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The latest changes to VAT, including on food, pensions and students. 

Business to consumer (B2C) supplies

The EU place of supply VAT rules will change from 1 January 2015. The changes impact B2C supplies including e-services. From 1 January 2015, the place of taxation for certain supplies will be determined by the location of the customer.

HMRC in its note rightly states that ‘this is a significant change and in order to work out the country in which VAT due must be paid, you will need to keep additional information that was not required before’.

It is also highlighted in the note that to ‘save you having to register for VAT in every EU member state, where you supply broadcasting, telecommunications and e-services, you may opt to use the VAT Mini One Stop Shop online service (VAT MOSS). This will be available on 1 January 2015, but you will be able to register to use it from October 2014.’

These are a few of the facts highlighted in the note:

  • if you supply broadcasting, telecommunications and e-services (BTE) services to businesses only (including those who are self-employed) then these changes do not affect you
  • if you are a business supplying BTE to consumers, these changes will affect you, so you need to start planning for them now
  • if you supply BTE services to a mix of businesses and consumers, then these changes affect you as far as the supplies to consumers are concerned
  • if your customer does not provide you with a VAT Registration Number (VRN), and you have no other information that suggests that your customer is in business and VAT registered, you can treat this as a B2C supply
  • if you supply consumers through an online store or gateway, and the online store or gateway is acting in its own name, then they will normally be considered to be supplying the consumer. This means that the online store or gateway will be responsible for declaring and paying any VAT due. You will be treated as supplying the store and so will be making a business to business (B2B) supply, rather than a B2C supply. If this is the case, these rule changes do not directly affect you.

These changes to the place of supply rules were made by the introduction of legislation announced in the Budget 2013.

MOSS was unanimously agreed by the member states in 2008, so it has been long anticipated, so why is it being introduced? Currently intra-EU supplies of BTE services to non-business customers are subject to VAT in the member state where the supplier belongs. From 1 January 2015 the place of supply will change to where the customer belongs.

There will be further changes to the agency legislation to reflect these rules for taxable persons acting in their own name on behalf of another when supplying telecommunication or e-services.

The place of supply rule changes could lead to a BTE supplier having to register in each member state where they make supplies and suffer the administrative burden that comes with it: that’s potentially 28 VAT registrations. The MOSS will be implemented from 1 January 2015, giving the supplier an option of registering in just one member state and accounting for any VAT due to any member states through a single MOSS return.

This should remove the incentive for businesses to locate offshore and level the playing field for all BTE suppliers. The aim is to reduce the administrative burden and associated costs of multiple VAT registrations.

There will be additional changes to the place of supply rules to align with other member states and to close minor loopholes used by certain anti-avoidance schemes. 

Notice and guidance updates 

Food

VAT Notice 701/14: Food has been updated to take into effect the changes to the sports nutritional drinks in 2011, for further details please view ACCA’s articles written on this matter at the time of the changes. 

Pensions

Revenue & Customs Brief 06/14 VAT: CJEU judgment regarding deduction of VAT on pension fund management costs highlights the HMRC position following the Court of Justice of the European Union (CJEU) in Fiscale Eenheid PPG Holdings BV cs te Joogezand (PPG). The case concerned an employer’s entitlement to deduct ‘VAT paid on services relating to the administration of its employees’ pensions and management of the assets of the pension fund set up to safeguard those pensions, where the pension fund was a legally and fiscally separate entity’.

This is a change to HMRC’s policy which previously split the costs incurred in relation to a pension funds as that of:

  • administration
  • management of the investment activities…

…only allowing the administration costs on the basis that there was a ‘direct and immediate link’ to the activities of  a business. HMRC had considered the management of the investment to be solely the activities of the pension fund and therefore any deductible input tax would be attributable made by the fund or the trustees of the fund.

In cases where a single invoice was received for administration and management of the fund HMRC allowed employers to claim 30% of the VAT. The guidance goes on to state that as ‘a result, HMRC is changing its policy on the recovery of input tax in relation to the management of pension funds. This means that there are circumstances where employers may be able to claim input tax in relation to pension funds where they could not previously.’ They also highlight that claims for unclaimed input tax can be made.

HMRC will not accept that the input tax will be deductible in the following circumstances:

  • supplies were not made to the employer (this includes, but is not limited to, consideration of whether the employer has commissioned and paid for the services)
  • supply is limited to investment management services only (that is, it is not a combined supply of both investment management and pension administration services).

If you believe that this case affect you or your clients’ businesses HMRC are encouraging retrospective claims for cases where no input tax was deducted and where a proportion of input tax was deducted.

Students

Revenue & Customs Brief 04/14 VAT has been issued to clarify the term ‘student’ when used for relevant residential purposes.

Constructing a building for ‘relevant residential purposes’ attracts relief from VAT and included in this is student accommodation.  The term student has been misinterpreted and this guidance is to help clarify what student means.

A student is ‘a person undertaking a course of educational study or instruction’. It includes ‘any person who is receiving education or vocational training from a university (or a centrally funded higher education institution) or from any other supplier who is providing similar, or the same type of, education or vocational training similar, or the same, academic standard.’

For example:

  1. obtaining a generally recognised academic or professional qualification
  2. maintaining an existing professional qualification for which accreditation is received
  3. undertaking a course of study which, while not leading to a recognised qualification, has a high level of academic content and is intended to improve the knowledge and understanding of the student in an area of academic interest.

Continuing Professional Development (CPD) as required by a professional body or an employer would fall within example 2. It is example 3 where the ambiguity arises: hobby or leisure interests would not fall within the definition of student.

Dwelling or relevant residential purposes

Revenue & Customs Brief 04/14 VAT has been issued regarding the interaction between buildings that are:

  • designed as a dwelling or dwellings
  • intended to be used for a relevant residential purpose (RRP).

Both types of buildings when constructed are a zero-rated supply for VAT purposes; however, for a dwelling or dwellings it is due to the design of the building and for RRPs it is based on the usage. HMRC recognise there may be instances where a building constructed could fall within the definition of a dwelling and a RRP. In these instances the taxpayer is free to rely on either provision to achieve  a zero rating for the building.

For further guidance please view VAT Information Sheet 02/14

Article from ACCA In Practice