CVC Constable VAT Consultancy LLP

HMRC have today issued a Revenue and Customs Brief that considers when a zero-rated sale undertaken by a house builder might be viewed as unacceptable VAT avoidance. 

Many house builders are finding that they are unable to sell newly built dwellings in the current economic climate and are instead choosing to rent those properties in the short term. This has VAT implications because rather than making a zero-rated sale the house builder receives VAT exempt rental income, which can remove VAT recovery rights in relation to costs previously incurred.  

To avoid this problem, some house builders have considered selling dwellings to a connected company, thus crystallising a zero-rated sale. Any exempt supplies are then made by the new owner, thus minimising any VAT recovery restriction for the original builder. HMRC have been asked whether they will challenge such arrangements as avoidance (on the basis that VAT recovery rights cannot be obtained by sales which have no commercial purpose and are undertaken with the sole aim of obtaining a VAT benefit). 

HMRC states in the new Brief that they do not consider that such a transaction would be unacceptable VAT avoidance in most cases but go on to point out circumstances in which a sale with the sole aim of preventing VAT costs would be considered abusive. 

HMRC have today issued Revenue and Customs Brief 53/08 which publicises a new requirement for UK businesses making taxable supplies of  services to business customers in other EU countries, where the customer is required to declare the VAT due under the reverse charge procedure. From 1 January 2010 EC Sales Lists must be completed in respect of these transactions.

The Brief is intended to allow businesses to consider system changes that may be necessary prior to this change. It is essential that affected businesses read the Brief and begin planning now for this new requirement. The Brief can be viewed by clicking here.

The lists will not be required for:

• supplies which are exempt from VAT in the Member State in which the supply takes place.
• B2B supplies where the recipient is not VAT registered.
• B2C supplies.

Please contact us if you would like to discuss how this new requirement will affect your business.

The ECJ have issued their decision in the case of Canterbury Hockey Club. The case concerned the VAT liability of affiliation fees paid to England Hockey. HMRC argued that supplies of 'services closely linked with and essential to sport or physical education' could only be exempt from VAT where they were supplied to individuals  and not to bodies such as the Canterbury Hockey Club.

This ruling gives an opportunity for bodies like the Canterbury Hockey Club to seek refunds of VAT incorrectly charged. If you are in this position please contact us and we can advise whether you are able to make a claim and how we can help.