2014 – Pick ‘n’ mix

Pick n mix sweets
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It’s been quite a while since I did a tax round-up at the end of the year. Well, to be truthful, the only time was in December 2011 but I wanted to do it again. I thought I would ask my fellow tax warriors for their highlight(s) of 2014 and add my own thoughts to what they said. So that is exactly what I did and many thanks to everyone who contributed.

The first response I got was from Linda Skilbeck.

The #VATMOSS ‘debacle,’ as Linda describes it, certainly created a tax twitter storm, generating around 20,000 tweets and counting. Many tagged it #VATMESS for reasons which I will explain.

From 1 January 2015 the VAT rules for the place of supply of digital services (such as music downloads, web-hosting and e-books) from a business to a non-business customer will change so that the place of taxation will be where the customer (not the supplier) is based.  Companies like Amazon who have been taking advantage of Luxembourg’s low VAT rate on certain digitally supplied services to undercut suppliers based in other Member States will no longer be able to do so as.  An online VAT Mini One Stop Shop (the VAT ‘MOSS’), is being made available by the tax authorities so that suppliers of digital services need not register in every Member State in which they have customers.  Using the MOSS will allow businesses to submit a single VAT return and payment each quarter for all their cross border supplies of digital services.

The fiasco came about because there was no threshold taking small businesses out of the new rules so even the tiniest start-ups would be caught.  This sparked a campaign in the UK  to ‘Uphold the VAT Exemption Threshold for businesses supplying digital products’ and a petition to that effect addressed to the Secretary of State for Business, Innovation and Skills secured over 21,000 signatures.

Under the EU rules the MOSS is only available for VAT-registered businesses.  This threw up a problem in the UK where the annual VAT registration threshold is high (at £81,000), as businesses below the threshold would have to register for VAT in order to use the MOSS and this would add VAT to the price of their non-MOSS supplies.  A ‘work-around’ was eventually offered by HMRC in Autumn 2014 but only for businesses which could separate their UK and other EU sales of digital services.  The proposed solution was to voluntarily register for VAT in the UK for the cross border part of the business, and then register for the MOSS.  The UK part of the business would be unaffected by the VAT registration.  For others, registration in each Member State where customers were located was required.

On 29 December 2014 (yes, two whole working days before the changes come into effect) HMRC changed their guidance and offered this late stocking-filler:

‘UK micro-businesses that are below the current UK VAT registration threshold, and who register for the VAT Mini One Stop Shop (MOSS) may, until 30 June 2015, base their ‘customer location’ VAT taxation and accounting decisions on information provided to them by their payment service provider.’

Never mind VAT Mess, seems more like an omnishambles to me.

Linda kindly identified another subject, HMRC’s failure to transpose EU legislation either correctly or at all (which I blogged about last December and which I find particularly irksome).

In a decision released just before Christmas 2013, the European Court upheld Bridport & West Dorset Golf Club’s argument that green fees charged to visitors should be exempt in the same way as those paid by members.  HMRC had argued that, under Item 3, Group 10, Schedule 9, VATA, supplies by non-profit-making bodies of ‘services closely linked and essential to sport’ to individuals taking part in sport were exempt from VAT however, where those bodies operated a membership scheme, the same type of supplies made to non-members were subject to VAT.  The European Court said that all supplies by non-profit-making clubs of the right to play golf must be exempt under article 132(1)(m) of Council Directive 2006/112/EC. (the ‘PVD’) and that it was not possible for a Member State to apply a general exclusion which narrowed the scope of that exemption. So Bridport won.

In June 2014 (a mere seven months later) HMRC issued RCB 25/14 in which they said:

‘As a result of the CJEU judgment, HMRC accepts that supplies of sporting services to both members and non members of non profit making sports clubs qualify to be treated as exempt from VAT. This is provided that the services are closely linked and essential to sport and are made to persons taking part in sport. HMRC will legislate by 1 January 2015 to reflect this.’

Well they’d better get their skates on if they’re to meet that deadline!

In British Film Institute, the First-tier Tribunal rejected HMRC’s contention that article 13A(1)(n) of the Sixth Directive did not have direct effect and held that the films which the BFI screened qualified for exemption as cultural services supplied ‘by bodies governed by public law or other cultural bodies recognised by the Member State concerned’ even though during the relevant period UK legislation did not exempt all cultural services supplied by relevant bodies (and still does not).  HMRC appealed and, in August 2014, the Upper Tribunal concluded that the First-tier tribunal had made no error of law and its decision was upheld.

The Sixth Directive provided exemption in article 13A(1)(n) for ‘certain’ cultural services provided by bodies governed by public law or other cultural bodies recognised by Member States. According to HMRC, the use of the word ‘certain’ gave a Member State discretion to exempt some cultural services but not others.  HMRC contended that this discretion meant that the provision was neither clear nor precise and was, therefore, not of  direct effect. The Upper Tribunal dismissed these arguments and confirmed that the provision should be read as if it said ‘those’ cultural services rather than ‘certain’ cultural services. When the word ‘those’ was substituted, the provision was clear  and precise and had direct effect. So BFI won.

Two bullseyes for the taxpayer but at what cost?  In my view HMRC should have realised they were licked and given in at the review stage to save everyone the bother.

E3 Consulting tweeted back both a highlight and a lowlight for the year.  Their highlight was:

The annual investment allowance allows a business to set up to 100 per cent of the cost of qualifying plant and machinery against its taxable profits in the year of purchase. It was doubled to £500,000 in the March 2014 budget so perhaps George isn’t quite the Scrooge we thought he was.

E3 Consulting’s lowlight for 2014 was:

E3 Consulting are referring here to legislation which has effect from April 2014 and may prevent purchasers of buildings containing plant and machinery from obtaining capital allowances.  From April 2014, most sellers have had to ‘pool’ their expenditure on plant and machinery in a chargeable period when they owned the building in order for allowances to be passed on to a purchaser.  ‘Pooling’ means adding the expenditure to the seller’s pool of expenditure qualifying for capital allowances, although the seller does not have to actually claim allowances.  The pooling rule applies to property, other than new buildings, acquired by corporation taxpayers on or after 1 April 2014 and for income taxpayers to property acquired on or after 6 April 2014.  Where a seller has not claimed allowances but was entitled to, a purchaser will need to ensure that the seller agrees in the sale documentation to pool its expenditure. If the seller is not entitled to allowances, perhaps because it is a non-taxpayer, such as a pension fund, the last owner of the property who was entitled to claim allowances (and owned the building at some time after April 2014) would have had to have pooled the expenditure in order for the allowances to be available to a subsequent purchaser.

Hardly simplification, is it George?

Sue Christensen (@taxqueen49) emailed me this contribution which speaks for itself:

‘The Demise of the Employers File

I act for a number of the employees of a large opera company. These clients are orchestra members. Many years ago the employer negotiated with HMRC a fixed allowance for instrumental upkeep etc. This has been applied without problem until this year. HMRC say they have no sign of any agreement and indeed having seen my copy deny it can still be regarded as effective.

The telephone calls have been frustrating in the extreme!

So the harmony has been damaged by the lack of the internal file and new players are being told they must provide detailed claims which the long-standing members do not have to give.
2015 will find me carrying on the battle beyond its overture and into Act 1 in the hopes of a bright happy ending, unlike many of the operas they play in!

I can only hope for the final curtain closing on triumphant note !’

Best of luck Sue.  I hope you and HMRC can make sweet music together in 2015.  Let us know how you get on.

In all the excitement I nearly forgot my own contribution:

George saying in this year’s Autumn Statement that the Office of Tax Simplification’s proposals for a new definition of ‘marketable security’ wouldn’t be enacted after all. Why? Because they were too complicated. Well, there’s a thing.

Must rush – off to download War and Peace before the price goes up.

Tax lawyer specialising in business tax, SDLT and VAT

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