the existing dwelling.
CMJ had a construction building warrant from the local authorities which did allow for the construction of a new building. In their appeal, they contended that this combined with the planning consent they had was sufficient statutory planning consent.
HMRC took the view, and the First Tier Tribunal agreed that the building warrant was not sufficient as it was no statutory planning consent. Although the property was constructed as a new building, it had not been carried out in accordance with statutory planning permission.
This case highlights the importance of obtaining statutory planning permission prior to construction.