August 2023 VATWatch

Welcome to my August newsletter. Firstly, I’d like to let you know that the office will be closed for holidays Thursday 3rd to Monday 7th August, reopening on Tuesday 8th August.

In Sonder Europe Limited v HMRC [2023] TC08853, the First Tier Tribunal (FTT) held that the onward supply of rented apartments meant the appellant was a tour operator within the scope of the Tour Operators Margin Scheme (TOMS).

Where TOMS applies VAT is only due on the profit margin rather than the full selling price of the accommodation. This meant that the VAT due to HMRC was a lot lower than previously thought.

Sonder leased apartments and let them to travellers as short-term accommodation. HMRC raised an assessment on the basis that such supplies did not fall within TOMS and VAT was due on the full selling price not just on the margin. The FTT allowed Sonder’s appeal, accepting that VAT was only due on the margin.

FTT decisions are not binding on other parties, but this could have implications for serviced accommodation providers acting in the same circumstances.

We are waiting to see if HMRC appeal the decision and so the position may change but if you or your clients buy in accommodation and let it out as serviced accommodation and currently account for VAT on the full selling price under the normal VAT rules, you may be able to submit a claim (going back 4 years) for overdeclared VAT paid to HMRC, based on this case.

If you’d like to discuss this further, please let me know.

The Chartered Institute of Taxation (CIOT) has issued a survey looking into HMRC service levels. We need to feed back to them how awful everything is otherwise nothing will change so please consider filling it in and sharing your experiences.

The survey will gather more granular data regarding experiences, including the impact of HMRC’s service levels on businesses and on their practice. The survey will take around ten minutes to complete. The CIOT will be sharing the results of the survey with HMRC.

Altruistic CIC That Donated PPE During Covid Pandemic Recovers VAT Following Tribunal

An interesting and noteworthy case was recently settled at the First Tier Tribunal.

3D Crowd CIC was formed in March 2020, after a group of individuals realised that their 3D printing machines could be used to produce PPE. With the help of crowd funding and several thousand volunteers, by the end of May 2020 the organisation had donated around 200,000 face shields to the NHS.

Costs were incurred in producing the PPE, and gaining the CE certification required to supply PPE commercially. 3D Crowd CIC included the VAT incurred on these expenses in their VAT return, but HMRC denied the claim because the expenses were not linked to a VATable supply.

3D Crowd CIC argued that their intent had been to supply the PPE commercially, but that by the time they had jumped through the necessary hoops to do so, other suppliers had increased their output and the demand for extra PPE had declined. Otherwise, in the long term, the company had planned to supply PPE commercially in order to sustain production long term and at least cover their costs. Had the organisation always intended to function on a purely altruistic level, they would have registered as a charity and not as a CIC.

The tribunal found that the CIC had been established for two purposes:

1.   To reach a point where taxable sales were achieved.

2.   To contribute to the fight against Covid via donated items.

The appeal was allowed, meaning that the VAT on accreditation costs was incurred 100% for the intended trade and was therefore entirely input tax, but with the caveat that the VAT on overheads and costs of production was only partially input tax and should be apportioned.

HMRC has Announced Extra Funding to Support Those Who Need Additional Help with Their Tax Affairs

HM Revenue and Customs (HMRC) is awarding £5.5 million to voluntary and community organisations to support customers who may need extra help with their tax affairs.

HMRC is inviting eligible organisations to bid for the funding, worth £1.8 million a year from 2024 until 2027, through HMRC’s Voluntary and Community Sector Grant Funding programme. Bids can be submitted between 24 July and 21 August 2023 with successful organisations being announced in October ready for the new funding to start from 1 April 2024.

In the last year alone, funded organisations have supported 39,000 customers over the phone, with face-to-face meetings and via email.

Successful organisations will receive funding to provide free advice and support to customers who:

·       may face barriers in understanding their tax obligations and claiming their entitlements

·       are digitally excluded from accessing HMRC services

·       have any other difficulty in interacting directly with HMRC

As well as providing support to customers who may need extra help, organisations will provide valuable insight to improve HMRC’s understanding of customers in vulnerable circumstances. This will allow HMRC to reduce barriers and improve the customer experience when dealing with the department.

Thank you for taking the time to read this VATwatch round-up.