Our monthly round-up of the latest VAT news.
Bolt from the blue
In 2023, Uber lost a significant case regarding how VAT was calculated on their income. Uber said it was due on the fee retained by them as the driver’s share was their separate income. HMRC said that the total fare paid was subject to VAT. Due mainly to the way that taxis are licenced to operate in London, Uber lost the case with VAT due on the fare paid.
As the taillights of 2023 head off into the sunset, there is news that another similar provider, Bolt, has convinced the first tier Tribunal that their services are such that they fall under the Tour Operator’s Margin Scheme (TOMS). This means that rather than 1/6th of their total income being due to HMRC as VAT, only 1/6th of their net profit is payable.
This is “interesting” for there was a ruling in Europe relatively recently that the provision of a single supply, rather than a package of supplies, could be seen to be within TOMS.
As sure as no one goes south of the river after 10pm, HMRC will be appealing this. However, given the uncertainty of how this may go, suppliers of single services for use by the traveller may want to see if it is financially worthwhile to put in protective claims to HMRC. As such a claim is likely to be refused by HMRC, it’s also important to understand how to deal with that refusal to keep the claim live. If you are in such a situation, please get in touch.
Company sues directors
It’s not that uncommon when VAT fraud has been committed by a company that HMRC will transfer the debts to the responsible officers of the business to prevent the incorporated entity from liquidating as a way of preventing debts from being chased. It now seems that the company has the right to do the same. In this case, a company was found guilty of VAT fraud, and a director and their spouse were identified as the main perpetrators. The company has now launched a legal claim against the same individuals for recompense.
In discussing the VAT ledger for a client with HMRC, we pointed out that several transactions that HMRC told us they had done were not reflected on the ledger. The officer in the enquiry section said that we should not rely on the Government Gateway ledger to be up-to-date.
HMRC refused to repay an input tax claim by a business on the basis that it was connected to fraudulent activity. However, when it came to the hearing, it was ruled that HMRC could not cross-examine the staff of the business about their knowledge, as they had not made the allegation that they knew or should have known of a connection to fraud in their statement of case. Whilst the same case ruled that HMRC does not have to provide specific details about the fraud, the hearing, from HMRC’s point of view, was rather pointless as no cross-examination was able to take place.
HMRC has issued updated guidance about how to make VAT claims for D-I-Y housebuilders. Despite losing at Tribunal on the question of whether there can be more than one claim per project (there can), the guidance is structured to read that there is one claim to be made at the end of the build.
From 1 January 2024, reusable period underwear will be zero-rated. Whether this results in price reductions is another matter.
VAT & fund management services review
Further to a consultation launched in late 2022, the Government has now published a summary of these responses, and whilst respondents asked for greater clarity, for example, for the term “management,” this summary states "the current position established by settled case law provides sufficient legal certainty.” But they added that they will continue to review the current guidance. So, we hope that clears everything up.
AI user beware
As part of their PR, Dictionary publishes their “word of the year." In 2023, one of these words was "hallucination," but not in the way most of us understand (or perhaps experience) it. This time, the word is used in the sphere of AI for when the programme creates a piece of text and/or reference that has no basis in reality, even though it uses, in theory, factual text as its source material. This has happened at least twice in court, once in the USA and more recently at a UK Tax Tribunal (an income tax case). With this in mind, the courts and Tribunal Judiciary have issued guidance about the risks of these electronic hallucinations, especially when the litigant is unrepresented and does not check if the citations made are correct. The main point is that just because a computer has generated the information, do not take it at face value.
The new year brings in new obligations for online marketplaces (Vinted, AirBnB, eBay, etc.) to report details of transactions to HMRC. Add this to HMRC’s relatively new definition of what constitutes business activity, and whilst this is more likely to impact personal taxes, in some cases it could see individuals (especially if they have other revenue streams that are outside of PAYE) exceeding the VAT registration threshold and being liable to register for VAT.
This brings us to the fact that the current VAT registration threshold of £85,000 of taxable turnover in a rolling 12-month period has remained the same since 2017 (now seven years). Sole proprietors, in particular, should keep a close eye on their turnover to see if the threshold is close to being exceeded.
Get in touch
If you would like to discuss any of these VAT updates in more detail, please contact Ian Marrow via firstname.lastname@example.org
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