Indirect tax news from the past week
RCB 6(2021): VAT liability of juice cleanse programmes
HMRC’s response to the Upper Tribunal’s confirmation that juice cleanse programmes (JCPs) sold by The Core café in Swindon were zero-rated has been published in RCB 6(2021). The liability of similar products will depend on a multifactorial assessment of all relevant evidence, including their ingredients, how they are made, how they are packaged and marketed, and when they are consumed. Although the First-tier Tribunal in The Core conducted just such a multifactorial assessment, the RCB suggests that many similar juice programmes should be subject to VAT. (Contact: Katy Broome).
HMRC guidance on the one stop shop
HMRC have issued guidance on the application of the EU’s VAT e-commerce package (which takes effect from 1 July 2021) insofar as it relates to Northern Ireland. The guidance does not therefore (unlike the European Commission’s guidance) address supplies of services, but does set out the new rules on distance sales and imports, and for online marketplaces facilitating such supplies. It acknowledges that businesses making distance sales over £8,818 annually that wish to use the UK’s One Stop Shop (OSS) will have to register for UK VAT (even if the annual value of their taxable supplies is below £85,000). Further guidance will be issued before 1 July on how to ensure that VAT will not be due automatically on domestic supplies in these circumstances. The guidance also states that the UK’s OSS or Import One Stop Shop (IOSS) registration portals are not expected to be available for use by 1 July, in which case further guidance will be issued. (Contact: Andrew Clarke).
Kingston Maurward: recategorising turnover in a PESM – FTT
Kingston Maurward College (KMC) has been operating a partial exemption special method (PESM) since 1998. The PESM was agreed on the basis that fully-funded further education was a non-business rather than an exempt activity, an approach that has recently been called into question by the Upper Tribunal in Colchester Institute Corporation. KMC considered that the funded education should not therefore have been recognised as non-business activity in its PESM (increasing its input tax), but that no equivalent input tax restriction arose from recognising additional exempt activity (because of the precise wording of the PESM). It should therefore be entitled to full recovery of residual input tax. The FTT agreed with KMC’s interpretation of the part of its PESM that related to non-business activity (highlighting the importance of the precise wording of PESMs). However, the FTT ruled that KMC’s input tax did not become residual merely because KMC had not attributed any of it exclusively to exempt supplies (KMC operated a farm and an equestrian centre commercially with help from students and claimed that all inputs related to its overall activity). KMC was making taxable and exempt supplies, and had to prove that there was a direct link between its costs and its taxable outputs (or its business as a whole). The FTT concluded that it had failed to do so, and dismissed its appeal. (Contact: David Walters).
Mini umbrella company fraud: new guidance
HMRC have published guidance on mini umbrella companies (MUCs), which are used by fraudsters to avoid NIC and which are also associated with VAT fraud. There appear to be two aspects to the VAT fraud. Firstly, MUCs tend to be short-lived (often being wound up within 18 months) which creates a risk of missing trader fraud – the MUC can disappear without paying over VAT shown as due on its final return. Secondly, MUCs may abuse the flat rate scheme, accounting for VAT at low rates reserved for sectors which incur significant VAT on their costs, when they should probably (if they qualify for the FRS at all) be categorised as limited cost businesses and account for VAT at 16.5%. The guidance contains a useful list of warning signs to look out for. Any business which uses temporary staff should ensure that it has appropriate controls in place to spot potential MUC fraud, to minimise the risk of being exposed to a VAT liability itself. (Contact: Adam Routledge).