VAT Update – December 2022

This UK case related to vouchers which were awarded by GEAC to employees who were nominated as a result of their performance. They could choose vouchers from a range of retailers, and the vouchers concerned had been bought by GEAC from its US based parent company, with reverse charge VAT being accounted for and reclaimed. The case was heard by the CJEU because it had been referred to the court before the end of the Brexit transitional period on 31 December 2020.

HMRC argued that an output tax charge arose for GEAC when the vouchers were given to employees on the basis of the wording of article 26 (1) (b) of the VAT directive, and the UK Supply of Services Order 1992, which set out that where a person puts services supplied to them to any private use, or makes them available to any person for use other than for business, they will be treated as making a supply in the course of business. The First Tier Tribunal in the UK referred this question to the CJEU.

The court concluded that GEAC had a clear business motive in providing the vouchers in order to incentivise its employees and bore the cost of this itself, with no deemed supply being made to employees. The only private use was by the employees themselves on redemption, at which point the retailers concerned accounted for output VAT, retaining fiscal neutrality.

Comments:

The case has similarities with the AstraZeneca case which was decided by the CJEU in 2008. In that case, retail vouchers were sold to employees by AstraZeneca in return for payment by salary sacrifice, and the CJEU ruled that the amounts of salary which were sacrificed were consideration for the supply of the vouchers and output VAT was therefore due. In this case there was no consideration and the CJEU decided that no output VAT was therefore due and GEAC could reclaim input VAT on the purchase of the vouchers on the basis that the running of the incentive/reward programme was part of its overall business activities.

It will be interesting to see how HMRC react to this judgment in the context of the case itself and also the extent to which it reconsiders its interpretation of the Supply of Services Order.

Please contact Wendy Andrews or Nick Hart, VAT Director’s if you would like to discuss this case further.

HMRC have announced a consultation on proposed changes to the way in which they deal with the notification of options to tax over land and property. For an option to tax to be valid, it must be notified to HMRC, but there is no specific legal requirement for HMRC to acknowledge options to tax, except in specific circumstances where permission is required or where there is a belated notification.

HMRC are proposing that they will no longer send out written acknowledgements of options to tax and propose that taxpayers should rely on the automated acknowledgement of a notification by email if they need to prove to another party (eg a potential purchaser of the land concerned) that there is a valid option to tax in place.

In addition. HMRC are proposing not to provide taxpayers with details of options to tax which have been notified to them in the past six years, on the basis that taxpayers have a statutory obligation to retain their records during this period. The only exception to this will be receivers appointed in respect of property assets.

Comments:

There is a very brief consultation period, with responses being required by 28 November 2022. Read our response to the consultation.

The proposed changes highlight the importance of keeping historic records of options to tax and being as specific as possible regarding the area to be opted in order to minimise any need to obtain further information from HMRC.

Please contact Sean McGinness, VAT Partner, if you would like to discuss the implications of HMRC’s proposed changes in more detail.

HMRC had recently consulted on the possibility of introducing an online sales tax to ensure that online sales platforms were not significantly less taxed than bricks and mortar retailers who have to pay business rates. However, in the Autumn Statement, there was an announcement that the government have decided not to proceed. Instead, some changes have been made to business rates, including the introduction of higher rates for online retail warehouses.

This case provides the Supreme Court’s view on when HMRC is in full possession of the facts to enable it to make an assessment for VAT purposes. It also acts as a useful reminder that the “4 year” time limit is a backstop position and there are other time limits that should be considered before accepting an HMRC assessment.

There will be a new penalty regime for late filing or late payment of VAT returns for periods starting on or after 1 January 2023. This replaces the current default surcharge regime. Under the new system, a separate approach is applied to penalising late payments than that which is applied to late submission.

Key points:

• There will be a 2% penalty for payments made between 16 and 30 days after the due date.
• For payments made later than this, there will be a 2% penalty for days 16 to 30 plus a further penalty at a 4% annual rate for the outstanding period.
• There will also be interest on late paid VAT at the Bank of England rate, plus 2.5% for all payments made after the submission date.
• There will be a £200 penalty for late returns after a number of penalty points have been received.
• HMRC will pay interest on VAT return repayment claims from the later of due date or date submitted.

Late submission of returns

There will be a points-based system for late submission of returns which will lead to a £200 penalty for each late return.

One penalty point will be received for each late return, and the penalty threshold will vary according to the frequency of your VAT returns:

• Annual return: 2 points.
• Quarterly returns: 4 points.
• Monthly returns: 5 points.

For example, once 4 points have been accumulated in the case of quarterly VAT returns, a £200 penalty will apply then and each time there is a subsequent late submission. Points will be set back to zero if all returns are submitted on time for a period of 24 months.

Late payment of VAT

Penalties

Up to 15 days from due date – there will be no penalty (but interest is due) if VAT is paid in full or a payment plan is agreed within 15 days of the due date for filing the return.

Between 16 and 30 days overdue – there will be a penalty calculated at 2% of the VAT due if you make payment between day 16 and day 30 after the due date for the return.

If payment is made more than 30 days after the due date, the initial penalty, as above is due (2% of the VAT owed on day 15). A further 2% penalty applies if the VAT remains unpaid at day 30. There is also an additional penalty that is applied if a return is more than 30 days late of 4% which is pro-rated on a daily basis (see example below). This will be calculated when the payment is made or a payment plan is agreed.

During the first year of operation, HMRC will not charge a first late payment penalty as long as payment is made within 30 days of the due date. The second penalty (at an annual rate of 4%) will be charged for returns remaining unpaid after 30 days.

Interest

Interest will be charged on all late payments of VAT at a rate of the Bank of England base rate plus 2.5%.

Repayment interest

HMRC will pay interest on repayments of VAT which are due for VAT return periods starting on or after 1 January 2023. It will be calculated from the later of the due date for submission, or the date of submission until the date on which the repayment due is made in full. The rate of repayment interest will be the Bank of England rate minus 1%, with a minimum rate of 0.5%, even where the calculation of the rate would fall below this (eg where the Bank of England rate falls below 1.5%).

Example

A Limited company has a quarterly VAT return ending on 30 April 2023. There is a payment of VAT due to HMRC of £10,000.

If payment is received by HMRC on or before 7 June 2023 (the due date if the 7 day extension is available) there will be no penalties or interest.

If payment is received between 8 and 23 June, there will be:

• One penalty point for late submission of the return (if the return was submitted after 7 June 2023).
• No late payment penalty.
• Interest on the amount outstanding, calculated using the Bank of England rate plus 2.5%. Interest is calculated on a daily basis using this annual rate of interest.

If payment is made between 23 June and 7 July (due date +30), there will be:

• One penalty point for late submission of the return (if the return was submitted after 7 June 2023).
• A late payment penalty of 2% of the amount due (£200 in this example).
• Interest on the amount outstanding, calculated using the Bank of England rate plus 2.5%. Interest is calculated on a daily basis using this annual rate of interest.

If payment is made after 7 July (after day 30), there will be:

• One penalty point for late submission of the return (if the return was submitted after 7 June 2023).
• Two late payment penalties of 2% of the amount due (£400 in this example).
• A further late payment penalty which is a daily penalty calculated using a penalty rate 4% per year.
• Interest on the amount outstanding, calculated using the Bank of England rate plus 2.5%. Interest is calculated on a daily basis using this annual rate of interest.

HMRC have provided full guidance on the changes to VAT penalties and VAT interest charges.

Please get in touch with your usual Saffery contact for further information on the new penalty regime and how you might be impacted.