What are the current priorities and challenges for the VAT policy team?
Our VAT team has three
main responsibilities:
We have regular meetings with the Treasury about all this and more.
An example of where we have tried to help simplify things for small business is the recent change, agreed at EU level, over VAT now being charged on supplies of digital services where the consumer is based, rather than the supplier. To reduce the resulting business burdens, we introduced a single electronic registration and payment mechanism, a mini one-stop shop, which is an important simplification of the process.
We want people to get things right first time – it’s good for businesses and good for us too. Despite these simplifications, we do recognise that the smallest businesses are finding the recent VAT changes difficult. We are providing them with support and guidance, and taking a light touch to compliance.
We do a lot to support businesses and agents, such as continuously working to improve the process for them, helping them understand their obligations and making it easier for businesses to register for VAT or submit their VAT returns.
I would encourage any businesses, large or small, reading this, which have views about how our guidance could be improved, to email Fiona Pavaday (fiona.pavaday@hmrc.gsi.gov.uk) and let us know. We’re always open to hearing our customers’ views.
What are the current key areas of disputes on VAT?
There are a lot of interesting challenges to zero rates of VAT on certain goods: readers might remember the debate over whether Jaffa cakes and teacakes are cakes or biscuits, and whether ferrets are pets or working animals.
VAT grouping is quite a hot issue at EU level at the moment, particularly off the back of the recent European Court of Justice decisions on Skandia (C-7/13) and Larentia + Minerva (C-108/14). VAT groupings are where a number of companies under common control register as a single taxable person. We recognised that we needed to make changes in response to Skandia and have given businesses plenty of notice before the changes take effect on 1 January 2016. We are currently considering the implications of Larentia + Minerva and will advise businesses of any changes as soon as possible.
We does the policy team formulate policy and communicates any changes in view to outfield officers? How do you ensure that outfield HMRC officers share the same understanding of VAT policies as those held by the policy team at HMRC?
There are many reasons why policy might be changed. Treasury ministers might decide on a policy change; businesses might alert us to a difficulty with the current VAT rules, so we would consider if we need to change the law; court decisions can mean that a certain policy isn’t sustainable; or HMRC people might identify something that needs changing if it’s open to abuse, for example. However it comes about, we will evaluate that change, considering the potential impact on and cost to businesses, and any compliance risks and impact on HMRC, having regard to the relevant EU and UK law and precedent case law.
The most important thing for us is always to be consistent in our messages and policies concerning any changes. These are communicated to everyone in the appropriate teams across a variety of channels. Our VAT manuals are the main source of guidance and information for operational teams, and there is a wide range of tax professional qualification learning products, all reviewed and agreed with policy owners. Our tax professionals are expected to do continual professional development, and HMRC gives them the time to develop and maintain their knowledge and skills.
I can’t say that HMRC staff never make mistakes, but our appeals and reviews procedures provide a safety net which means it is a rare occasion when a case not consistent with HMRC policy would progress to tribunal.
What are HMRC’s priorities for updating its VAT notices?
Our priorities are changes in legislation, changes in policy – usually, but not exclusively, as a result of precedent case law – and correcting any errors.
We are always developing and improving our help and guidance. As an important part of that, we are expanding our use of new technology, such as web-based toolkits, webinars and building on our online tax account for businesses (‘your tax account’) capability, which has more than three million users and growing. We aim better to target and deliver tailored guidance and prompts to businesses, helping them with the rules and taking into account their particular circumstances.
Start-up/smaller businesses often rely on guidance provided by HMRC’s helplines. Is there a case for recording these/operating some form of referencing system, to reduce the scope for future disputes?
Of the more than two million VAT-registered businesses we deal with, around 1.8 million of them are small and medium enterprises (SMEs). SMEs make a very valuable contribution to the economy, and society in general, and we really support and appreciate them. There are many tasks that businesses can do online without the need to call us. For instance, general enquiries can be submitted online using the ‘make an enquiry’ form, and businesses can also change their registration details online.
Our helplines are a very valuable way for us to speak to SMEs, and to help and support them. VAT rules might be very technical but most calls to us are about the simple stuff, a lot of which can be done online.
The advice that our helpline staff give to businesses is logged in their electronic customer record. For enquiries from non-registered businesses, we keep recordings of calls for a limited period, which are available on request to HMRC staff and customers.
VAT case law is constantly changing our understanding of VAT practice. How does HMRC decide when and where to test the boundaries? When it does so via litigation, should HMRC not accept that there are cases where novel approaches are being test-driven and that HMRC should meet the taxpayer’s costs of litigation?
Usually we are the ones being challenged! Businesses can challenge our decisions and sometimes this can go to tribunal. When we test the boundaries, it is sometimes because there isn’t a consensus among businesses. For example, some charities consider that they are not in business, allowing them to benefit from zero rating on qualifying buildings, while others carrying out similar activities and charging similar prices do want to be seen to be in business and then able to recover input tax. Litigation on issues like this can help get us to a position which is clearer for everyone, easier to comply with and simpler to administer – leading to fewer disputes.
There is some concern among charities and not-for-profit bodies at HMRC’s tougher stance towards VAT planning and the rapid development of the ‘abuse’ principle (with retrospective assessment action). Is there a case for HMRC giving more explicit guidance about what is acceptable or unacceptable, or, possibly for providing an accessible clearance procedure?
We want to be as clear as possible in our guidance. Our priority, and that of the government, is to support businesses that want and try to get things right, and to tackle those that seek to avoid or evade tax. This applies to all types of organisations and businesses liable to VAT. Those that act to avoid tax or adopt tax practices that bend the rules, bringing about unintended benefits, know what they’re doing. They have to be prepared to accept the consequences of their actions.
Given that VAT is a European tax, to what extent, if any, does the VAT treatment of complex transactions (such as securitisations or investment funds) or novel transactions (such as e-commerce) in other member states inform HMRC’s own approach?
We discuss matters with other member states, but do not always agree. In terms of financial products, the UK often leads the way where new complex transactions arise, or are first tested. Bitcoin is a great example of this. We were at the forefront in producing guidance on the VAT treatment of transactions taking place in the new and evolving digital currency market, and included guidance on the position for other taxes too. We took steps to ensure a consistent approach across the EU, and have been proactive in the work to agree a VAT Committee guideline broadly in accordance with the UK treatment.
What criteria does HMRC take into account when assessing CJEU rulings in non-UK referrals? For example, what were the drivers that led HMRC to apply a narrow reading to the CJEU ruling in Skandia (thus preserving the existing VAT grouping regime in the UK), rather than the wider reading applied in some other member states (which would have resulted in VAT ‘leakage’ in some sectors such as finance and insurance)? How does HMRC balance industry or political interests against technical or fiscal considerations?
When we interpret decisions, we tend to aim for the minimum disruption while moving to a stable position. There is a range of factors that influence our decisions, because we need to take into account the regulatory context, UK business needs, etc.
VAT on pensions fund management costs is a hot topic. Pensions law is similar in many EU member states. However, there is currently a difference in VAT treatment between, for example, the Netherlands and the UK. Following issue by HMRC of Briefs 43/14 and 8/15, an employer cannot deduct VAT on investment advisory fees unless the employer appoints, contracts directly with and pays the adviser (which UK pensions law appears not to permit). Is HMRC planning to address this and issue further guidance?
The UK is in the process of implementing the CJEU judgment in PPG (C-26/12) concerning the deduction of VAT charged on services relating to pension schemes. We worked closely with industry representatives to agree potential arrangements that achieve recovery by employers of VAT on pension management costs and that work within the regulatory environment in which they operate. We are drafting guidance covering various proposals for recovery of VAT on pension related services and we will share this with industry for comment shortly.
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