VATflash December 2011

This month’s VATflash includes updates on legislation, business reminders, Government announcements and other VAT related issues to read during your Christmas festivities.

Zero-Rating for Books

Despite HMRC’s long-standing position that only books with textual material can be zero-rated, a recent case held that a photobook also qualified based on its intrinsic nature. This means that some suppliers could have been over-paying VAT to HMRC. Provided the book does not have a different purpose and its intrinsic nature is to be read or looked at, it could qualify for zero-rating and you could be able to claim the VAT back.

Alternative Evidence for Input Tax

Having valid purchase invoices is important when claiming input VAT. But it is also possible to claim input VAT without a VAT invoice since the law requires HMRC to use their discretion to accept alternative evidence. Not surprisingly they are resistant to accept anything as alternative evidence, but the Courts have recently held that HMRC are required to look at wider forms of evidence for input VAT purposes such as bank records, sales and purchase ledgers, accounts and other non-tax related commercial documentation. If you have had input VAT refused because of a lack of a VAT invoice but can substantiate the purchase by other means, it may be worth a further claim to HMRC.

Claims Against the State

A fascinating case at the European Court recently looked at claims by a customer against his supplier, that he had been charged too much VAT. The Court held that where the supplier’s mistake was due to an error by the State (forcing the supplier to charge VAT wrongly on an exempt supply, for example), the customer may be able to claim the over-charged VAT back directly from the State if the supplier is no longer in a position to correct the error (if they had gone out of business, for example). Such claims are not expected to be easy but where there is a lot of money at stake it could be a useful route to explore if you think you have been over-charged VAT by mistake.

Healthcare

You may recall the item in a previous VATflash about recent press coverage suggesting the Government is to add VAT to cosmetic surgery. This is still causing concern as the Government have felt the need to re-state what the legislation actually says. In order to qualify for exemption, the treatment, cosmetic or otherwise, has to ‘protect, maintain or restore’ the health of the patient. It is easy to see the problems this will cause for some cosmetic surgery or dental work, for example, and it may also have an implication for procedures like IVF treatment if the political will was there to interpret the legislation strictly. For now though, we will have to wait and see how HMRC will approach it.

GAAR

The Government has been looking in some detail at a General Anti-Avoidance Rule. The report has been published by the project team and whilst a GAAR is almost certain to be introduced for direct tax, it was decided that one was not needed for VAT as the Halifax principle counteracts most VAT avoidance schemes. In fact the proposed direct tax GAAR cribs its principles from the Halifax VAT decision, where the two key points are that a transaction can be ruled out by the tax authorities if it achieves an aim contrary to the purpose of the legislation and was designed essentially with that purpose in mind. In other words, to artificially create a tax advantage not intended by the legislators. When this is introduced by the Government, expect HMRC to commence challenging all forms of direct tax planning, artificial or otherwise.

Unregistered Business

Just a quick reminder that any small businesses that are trading above the VAT registration threshold have until 31 December 2011 to register for VAT or face a crackdown by HMRC.