Weekly VAT News

Indirect tax news from the past week

13/12/2021

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Umbrella companies consultation

HM Treasury have published a consultation relating to the supply of staff through umbrella companies. In relation to VAT, HMT is concerned that mini-umbrella companies (MUCs) are being used as vehicles for abusing the VAT flat rate scheme, or for perpetrating missing trader fraud (echoing HMRC’s guidance published in May 2021). The consultation also mentions that some umbrella companies (for example those in the medical sector) have been incorrectly applying VAT exemption to their services, or have been purporting to set up joint employment contracts with agencies. In light of this, it is perhaps unsurprising that HMRC have updated Notice 701/57 to clarify that the nursing agencies’ concession “does not apply to umbrella companies supplying services of staff to a recruitment agency. It only applies to the direct provision of staff. For example nurses and nursing auxiliaries to a health provider by a business acting as a principal” (para 6.6). (Contact: Adam Routledge). 

Ecosystem of Trust end-to-end pilot

Authorised economic operator (AEO) status was introduced in 2008 to provide businesses with an internationally recognised quality mark indicating that their customs controls and procedures are efficient and compliant, and that their role in international supply chains is secure. As part of its 2025 UK Border Strategy, the government is seeking to build on AEO through developments in technological capabilities, real time data, and trusted relationships. This Ecosystem of Trust is intended to deliver a more frictionless import/export experience, enabling government agencies to focus on higher risk traders. Expressions of interest have been invited from consortia (which will generally include a port, an importer with an accredited overseas trade partner, a carrier, a logistics firm, and a technology company) to develop and run pilot schemes which will be operated in a live port environment next year. Expressions of interest should be submitted by 31 January 2022. (Contact: Bob Jones). 

SI 2021/1288: VAT on enforcement agencies’ fees

The Taking Control of Goods (Fees) Regulations 2014 prescribe a fixed fee and a percentage fee that enforcement agencies are allowed to recover from debtors for taking control and disposing of secured assets. Until now, the regulations have been silent on VAT. From 9 December 2021, however, SI 2021/1288 prescribes that the enforcement agency can treat the prescribed fees as a VAT-exclusive amount if the creditor is not VAT-registered; but it should treat the fees as VAT-inclusive if the creditor is VAT-registered. No allowance is made for the extent to which VAT-registered creditors might be unable to recover VAT on agency fees. Creditors and agencies should review invoicing to ensure that it is consistent with the new rules. (Contact: Laura Fallon). 

S&S Consulting: injunction for re-registration in VAT fraud appeal refused – HC

In May 2021 HMRC, following a year-long investigation, assessed S&S Consulting Services (UK) Ltd on the basis that it had only accounted for VAT on a third of its sales. Three months later, HMRC deregistered S&S on the basis that its VAT registration had been principally used for fraudulent purposes. S&S sought injunctive relief (i.e. re-registration pending the outcome of an appeal to the First-tier Tribunal and judicial review proceedings). However, the High Court has rejected its application. The availability of injunctions has been considered in relation to excise duty registrations, and the court considered that the same principles applied to VAT registrations. It was not enough for S&S simply to argue that HMRC’s behaviour was unreasonable; it had to go further and show egregious unfairness. This might arise, for example, if HMRC refused to engage with the taxpayer at all, but S&S’s complaints (e.g. that it was not forewarned of the possibility of deregistration) were not sufficient in principle, and not made out on the facts. Nor did the court accept that there was a pre-appeal insolvency risk which might mean that S&S’s rights under Article 6 of the European Convention on Human Rights were infringed. The application for injunctive relief was rejected. (Contact: Rob Holland).