VAT & listed buildings – possibly some good news!
For once, good news emanating from HMRC, who have just re-written their internal guidance on the topic of construction - their reference V1-8A. Within it, they state that double glazing and secondary glazing can, potentially, be zero rated as alterations. This is wonderful news as they have hitherto refused to accept zero rating, except in very limited circumstances.
To recap - the work would have to be carried out on a listed qualifying building, be subject to Listed Building Consent and be an "alteration". Dictionary definition - "make something different, change". Their narrow view, thus far, is that it simply isn't an alteration. In fact, in a recent case that, as far as I know, is still heading for the First Tier Tax Tribunal they maintain that it is "repair and maintenance of the building as a whole". I've found a dictionary definition of "repair" and find "...restore to good condition after damage or wear.." I think not.
It's difficult for me to lose my natural cynicism, and as a result I have emailed HMRC to ask them if they really mean it.
Watch this space.
Update 9 November2011: HMRC didn't cover themselves in glory, with their response.
I asked "Does it mean what I think it says?"
They replied:
“Thank you for your enquiry dated 20 October 2011. I understand that your query relates to work to a listed building.
HM Revenue and Customs will only provide a ruling (Clearance) if after consulting the relevant guidance there is demonstrable uncertainty about how a transaction should be treated. Guidance on how to apply for a Clearance is available via the HMRC website www.hmrc.gov.uk, at the following address: http://www.hmrc.gov.uk/cap/links-dec07.htm”
Not immensely helpful, but I persevered and received something that would pass, in a dim light, as a reasonable answer:
“I can confirm that HMRC policy has not changed, each case is considered individually and as long as all the conditions have been met in relation to altering the fabric of a listed building zero rating can be applied.”
I have a couple of letters on file from HMRC, last year, in which they state that double glazing and secondary glazing are NOT regarded as alterations so I'll leave you to decide whether anyone is being economical with the truth.
VAT registration amnesty announced
HMRC have recently announced that they are commencing a purge on businesses that are not VAT registered, but which should be. I suspect that they are looking at businesses that have submitted accounts to HMRC i.e. the "Taxman", showing them with turnover in excess of the threshold. The expression "shooting at fish in a bucket" springs to mind, of course, but they have to start somewhere. They are, of course, publicising this initiative and hoping that other businesses will crawl out of the woodwork as well. The carrot that they are offering is the ability to come clean, without too much punitive damage. However, if you have been trading for a while and not charging VAT, HMRC will want the notional VAT from you - and whether or not your customers will be happy to pay up after the event is debatable. If you do the decent thing, though, HMRC are suggesting that they will only charge you a 10% penalty on top - well, on top of the VAT that you should have charged. Bless.
But if you ignore them you could be looking at something approaching a 30% penalty, or worse..
One final point - if you are unregistered, you should be monitoring your income on a 'rolling' 12 month basis, not simply looking at it at the end of your financial year.
Budget 2011
As ever, the world of VAT toodles along, with few highlights, so it is difficult to get excited about the things that are changing. But let's not start on a negative - here's a few goodies for you:
VAT registration limit (previously £70k) going up to £73k. [They call it "revalorisation" of the threshold - what is that all about?] This will apply from 1 April 2011.
De-registration limit going up to £71k, from £68k, again effective on 1 April.
There is one interesting change though - the "low value consignment relief" being reduced from £18 to £15. For those who don't know what this is, it is the value of individual deliveries coming into the UK that slip past HM Customs intact, with no duty or VAT being charged. This is what allows you to get cheap CDs, flowers, vitamins etc. from the Channel Islands - as it would have cost more to collect the taxes than HMRC would gain from collecting them. I don't know that this will stop the trade, but there you go.
Fuel scale charges will rise as they usually do - from
VAT periods commencing after 1 May 2011.
I would have to express surprise at mention of the wacky "Online Registration Wizard", which I believe is a posh way of saying that if you register for VAT, you must do it online. Why do they think it is better to dress it up in this way?
And I've just noticed a really cheesy mention of a plan which will "....accelerate the move of customers to access services through efficient online channels." Of course it will, especially if you make it sound as if it is of benefit to the 'customer'.
Furthermore, they are planning for everyone to do online VAT returns as well - those who have escaped thus far will be forced into it from 1 April 2012.
And finally, further down the page, there is a bit of slush about how HMRC are improving things, in which they mention "operational grit". That's what is called an error, in the real world..
VAT rate change
The world is awash with advice and assistance as regards how to avoid the increase - up to 20% on 4/1/11, if you didn't already know. In that light, I will add a shortened version on how to avoid it:
Goods
Buy it before 4/1/11 - VAT remains at 17.5%.
Services
Have the service, whatever it might be, performed before 4/1/11. VAT remains at 17.5%.
So far so good, but it's not rocket science is it?
OK, so the obvious trick is to get something being provided after 4/1 to be subject to 17.5% VAT. How is that done?
Plan A - pay for something in advance, be it goods or services. As long as they have the money in the bank before 4/1/11, it will be chargeable at 17.5%. Obviously this isn't terribly good advice, if there is the faintest possibility that the supplier will run off with your money, so please take care before doing that!
Plan B - Have the supplier invoice the goods or services prior to 4/1/11.
Both Plan A and Plan B are slightly offensive to H M Revenue & Customs, and as a result they have said that they won't work if any of the following apply:
a) Supplier and customer are "connected" - husband/wife/associated companies etc.; or
b) The value is greater than £100k exc VAT; or
c) The invoice doesn't have to be paid in full within 6 months; or
d) If any prepayment is funded by the supplier.
Clearly there could be other implications especially if services overlap the date of the increase. Please let me know if you require any further information.
DIY Housebuilder’s Scheme and holiday homes
As you are doubtless aware, HMRC don't normally appear generous with their approach to taxpayers, and although what follows appears to be in the realms of generosity, it did not arise as a result of an unexpected burst of largesse on their part.
For many years there has been a “DIY Housebuilders Scheme” in existence, within the VAT system, which was originally put in place so that DIY Housebuilders were not put at a disadvantage against individuals who had a new house built by a developer. In short, an individual would simply retain all the invoices for building materials, bundle them up and send them with a claim for the VAT incurred. HMRC would then repay that VAT subject, of course, to making reasonable checks on the legitimacy of the documents received.
If, however, an individual decided to build himself a new house which had an occupancy restriction on it – such that it would only be used for holiday purposes, HMRC would not entertain a claim, on the basis that if a developer sold such a property to an individual, it would be liable to VAT.
HMRC have now been forced to admit that this policy was incorrect, by virtue of a case that has recently been decided at what used to be called the VAT Tribunal [now, the First Tier Tribunal].
They now accept that holiday homes qualify, as long as the property is to be used by the claimant, and not let out. They have also accepted that this will also apply to situations where a non-residential building is converted into the holiday home.
And finally, HMRC are also inviting anyone who has been in the position of having a claim refused, to submit one now. This will apply retrospectively as well, to anyone who has completed such a property within the past four years and three months.
Budget 2010 – VAT changes
Thankfully, the Budget was devoid of many significant VAT changes. OK, the VAT rate is going up to 20% on 4 January 2011 but that is as exciting as it gets. That gives us time to prepare, and as with the January 2010 rise of 2½%, did we really notice? Full marks to the Chancellor, however, for giving us time to prepare for the change and, where possible, to make a pre-payment whilst the VAT rate is still at 17.5%. However, anti-forestalling measures will be in place, to prevent pre-payments in certain circumstances. These will mostly affect connected parties, where the recipient of the supply is not in a position to reclaim the VAT. Alternatively, still with individuals of businesses that cannot reclaim VAT, a pre-payment will not work if the value of the supply is in excess of £100,000.
Other changes are limited in their application, but here they are:
1) Flat rate scheme - a consequential result of the VAT rate change is that the flat rate scheme percentages will also be changing from 1/1/2011.
2) Aircraft: in essence, zero rating presently applies to aircraft over a certain size. HMRC are switching to a qualifying definition based on the status of the customer. This will mean that zero rating will apply to aircraft used by airlines “ operating for reward” primarily on international routes.
3) Gas, heat and cooling: a change to the ‘place of supply’ rules is proposed, which will mostly affect cross-border supplies.
4) Postal services: the only supplier to be affected is Royal Mail (Royal Mail Holdings PLC) but effectively all businesses might find that VAT is charged on certain services that were previously exempt from VAT - mostly parcel deliveries. “Social mail” remains unaffected.
5) “Lennartz” accounting: taxpayers buying assets (eg land, property, boats and aircraft) which have business and private use have hitherto been allowed to reclaim the full VAT ‘upfront’ and simply repay the private element, according to their future use of the asset. This facility will be withdrawn, with only the business element being recoverable upfront.
Charity advertising & VAT
HMRC have announced a policy revision with regard to pay-per-click advertising, supplied on third party websites. In an unaccustomed burst of keeping up with the times (well, almost), HMRC accept that this is advertising and that it can be zero rated. Clearly, as the law hasn't changed, charities are advised to go back to the suppliers of the advertising and seek a refund for VAT charged over the past four years.
VAT number
When a business registers for VAT, the identifying feature of the registration is the VAT registration number, also referred to as the VAT number. This is an 8-digit number, the last two of which are ‘check digits’. This enables one to check the arithmetical validity of any UK VAT number, Please ask if you require the magic formula to enable you to check a VAT number.
VAT (Value Added Tax)
VAT (Value Added Tax): one of the major indirect taxes imposed by the UK Treasury upon supplies of most goods and services.
Budget 2010 – VAT changes
As ever, the Budget didn’t appear too interesting in terms of VAT changes. Indeed I came across a headline indicating that there would be no changes to VAT.
Look a bit further though, and there were quite a few changes, although admittedly nothing to get anybody terribly worked up about.
- VAT registration limit goes up to £70,000 from 1 April 2010 and the Fuel Scale Charge rates have been increased again, for VAT periods starting on or after 1 May 2010.
- Zero rating will no longer be available for aircraft on the basis of weight. From 1 September 2010, aircraft (and spares/repairs) will only be zero rated where used by airlines “operating for reward chiefly on international routes”
- ‘Place of supply’ of gas, heat and cooling will change from 1/1/2011. The detail is a bit tedious, but if you want to know all about it please ask.
- Certain postal services provided by Royal Mail will become liable to VAT from 31/1/2011, chiefly in the realms of parcel deliveries. ‘Domestic mail’ remains unchanged.
- From 1/11/2010, a reverse charge will be introduced to combat ‘Missing Trader’ fraud by certain miscreants buying or selling emissions allowances. If you’re doing it, you know who you are.
- From 1/1/2011, the rules surrounding the use of the “Lennartz” procedure are changing, such that businesses hoping to utilise it (or who have already) will be adversely affected. In essence, the Lennartz treatment allows a business to reclaim VAT in full on an asset that has both business and private use, at the time of purchase. Then, as time progresses, any private use is subject to output VAT, as and when it takes place. HMRC have never liked it, but as it emanated from a European Court ruling, they have been obliged to allow it. They are now restricting it somewhat, and also making certain aspects of it retrospective. I just love the following phrase: “ The legislation will ensure that this position is treated as having always had effect.” A quick Google on the words “retrospective taxation” suggests that this might be in breach of Article 1 of Protocol No.1 to the ECHR. Further digging, however, suggests that this topic is well beyond the scope of this blog, and I don’t intend to get into legal argument on this point – I’ll leave this to those better equipped to consider the matter.
Like I said, nothing too dramatic, but if you require further information about any of the items, please let me know.