Indirect tax news from the past week
Q-GmbH: designing an insurance product is not exempt from VAT – CJEU
A German insurer engaged Q-GmbH to provide it with a specialised insurance product. Q provided a complete solution – it designed the product, sold it, managed it, and handled any claims. It earned brokerage fees from licensing the product to the insurer, even where sales were set up by another broker or agent. The CJEU has suggested that Q was not providing a single supply for VAT purposes (although this was a matter for the referring court to determine). The fact that Q earned commission even when it did not act as intermediary in selling the insurance showed that its intermediary services were optional extras which should be considered separately. The grant of the licence for designing the product enabled the intermediation and the claims handling services, but it did not oblige the insurer to use Q as its only intermediary and there was no evidence that Q's intermediary services were better than those of other agents. The licence on its own (or, indeed, the VAT liability of a composite supply where the licence fee was the main constituent) could not be exempt under EU law. Q was not offering insurance and it was not acting as an intermediary in relation to the licence, as its activity did not involve it being in contact with insurer and insured, or require it to prospect for new customers. Q GmbH should have charged VAT on its services. Please see here for further analysis. (Contact: David Fownes).
RCB 4(2021): VAT partial exemption and COVID-19
In RCB 4(2021), HMRC have set out their approach to a number of VAT partial exemption issues for businesses affected by COVID-19. The crisis has not necessarily impacted taxable and exempt supplies in the same way, creating the possibility that partial exemption special methods (PESMs) may temporarily not be fit for purpose, and may need adjusting. If HMRC are satisfied that proposed changes to a PESM are required because of COVID-19, then they will limit their enquiries into the proposed changes rather than necessarily reviewing the whole PESM (which can be a prolonged exercise). They confirm that COVID-19 represents an exceptional circumstance which can justify backdating changes to a PESM. Requests not to adjust partial exemption calculations for cancelled sales (which might distort recovery rates) will be considered sympathetically. Businesses using the standard partial exemption method are invited to consider whether an override will be more appropriate than a PESM. (Contact: Chris Chatting).
Tax Day: indirect tax consultations
On 23 March (‘Tax Day’) the government published over 30 updates, consultations, and research papers. As with the Budget, there were no signs of wholesale changes to the UK indirect tax system, but there were some items of interest. New consultations have been published on Aggregates Levy and aviation tax, and will be scheduled for Landfill Tax and simplifying VAT on land and property in due course. Responses to various consultations, including partial exemption and the capital goods scheme, have also been published, and the government has announced that proposed changes to VAT grouping will not be taken further. There were also several announcements related to modernising tax administration (e.g. a research report on Making Tax Digital for smaller businesses) and tackling non-compliance (e.g. a second consultation on the notification of uncertain tax treatments – ‘NUTT’). (Contact: Andrew Clarke).
SI 2021/369: domestic reverse charge on carbon emissions extended
Following the end of the Brexit transition period, the EU emission allowance trading scheme (EU ETS) for carbon credits will no longer apply within the UK. The UK has introduced a domestic equivalent, the UK ETS, but had not extended the domestic reverse charge to cover the new scheme. Carbon emissions trading has been a target for missing trader fraudsters in the past, and so to prevent the problem from recurring in the future SI 2021/369 extends the domestic reverse charge to trading under the UK ETS, with effect from 1 May 2021. The first auction of UK ETS allowances under the new scheme will take place on 19 May 2021. Following the end of the Brexit transition period, Operators must still comply with their obligations under the EU ETS relating to the 2020 year, which ends on 30 April 2021. (Contact: Louise Bonham Corcoran).