Welcome to the October edition of our monthly VAT update, including a selection of news and updates relating to the world of VAT.
OnlyFans advised to pay more UK VAT for subscribers
The taxpayer operated a website called OnlyFans (don’t look it up at work). Creators create and post content and ‘fans’ pay the taxpayer to view this content. The content is usually of an adult nature.
The taxpayer accounted for VAT on the 20% of the payment they retained. HMRC issued an assessment in excess of £11m on the basis that they should have accounted for VAT on the whole payment received.
This is an age-old issue in VAT as to whether a party acts as an agent or a principal (or an undisclosed agent). Some parts of the relevant legislation is grey (as it includes the phrase that HMRC ‘may’ see the supply as being made to and by the ‘agent’). However, in this instance, as the taxpayer was an online platform responsible for supplying online content, the legislation is more certain.
Article 9a of EU Regulation 282/2011 sets out that the platform acts as an undisclosed agent and is therefore responsible for the VAT on the whole payment, if it authorises payment or sets out the general terms and conditions. This was the case here, so the ruling seemed inevitable.
"Known knowns...": director liable for fraudulent transactions
The much-quoted Donal Rumsfeld came to mind with regards to a VAT case about whether the director of a firm knew, or should have known, that transactions he was involved in were part of fraud.
Although the tribunal agreed that it could not be proved that the director ‘knew’ about the fraud, the director could not convince the tribunal regarding the ‘should have known’ element. As such, the assessment that HMRC had raised against the company, then reallocated in full to him personally, was due.
It was noted that some of HMRC’s ‘fair and reasonable’ steps to check the veracity of the supply chain were neither reasonable nor fair; including asking to see copies of submitted VAT returns and the backup records. The tribunal noted that this was ‘uncommercial’.
However, the case highlights the need to undertake meaningful checks on those that you do business with, especially new customers or suppliers. If you need to discuss what steps are fair and reasonable then please
They mean business: new two-step process for not-for-profit sector
Recently we reported that the old ‘fisher’ test for business was being replaced by a ‘simpler’, two-step process. HMRC has announced that this test is to be applied to the not-for-profit sector with the ‘benefit’ that activities undertaken for the purposes or obtaining an income, even if the income is below the cost of the activity, is now business.
Again, this shows HMRC’s determination to take charitable activities out of non-business (which can generate some VAT reliefs). Such reliefs usually disappear when the activity is defined as business.
Intention: what constitutes business activity?
A business was registered for VAT. HMRC assessed the business for input tax claims over several years on the basis that the company was not making taxable supplies. The company appealed. In this case the business was also registered with the FCA and maintained its regulated status since 2006 (which the tribunal noted in favour of the taxpayer). The business was involved in a legal case in the Seychelles which had resulted in two significant payouts to the UK business. The tribunal ruled that the business was clearly intending to make supplies, but that its resources had been diverted due to the ongoing legal issues. As such, the input tax was claimable as it related to future taxable supplies.
It would appear that the ruling in the Wakefield College case and HMRC’s redefinition of what constitutes a business activity will only make this issue liable to more contention and legal dispute.
Under-declaring takings: takeaway £50k
A Chinese takeaway business was found to owe both VAT and Corporation Tax due to under-declaring takings. There was also a penalty imposed on the individual director of the business. The tribunal reduced the penalty to 70% (from 100%), but agreed that it was correct to be imposed on the individual.
Regular readers will see a theme developing here where a once uncommon occurrence of a tax assessment and/or penalty being transferred from a corporate entity to an individual is becoming far less rare.
VAT assessment: cheap as chips
Another takeaway business (this time fish and chips) has also lost a case arguing against a VAT assessment of £109k VAT on under-declared takings. The owner said that the accounting system meant that telephone orders were recorded twice so had to be removed from the daily Z readings from the till. This was rejected by the tribunal who also agreed that a £49K penalty was due too.
VAT free shopping
The only mention of VAT in the Chancellor’s recent mini fiscal event was to pave the way for a new, digital VAT free shopping scheme for overseas visitors to be introduced. There are few details at the moment, but the word 'overseas' should apply to everyone outside of the UK. Although the form would be digital, it seems logical that there would still be a need to have a physical verification of the goods at the point of departure. Given current staffing levels in HMRC this may be an issue.
When John Major was PM and a pint was £1.47, CHIEF (Customs Handling of Import and Export Freight) was introduced.
CHIEF was always going to be phased out as it was too old and inflexible, but this was accelerated by Brexit and the huge increase in the number of imports and exports that needed to be logged.
The replacement is the far less snappy Customs Disclosure Service (CDS). CHIEF for imports closed on 30 September*, and for exports it will close on 31 March 2023.
HMRC has written to all exports and importers about the need to transfer to CDS; unfortunately, irrespective of whether this has already been done or not. Essentially, if you import using the postponed VAT accounting system, you’re already on CDS.
As with all upgrades to HMRC’s forms (see below), there is now even more information to provide.
*HMRC has, at the eleventh-hour, said that businesses that are unable to transfer to CHIEF before 30 September, can, in exceptional circumstances, apply to HMRC to use CHIEF for a ‘short period’.
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