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VAT & Excise Duties
VAT and Barter Transactions Print E-mail
Tax News - VAT & Excise Duties
Written by Rob McCann   
Tuesday, 26 November 2013 00:00

“Cashbacks” and trade-ins are not the same thing for VAT, as Rob McCann of the VAT People explains.

It is quite common for businesses to exchange goods or services with each other. This is sometimes an exchange of goods or services with a like for like value, or sometimes payment is made for a supply by part cash payment and part reciprocal services/goods. It is equally common for the same businesses to assume that there are no VAT consequences for such an arrangement as there is no money changing hands, however, this is not usually the case. This is highlighted by the recent case of AV Concepts, which involved a supply of goods in return for a cash payment and obsolete goods. The hearing should have been a fairly simple case involving a dispute with HMRC about VAT of only just over £1,000, however it looked at some complex issues relating to how the value of a supply is determined when a barter transaction occurs.

The business supplied technically advanced white boards to schools, which teachers could write on and print off notes for the pupils. The boards were almost invariably supplied to the schools in return for cash and obsolete projectors or other equipment. HMRC allow a discounted amount to be used where a fixed allowance is offered, where amongst other points, no attempt is made to value the traded-in goods and there is no reason for the goods to be accepted other than for trade promotion (which would not apply where prior arrangements have been made for the traded-in goods to be reconditioned or sold). The business had sought to rely on this policy, however, the discounts it offered were not fixed amounts and the obsolete equipment was subsequently serviced and sold on eBay. In addition, the new equipment was not actually sold to the schools but sold to a lease business BNP Paribas who then leased it to the school and it was not clear if any schools had actually paid the business cash for the supply.

The dispute with HMRC related to establishing the value of the supply by AV Concepts, that is :

  • were the white boards supplied for cash and barter goods (the obsolete equipment) that AV Concepts might later sell? If so VAT would be due on the total cash and barter goods value, or
  • if the obsolete item had no value and the business was offering a discount on the sale price of the white board, would the VAT be due on the cash payment received?

The chairman ruled that the value of the supply was established by the contract price of the item supplied by AV Concepts. This meant that if the sales price had been £100 and it was reduced to £90 when items were taken in part exchange, the non monetary value of the part exchange items was £10. VAT therefore should have been paid on the total of the cash element of the consideration and the value of the part-exchange item. VAT would therefore be due on the £100 total consideration received by AV Concepts.

The VAT People’s Rob McCann commented, “The well-known Elida Gibbs case [Elida Gibbs Ltd v C & E Commissioners] demonstrated that retailers may reduce their VAT when “cashback” discounts are offered, however in this case the tribunal was satisfied that this was not a discount, but a combined sale for cash and goods for value – and as such, the business was required to account for VAT on both the cash consideration and the goods received in exchange.”

 
UK Tourism Struggles Against Continuing European VAT Subsidies Print E-mail
Tax News - VAT & Excise Duties
Written by TMF   
Monday, 18 February 2013 00:00

Richard Asquith of VAT Consultants TMF warns that the UK tourism industry risks being 'undercut' by mainland European competition thanks to lower VAT rates there.

News that Switzerland (Jan 2013) and Ireland (Dec 2012) have both decided to extend their reduced VAT rates on tourism and entertainment services will leave the UK industry struggling with one of the highest tax charges in Europe.

The number of overseas visitors coming to the UK has fallen from 33m in 2007 to 31m in 2012, which is costing the UK economy £1.1 billion per annum (source: The Office of National Statistics). This fall also coincides with the current economic downturn.

The UK is one of the very few European countries which levy the full, standard VAT rate on hotel accommodation, restaurants, theatres and catering services.  Most other countries view tourism as a key strategic industry, and subsidise their sectors through reducing the VAT rate charged to visitors and locals.

The table below highlights the differences on VAT rates for tourism and ‘going out’, as against the standard rate for each country:

Country Hotels Restaurants Theatres, Cinema Standard Rate
UK 20% 20% 20% 20%
Ireland 9% 9% 9% 23%
France 7% 7% 5.5% 19.6%
Germany 7% 19% 7% 19%
Italy 10% 10% 10% 22%

 

All EU member states are obliged to follow the VAT rules as set by the European Commission, which usually require them to have a standard VAT rate above 15%.  However, tourism is one of the exceptions where countries may apply locally-set reduced VAT rates.

In the past few weeks, both Ireland and Switzerland have agreed to extend their reduced VAT rate, for one and four years, respectively.  They had originally introduced the temporary reductions following Germany’s decision to reduce its hotel accommodation VAT rate from 19% to 7% in 2010.

Richard Asquith, Global Head of VAT, TMF Group commented:

“Whilst Ireland and Switzerland have both raised their standard, headline VAT rates during the current financial crisis, they still see tourism as a key industry for employment so have extended their reduced VAT charge.  What started out as temporary initiatives now seem to be becoming permanent – copying the rest of Europe.  The UK’s 20% VAT rate on tourism leaves the industry challenged and probably with a further squeeze on their margins as tourists will resist price rises.” 

 
HMRC Finally Updates Guidance on VAT Bad Debt Relief Print E-mail
Tax News - VAT & Excise Duties
Written by Lee Sharpe   
Friday, 08 February 2013 00:00

We are pleased to note that HMRC has finally revised VAT Notice 700/18 Relief from VAT on Bad Debts

TaxationWeb pointed out over a year ago in Can We Trust HMRC Advice? that HMRC's guidance on reclaiming VAT Bad Debt Relief still failed to mention that the time limit for making claims had been extended from 3 to 4 years. This change - in favour of the taxpayer - was introduced for VAT purposes in April 2009.

While the new guidance is welcome, it is surprising that it has taken almost four years for the guidance to be updated. As we said in our previous article, it is difficult to believe that HMRC would have been so slow to correct its guidance if the time limits had been restricted from four years down to three!

 
The New Machine Games Duty Starts Today - Flat Rate Scheme Operators Beware! Print E-mail
Tax News - VAT & Excise Duties
Written by Lee Sharpe   
Friday, 01 February 2013 00:00

The new Machine Games Duty, or MGD, is applied to games machines from 1 February and applies basically to all games machines where the player stands to win back a cash prize of more than the money "staked".

All affected licence holders should now be registered, and HM Revenue & Customs may charge penalties if they are not.

While the MGD is generally charged at 20% - just like VAT - it is not a "taxable supply" for VAT purposes but exempt, meaning that affected operators may now struggle to reclaim some or all of the VAT back on their costs.

Those traders who have been using a Flat Rate Scheme may be particularly badly affected, as HM Revenue & Customs has confirmed they will now have to account for VAT at the Flat Rate and MGD on machine takings.

This is because the Flat Rate is meant to cover ALL supplies made by a business, including those which are exempt. (Although regular readers may recall that HMRC lost their fight over bank interest - CIOT Challenges HMRC on VAT Flat Rate Scheme and Bank Interest)

In theory, HM Revenue & Customs could review the Flat Rate percentages in affected sectors and reduce them to reflect the reduced VAT that would be accounted for using the standard method. But they have confirmed that there is currently no intention to do so. HMRC points out that the Flat Rate Scheme is meant to simplify VAT for smaller traders rather than to save money and if the percentage now seems unfair, it is possible to leave the Scheme and go back to the 'normal' method of VAT accounting.

Rob McCann, director of The VAT People, said:

"The change from VAT to Machine Games Duty is causing a number of headaches for operators of gaming machines. The VAT implications of the change, of which the Flat Rate issue is one, are proving to be particularly troublesome and affected businesses must take steps to ensure that they do not incur a significant VAT bill as a result of the change".

For further information on the Flat Rate Scheme and registration, see Reminder - Games Machine Operators Have Until 11 January to Register for New Tax

 
Reminder: Games Machines Operators Have until 11 January to Register for new Tax Print E-mail
Tax News - VAT & Excise Duties
Written by Lee Sharpe   
Tuesday, 08 January 2013 00:00

Gaming machine operators have until 11 January to register for a brand new tax, Machine Games Duty, (MGD), which will come into effect from 1 February and applies where the player can win a cash prize greater than the cost to play. It will replace VAT (on net takings) and Amusement Machine Licence Duty (an annual charge).

It will apply to machines in:

  • Bookmakers
  • Amusement arcades
  • Bingo halls
  • Casinos
  • Pubs, clubs and other venues

HM Revenue & Customs has guaranteed to process all applications for registration received by Friday 11 January; applications received after that date may not be processed in time for 1 February when the MGD starts, leaving late applicants exposed to a penalty.

There is a special online registration service at

Machine Games Duty Online

Further information on Machine Games Duty can be found at

Machine Games Duty

Operators should also be aware that, from 1 February, at least some of their supplies (the takings from machines subject to the new MGD) will be exempt from VAT so they will be affected by the VAT "Partial Exemption Regime".

 
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