VAT Insights – May 2023

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A VAT Helpline production for busy accountants in general practice

This May edition covers:

  • The Young Driver Training Ltd – Driving lessons @ reduced VAT rate
  • Rolldean Estates Ltd – Whether a valid Option to Tax on commercial property had been made
  • Revenue & Customs Brief (“RCB”) 2/2023 – How to apportion VAT, where a single price is charged

The Young Driver Training Ltd (“TYDTL”) – Driving lessons @ reduced VAT rate?

Back in the post-lockdown period, the reduced VAT rate applied in the hospitality and catering sectors between 15th July 2020 and 31st March 2022.

TYDTL supplied driving lessons / experiences to junior drivers on private land. It considered that what it was providing, fell within the rules of the Covid-19 temporary reduced VAT rate. This VAT rate applied temporarily to admission fees for certain attractions including zoos, circuses, fairs, and amusement parks. Certain conditions had to be met.

HMRC saw what TYDTL was supplying, was a right to drive a vehicle, as opposed to it being an admission fee to a park. It considered that VAT at the standard rate applied.

The First-Tier Tribunal (“FTT”) agreed with HMRC that what was being supplied, was a “…package of benefits, over and above a right of admission.”

This appeal was therefore dismissed.

Recently, I have advised on the reduced hospitality 5% VAT rate and considered the necessary conditions that were required. The client had been operating under the mistaken belief that this reduced VAT rate still applied. Accordingly, it had been accounting for VAT on its income at the 5% rate, rather than at the 20% VAT rate.

There may be businesses out there that operate similarly, unbeknown to them, that the:

  1. Reduced VAT rate date has expired; or
  2. Conditions for applying the reduced VAT rate, were never met in the first place.

This may result in them accounting for the wrong amount of VAT. It is possible that the earliest point in time when this error may be uncovered could be at a forthcoming HMRC VAT control visit.

In the event that this applies to any of your clients, please give me a call to discuss

Rolldean Estates Ltd (“REL”) – Whether a valid Option to Tax had been made?

REL charged VAT on the rental of a commercial property since 2008. It had exercised an Option to Tax (“OTT”) over the property. HMRC’s permission to opt was not required. Had it rented the property out prior to putting this option in place, HMRC’s permission may have been required. However, on its subsequent sale of the property in 2015, VAT was not charged.

REL argued that the OTT was invalid, on the basis that it had initially rented the property out, in advance of exercising the option. This thereby required HMRC sign off before an option was effective. HMRC’s permission had not been obtained.

HMRC relied on a piece of technical VAT legislation which allowed it to retrospectively dispense with the need for requiring prior permission in advance of opting. For that reason, VAT fell due on the sale. HMRC raised a VAT assessment.

The FTT agreed with HMRC, and the assessment raised was held to be valid.

As is always the case, VAT and property issues never cease to amaze me, in light of their complexity and the amounts involved. Options to Tax can result in the ability to recover VAT on costs incurred. However, as I have seen over the years, there may be situations where HMRC are averse to agreeing or disagreeing whether a valid option has been exercised.

Please give me a call or drop me an email, if there are any VAT and property matters with which you are currently grappling, as I may have a solution.

RCB 2/2023 – How to apportion VAT, where a single price is charged

Following a VAT consultation undertaken early in 2021, HMRC recently issued guidelines and made minor changes to its own internal manuals. These were on ways to apportion VAT, where a single price is charged.

A business may either make a multiple or single supply, where items supplied “in a basket” have different VAT liabilities. Where a multiple supply is made, each of the individual items have their own VAT liability. Where a single supply is made, the main supply would be determined, in order to decide on the VAT liability charged.

Following the views of external shareholders being received, HMRC concluded that it was best to leave the legislation as is. It was best to provide practical guidance on apportionment methods to be used.

In a new initiative undertaken by HMRC, it has also issued Guidelines for Compliance (“GfC”). Such GfC sets out its views on “complex, widely misunderstood, or novel areas of the tax rules.” HMRC considers this to be one such area.

In the event of your clients having this issue of valuing supplies to deal with, please call me and I can advise you of the best way to do this.

Call me

You are welcome to call me any time to get my opinion on any VAT issues, challenges or potential opportunities faced by your clients. I do not charge for an initial conversation to see if there is anything with which I can help.

Retainer

An increasing number of my clients have chosen to work with me under a retainer agreement. Let me know if you would like to discuss this.

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Please share this email with colleagues who might find it of value. They can register for future copies here by sending me an email to this address – raphael@thevathelpline.com.

Quarterly VAT webinars

I present quarterly webinars for many firms during which I address the sorts of issues mentioned in my VAT Insights emails. If you would like me to do this for your firm or if you would be happy to attend a “public” update if I were to present this on zoom, please let me know.

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