Customs news - Share exchanges

The tribunal's decision in Southampton Leisure (see The Saints Go Marching In …! by Peter Williams, Taxation, 8 August 2002 at pages 511 to 513) concerned the attribution of input tax incurred on certain professional services in a share exchange. The tribunal supported Customs' view that the services relating to the public relations exercise were exclusively related to the issue of shares. However, the supplies of services listed below were not used exclusively in making the exempt supply of the issue of shares and the tax incurred on these should be treated as residual input tax:

Customs have decided not to appeal the tribunal's decision, and accept that any taxed supplies of professional services, which include any of the above tasks in the circumstances of a merger and acquisition or management buy-out, have to some extent a direct and immediate link with the whole of the taxpayer's business. The tax incurred is residual input tax and is attributable to taxable supplies by reference to that person's partial exemption method. However, where a taxed supply of professional services is partly used in making an issue of shares to a person belonging outside the European Union, then the deductible proportion of tax is to be determined on a 'use' basis under Regulation 103(2) of the VAT Regulations SI 1995.

Customs take the view that the decision has no application where shares are issued for subscription, which will be an exempt supply of an issue of shares. But they do accept that any services providing general advice on the means of capital raising, provided it is just that, is part of business overheads and that the tax incurred on any such services should be treated as residual input tax. In most offers the decision to issue shares is taken at the outset and the question of any general advice simply does not arise.

Customs will, subject to the normal capping rules, accept claims for overpaid tax.

(Source: Customs Business Brief 23/2002 dated 20 August 2002.)

Bad debt relief

Regulations to implement the changes to VAT bad debt relief announced in Finance Act 2002 are to be introduced:

Customs have also made the following comments on the forthcoming regulations.

Repayment is due six months from the date of supply or if later, the due date for payment. Customs will accept the date of invoice as the due date for payment and input tax will then become repayable by a debtor business six months after the date of invoice, unless a later due date for payment has been agreed (from which the six months would be calculated). The only exception (expected rarely) is where the invoice is issued more than 13 days after the date on which the goods were supplied or service performed and where the due date for payment falls before the date on which the invoice is issued. In this instance the input tax will become repayable six months after the date on which the goods were supplied or service performed, or (if later) the date when payment was due.

The changes will only apply to supplies made on or after 1 January 2003, so the first adjustments under the new clawback arrangements will not take place until 1 July 2003. For supplies made before 1 January 2003 the existing rules on notification and clawback will remain.

The requirement to repay input tax will not apply to import VAT, acquisition VAT, or Eighth or Thirteenth Directive refund claims.

The terms of the extra-statutory concession for insolvency practitioners will have the same effect as at present.

An updated notice on bad debt relief will be issued later this year before the new rules are planned to come into force.

(Source: Customs Business Brief 23/2002 dated 20 August 2002.)

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