VAT Update – May 2024

There have been well-publicised reports of fraudsters identifying companies which would typically be in VAT repayment positions. They have been contacting HMRC posing as the business, in order to change company bank details held on file by HMRC which it uses for remitting VAT refunds into. This has resulted in VAT refunds being paid into bank accounts that fraudsters have access to rather than the taxpayers. This has apparently occurred despite controls and processes which HMRC implement, to prevent third party bank accounts being used to receive VAT refunds.

Businesses can provide HMRC with updated information about themselves either online or by post using a paper VAT 484 form. Such changes would typically include change of name, address, or bank account details. Taxpayers expecting regular refunds of VAT will register their bank account details, so that they may receive repayments directly, rather than having to cash cheques. It’s HMRC’s preference to pay VAT refunds directly into taxpayer bank accounts.

Comments

This fraudulent activity appears to have been targeting the housebuilder sector, but others are susceptible such as farming and food production, and businesses whose principal supply is the supply of exported goods. 

In order to minimise the risk of falling victim to this scam, it’s imperative that businesses ensure they have access to their Business Tax Accounts, and regularly monitor and confirm the accuracy of the details HMRC has on record, particularly when expecting repayments. Any suspicious activity or unexpected correspondence should be investigated promptly and thoroughly, and instances of not receiving VAT refunds within the expected time frame should be reported to HMRC.

Please get in touch with your usual Saffery contact if you have any concerns with receiving VAT refunds from HMRC.

The Tour Operators Margin Scheme (TOMS) is a mandatory accounting scheme for businesses which buy in and sell on, without material alteration, certain travel services such as passenger transport, hotel accommodation or car hire. This can apply to any business involved in these types of supplies and isn’t limited to traditional “tour operators”. Examples of other types of businesses who can be caught by these rules are event and conference organisers, and rural businesses offering bespoke shooting and fishing events.

HMRC’s previous guidance stated that TOMS was only mandatory for supplies to final consumers or to businesses for their own consumption (for example, business travel for employees) but not mandatory for wholesale supplies to a business which then sells them on.

Applying EU jurisprudence from 2013, HMRC concluded wholesale supplies should be covered by TOMS but did not make any changes to the guidance; it did however allow direct effect of EU law, meaning UK businesses could choose to include wholesale supplies within TOMS. At the time HMRC issued Revenue & Customs Brief (RCB) 5/2014. 10 years later, HMRC has now issued a new RCB 5 (2024) and reviewed its approach and guidance on the correct treatment of business-to-business (B2B) wholesale supplies. RCB 5 confirms wholesale supplies are within the scope of the TOMS but by concession tour operators may opt out for B2B wholesale supplies.

This is a technical change and doesn’t affect tour operators’ ability to choose whether to apply the TOMS or not to B2B wholesale supplies. HMRC has withdrawn RCB 5 (2014) with immediate effect to replace it with RCB 5 (2024), which essentially outlines the same conclusion from a different angle.

Comments

As previously suggested in recent Saffery VAT Updates, major changes to TOMS in the UK are perhaps on the horizon. The form such changes may take could also be influenced by the conclusion of an ongoing EU review. This is largely because currently non-EU operators (including UK operators) are seen to have an unfair advantage as their services in the EU do not currently attract VAT.

While HMRC’s latest RCB doesn’t have any real impact on UK businesses operating within TOMS, there are likely to be some major changes over the next couple of years that could impact them more significantly, and not just tour operators, both domestically and in the EU. 

Please get in touch with John Butterfield, VAT Director, for further details.

HM Treasury has announced its intention to launch a 12 week-long consultation with respect to a new VAT relief for everyday items given by businesses, as charitable donations, before 23 July 2024.

The relief would apply to donations of low value household goods to encourage donations from businesses to charities, which then distribute those items to those in need. HM Treasury believes such a VAT relief would ultimately alleviate the impact of poverty.

It’s expected that the relief would apply to items such as:

• Hygiene products such as soap, toothpaste, toothbrushes, shower gel, toilet rolls etc,
• Second-hand items from hotels such as sheets, kettles, and
• Cleaning supplies including laundry detergent.

It’s understood a VAT relief would not extend to goods which are donated to charities for them to use, such as new IT equipment, however the consultation allows an opportunity for the case to be made for a wider scope of goods to qualify for VAT relief when donated.

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The technical VAT point, with respect to the current situation regarding businesses donating goods to charities, is that in most circumstances the business would have to pay VAT as a deemed supply would have been made. There is a view that this VAT cost is discouraging businesses from making donations of goods to charities, and the aim of the VAT relief would presumably be to apply the zero-rate of VAT to the deemed supply. This would eliminate the VAT cost to businesses of donating goods, with the hope then being that they will donate more.

Once the outcome of the consultation has been published, we’ll provide further views on the likelihood of a VAT relief being introduced, and the scope such relief would potentially take.

Please contact Wendy Andrews, VAT Director, for further information regarding the consultation, or more generally about donating goods to charities and the VAT implications for the donor.

In our VAT Update – May 2022 we reported on the First-tier Tribunal (FTT) case of WTGIL, which considered whether an insurance intermediary was making a supply to policy holders with respect to black box devices fitted in their vehicles. The FTT ruled that an insurance intermediary made neither a supply for consideration nor a deemed supply to policyholders in relation to black box devices fitted in their cars to analyse their driving. Consequently, input tax was not recoverable in respect of the provision and fitting of the devices. WTGIL appealed to the Upper Tax Tribunal (UT) which recently announced its conclusions in the case.

The UT agreed and ruled there was no supply of goods when the devices were fitted to insured parties’ vehicles. However, it did see a supply of services being provided which comprised the actual installation (therefore a taxable supply), although this would only be the case if WTGIL received payment for the installation. Such payment could be monetary or non-monetary, but it would be required for there to be a supply for VAT purposes. In the case of WTGIL’s position however there was no such consideration and therefore no supply which would entitle WTGIL to VAT recovery on associated costs. The appeal was unsuccessful.

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We often comment on the importance of reviewing and understanding the commercial and contractual arrangements when determining the VAT position of a particular scenario. In the case of WTGIL, the arrangements were relatively complex but overall did not indicate to the court’s satisfaction that a supply was being made by WTGIL when devices were installed into insured parties’ vehicles – the lack of a direct connection between the provision of the devices, their installation, and consideration payable by the insured parties was ultimately the crucial point.

Please get in touch with Nick Hart, VAT Director, if this case is of interest.

On 18 April 2024, the Court of Justice of the European Union (CJEU) issued its judgment in C-68/23, M-GbR  regarding the VAT treatment of vouchers and provided some clarification of the definition of a single-purpose voucher (SPV) and a multipurpose voucher (MPV).

For background, it’s important to determine whether a voucher is an SPV or an MPV, as the VAT treatment of the two is very different. A voucher is an SPV if both the place of supply of the goods or services for which the voucher can be redeemed against, and the VAT liability of the underlying goods or services, are known at the time the voucher is issued. An MPV is a voucher which is not considered an SPV because either the place of supply or the VAT liability of the goods or services are not known at the time of issuance. The main VAT implication is that for SPVs, VAT is accounted for as appropriate, at each stage of the supply chain, whereas for MPVs, VAT is due on redemption only.

The dispute in this case concerned M-GbR, a German reseller of prepaid cards and voucher codes originally issued by a UK company, which can be used to purchase digital content from an online shop managed by the UK company. The prepaid cards or voucher codes were marketed in the EU via various resellers and had different ‘country codes’ where they were intended to be used only by end customers who were domiciled or habitually resident in that country.

M-GbR considered that the vouchers they sold were MPVs and did not charge VAT on the resale of the vouchers, as the domicile or habitual residence of the end customers was not known with certainty at the time the vouchers were sold. The VAT treatment was therefore unclear at the time of sale as they were unable to determine with certainty the place of supply. It was also contended that while the terms and conditions required the end customer to provide accurate information about their place of domicile or habitual residence, a large number of end customers provided inaccurate information to benefit from price advantages.

The German tax authorities disagreed and argued that the vouchers were SPVs, and that German VAT was due on the sale. In addition, the German tax authorities took the view that even if the vouchers did qualify as MPVs, M-GbR provided distribution services which would still be liable to VAT.

In considering whether the voucher was an SPV, the CJEU ruled that since the vouchers could only be used by customers domiciled in Germany, the place of supply was known and the fact that some customers were in breach of the terms and conditions by deliberately providing misleading information didn’t change the position. The CJEU didn’t have evidence before it to determine whether all of the supplies for which the vouchers can be redeemed are taxable at the same VAT rate and remanded back to the referring court. However, if this was the case, the vouchers would qualify as an SPV and VAT would be due each time they were sold.

The CJEU also confirmed that even if the cards were MPVs, the resale by M-GbR may still be subject to VAT as a separate supply of distribution or marketing service.

Comments

The EU VAT rules on vouchers changed in 2019 and were implemented by the UK when it was still part of the EU. While the UK is no longer bound to follow CJEU judgments, this case provides some helpful clarification on when a voucher is an SPV. It’s also worth noting that this is only the second CJEU case to look at these rules, making it an important reference for businesses dealing with vouchers either as an issuer, distributor or redeemer. It’s recommended that businesses involved in the supply chain of vouchers should take actions by reviewing the VAT treatment of their supplies, especially in complex arrangements involving multiple parties and/or cross-border supplies.  

Please contact Nick Hart, VAT Director if you issue, distribute or redeem vouchers, as this judgement will be of interest and potentially have significant consequences for the voucher supply chain you are involved in.