Keeping you up to date on VAT changes - May 2021

However, there are still many interesting points to pick up on, including case law, reminding us that good housekeeping is always best when it comes to Bad Debt Relief.

UK Law Update – Northern Ireland

The repercussions of Brexit are fewer and feel less disruptive as time goes on, but housekeeping continues and we have detailed some recent finer points below.

A new Statutory Instrument, The Taxation Cross-border Trade (Northern Ireland) (EU Exit) (Amendment) Regulations 2021, was made on 19 April 2021, laid before the House of Commons on 21 April 2021, and came into force on 22 April 2021.

The following Regulations are amended:

• The Customs (Northern Ireland) (EU Exit) Regulations 2020 regulation is amended by adding paragraphs setting out to which goods duty does not apply; and
• In the Value Added Tax (Northern Ireland) (EU Exit) Regulations 2020, Regulation 35 is added providing for relief from VAT for goods returning to Great Britain from Northern Ireland.

HMRC published a Policy paper here on the potential for impact of the amendments.

VAT and Online marketplaces

HMRC has recently updated its guidance on how online marketplaces deal with VAT on goods that are outside the UK when sold to a UK customer.

The latest update includes links to HMRC’s guidance on dealing with VAT on goods returned to the seller (here); and guidance on the checks an online marketplace must complete on overseas sellers (here).

HMRC’s guidance on VAT and overseas goods sold to customers in the UK using online marketplaces can be found here.

Paying deferred VAT

On 14 April 2021, HMRC updated its guidance on the payment of deferred VAT due from 20 March – 30 June 2020, as a result of the Covid-19 pandemic. The latest update confirms that a penalty of 5% or interest may be charged if the amount due is not paid, or no arrangement to pay is made, by 30 June 2021.

The full guidance can be read here.

Accounting for import VAT

On 8 April 2021, HMRC updated its guidance on when import VAT can be reported on the importer’s VAT return.

Under the ‘If you import goods for business and non-business purposes’ section, updates have confirmed that import VAT can be accounted for on the importer’s VAT return if the imported goods will be used solely for a non-business purpose, and the body is eligible to reclaim import VAT through a VAT refund scheme.

There is also additional change to the ‘How to complete your customs declaration to account for import VAT on your VAT Return’ section. The update confirms that once a method of dealing with import VAT has been chosen it cannot be changed for that importation.

The full guidance can be referred to here.

Case Law Update – Bad Debt Relief

This case serves as a good reminder to keep an eye on bad debts generally, and ensure that you are securing VAT relief from unpaid debts where available. Please get in touch if this is of interest.

In Saint-Gobain Building Distribution Limited v The Commissioners for HM Revenue and Customs [2021] UKUT 0075 (TCC) Saint-Gobain attempted to overturn the decision of the First-tier Tribunal (“FTT”) published as Saint Gobain Building Distribution Limited v HMRC [2019] UKFTT 314 (TC).

Saint-Gobain made a claim, in 2014, to HMRC for historic bad debt relief on value added tax on supplies in the period 1 April 1989 to 18 March 1997. HMRC rejected the claim. The FTT dismissed the Saint-Gobain appeal against HMRC’s rejection. The key issue before the FTT was whether Saint-Gobain could show that it had not already made bad debt relief claims (“BDR claims”) for those supplies before, in circumstances where the VAT records relating to the relevant period of claim had long since been destroyed. The FTT was not satisfied the appellant could show that the bad debt relief claims had not already been made before. With the permission of the Upper Tribunal, Saint-Gobain challenged the FTT’s conclusion on a number of grounds. These concern the effect of guidance the then HM Customs and Excise (“HMCE”) gave in relation to the availability of BDR claims in VAT Notices published in the relevant period of claim and also the FTT’s approach and the conclusions it reached on the evidence before it.

The Upper Tribunal upheld the decision of the First Tier Tribunal.

You can download the decision as a PDF from the Upper Tribunal website here.

Case Law Update – Zero rating, sale and leaseback

In Balhousie Holdings Ltd v Revenue and Customs (Scotland) [2021] UKSC 11, the Supreme Court has allowed the appeal against prior rulings and found that Balhousie did not dispose of its entire interest in a care home through a sale and leaseback arrangement.

Therefore, HMRC was wrong to claw back the benefit of a zero-rating treatment.

This case highlights the complex rules in application of zero rating in land and property transactions, and the value that can be added by consulting with professional advisors to fully understand the implications of your arrangements.

As ever, we would be pleased to assist with discussions at early stages of projects, to help to highlight common pitfalls, and the impact that common mechanisms have on your VAT accounting.

You can read the full case here.

Case Law Update – NHS car parking chargeable to VAT

In Northumbria Healthcare NHS Foundation Trust, the first tier tribunal has ruled that NHS car parking charges were subject to VAT and that the Trust was supplying car parking for consideration in the course of an economic activity.

The FTT also ruled that the car parking was not VAT exempt as “closely related” to hospital or medical care as it was not an indispensable stage in diagnosing, treating, or curing disease. Even if it was an essential part of the therapeutic process, then it would be excluded from the VAT exemption as the car parking was in competition with commercial operators. The Trust’s appeal (relating to a claim for VAT of £267k for 2013-16) was dismissed.

Case Law Update – VAT Registration Cancellation

This case (Step By Step (Northern Ireland) Ltd v Revenue & Customs [2021] UKFTT 52 (TC)) looked at HMRCs refusal of an application to cancel a VAT registration. The fact pattern considered whether supplies made in a restaurant were closely related to exempt supplies of education and found that this was correct. HMRC’s decision to refuse to cancel the registration was deemed unreasonable and Step by Step’s appeal allowed.

You can read the full case here.

And finally, HMRC confirms extension of working from home tax relief

While not a VAT update, we found it interesting to see that HMRC has recently confirmed that employees working from home due to the coronavirus pandemic can continue to claim tax relief on costs not reimbursed by their employer. Previous claims will not be rolled forward from 2020-21, and a new claim will need to be made for the 2021-22 tax year.

Tax relief can be claimed on up to £6 a week from 6 April 2020 without a need to keep evidence of any extra costs. Employees may be able to claim using HMRC's online service, which is now open for claims that are for periods up to 5 April 2022, however, employees who complete a Self-Assessment tax return must instead claim these expenses as part of that return.