On 24th March, HMRC released a policy paper confirming that the Prime Minister has secured agreements with other officials at the March European Council to welcome increased flexibility for member states in relation to the zero and reduced rates of VAT. Whilst this was primarily related to the abolition of the ‘tampon tax’ – the increased flexibility could present an opportunity for the UK to reconsider other demands – like the ECJ ruling which suggested that the reduced rate on energy saving materials was in breach of EU laws.
HMRC have today released further clarification to be read in conjunction with the October 2015 ‘HMRC COS Guidance for government departments and NHS bodies (2nd tranche)’ document. There are not many surprises in this document, and below is a summary of the key points:
We reported previously on the likelihood of Energy Saving Materials losing their 5% VAT rate following the European Court’s ruling against the UK. This is where the UK was found in breach of the EU VAT Directive in that the 5% rate was applied too generously and primarily failed the ‘social’ aspect of the VAT relief.
HMRC have begun a consultation process that inevitably will lead to the removal of the 5% VAT rate – or in certain circumstances retention of the rate but only where the ‘as part of a social policy’ aspect can be met. The proposal is for the relief to be allowed for those in receipt of benefits, over the age of 60 or for specific types of buildings – housing associations and group style accommodation such as care homes and similar.
On 29 July 2015, HMRC confirmed in a letter to all NHS Trusts that the normal ‘tax point’ rules should be applied from 1 April 2016 at the latest. This extension was provided to recognise the challenges Trusts may face in changing accounting systems and processes where previously VAT accounting was based on payment dates. Normally, the tax point of a supply is the invoice date.
Lin Homer, HMRCs CEO has announced she will be leaving the organisation in April 2016. She has been recognised for her achievements whilst at HMRC including the reduction of the tax gap and tax credits error and fraud (both to records lows) and the introduction of an ambitious transformation programme to digitalise services for HMRC and taxpayers. George Osbourne has commented: “She has put the foundations in place that will see HMRC become one of the most digitally-advanced tax authorities in the world. It is to Lin’s great credit that the National Audit Office last year judged HMRC to be one of the strongest Departments in Government – a legacy of which she can be rightly proud.”
HMRC have recognised the difficulties small businesses making supplies of digital services to consumers in other EU member states, and have introduced some simplifications to assist. Firstly – businesses which are below the UK VAT registration threshold will now be allowed to rely on any single piece of information (for example, the address provided but the customer) to determine the location of their customer. This differs from the normal rule – which is that a business must collect two pieces of non-contradictory information to evidence their customer’s location.
The One Show 17th December 2015 again highlighted time taken by HMRC to respond to queries. This followed an admission from Linda Homer, Chief Executive of HMRC, in October that response times were poor and that only half of telephone enquires made between April & June were answered.
Alternative suggestions to use e-mail & Twitter were found by The One Show to be equally ineffective, and a potential barrier to those not familiar with digital media; notably the elderly and potentially poorer tax credit applicants. A Tweet submitted during The One Show, remained unanswered 30 minutes later at the close of broadcasting.
This week HMRC have announced their intention to introduce a new section, 33E of the VAT Act 1994, to prevent VAT being a barrier to non-departmental public bodies who enter into arrangements to share back office services that would otherwise result in greater efficiencies. This puts the VAT position for government departments, NHS bodies and non-departmental public bodies on a similar footing. In line with the other departments who are able to claim similar services under section 41 (3), they will have a shorter period in which to claim a refund.
HFMA have released minutes from their September VAT Technical Sub-Committee meeting. Please find below a summary of the key points.
Contracted Out Services Guidance
The minutes confirmed that the latest HMRC guidance was released on 12 October 2015, and HMRC stated in the meeting that telephony (including VOIP) is not included within Heading 14: Computer Services.
As you may be aware – earlier this month HMRC released the final tranche of COS headings (though more guidance is expected to be released on Heading 52 at a later date). Unfortunately, it was not immediately explicit as to the period for which this guidance applies.