DIY builders
HMRC have revised their policy on the recovery of VAT by those using the 'VAT refunds for DIY builders and converters' scheme in cases where a mixed use building, i.e. used for non-residential and residential use, is converted into dwellings in light of the Court of Appeal's judgment in Ivor Jacobs.
Mr Jacobs had converted a former residential school for boys into one large dwelling for his own occupation and three flats. His claim for a VAT refund under the provisions of the do-it-yourself builders scheme was rejected because none of the dwellings had been created exclusively from the conversion of the non-residential part of the school.
Mr Jacobs successfully appealed to a VAT tribunal, so HMRC appealed to the High Court. The High Court held that the VAT incurred on converting the non-residential part used in creating the dwellings was recoverable through the scheme. The Court of Appeal unanimously dismissed HMRC's appeal.
HMRC now accept that, for the purposes of the DIY refund scheme, the conversion of a building that contains both a residential part and a non-residential part comes within the scope of the scheme so long as the conversion results in an additional dwelling being created. It is no longer necessary for the additional dwelling to be created exclusively from the non-residential part. However, VAT recovery is restricted to the conversion of the non-residential part.
HMRC do not consider that the decision has any impact in similar situations where a building, which is part residential and part non-residential, is being converted into a number of dwellings and the number of dwellings present post-conversion is greater than the number of dwellings present pre-conversion.
DIY house builders, who have converted property that was part residential and part non-residential and have increased the number of dwellings in the building overall, should submit claims for VAT incurred on eligible expenditure in converting the non-residential part of the building into a part of the resulting dwellings. It should be noted that claims will only be considered in respect of conversions completed up to three years before 1 December 2005.
Business Brief 22/05 dated 1 December 2005
Share issues
HMRC have clarified their position on share issues following the European Court of Justice's decision in Kretztechnik AG (Case C-465/03) (see the report headed 'Kretztechnik' in Update, Taxation, 5 January 2006, page 329) with regard to issues of shares and other securities made outside the EU.
Prior to Kretztechnik, issues of shares and other securities to customers belonging outside the EU were treated as specified supplies, so that the input tax on related costs could be recovered under the Specified Supplies Order. From 29 November 2005, this treatment no longer applies to new shares and securities issued outside the EU as they are no longer supplies, although input tax will still be recoverable on the related costs provided the issue is made for the purposes of a fully taxable business. If the issue is made for the purposes of a partly exempt business, then a proportion of the input tax will be recoverable under the business' normal partial exemption method.
Business Brief 22/05 dated 1 December 2005
Missing trader fraud
Further to the European Court of Justice's judgment in the joined cases of Optigen Ltd (C-354/03), Fulcrum Electronics Ltd (C-355/03) and Bond House Systems Ltd (C-484/03), (see 'Stop the carousel!' by Marc Welby and John O'Donnell in this week's issue for analysis of the decision), HMRC are reviewing all cases in which assessments have been raised or input tax claims reduced on the same principle in the light of the ECJ's guidance. Most of these cases have been stood over for 60 days after the decision, and HMRC will aim to review each case in the light of that decision, before the stand-over period expires.
Where a repayment that had been disallowed is reviewed in the light of the guidance and now found to be allowable, HMRC are legally obliged to pay repayment supplement for the period of delay while awaiting the European Court's decision. This will be repaid automatically with any repayment. Any requests for reconsideration of non-payment of repayment supplement, or the amount of any payment, should be made in writing to: Samantha Jones, HMRC, Repayment Supplement Team, 3rd Floor North East, Queen's Dock, Liverpool, L74 4AA. Recipients of repayment supplement will not be entitled to interest under VATA 1994, s 78.
Business Brief 1/06 dated 18 January 2006
Post CPP
HMRC have confirmed their view, in the light of Card Protection Plan (C-349/96), on the correct treatment of company formation services with ancillary printed matters.
HMRC's view is that where there is a single advertised price for a company formation package that includes some printed matter, there is a single standard-rated supply of company formation services. This supply is the principal supply to which the supply of printed matter is ancillary. The supply of the service by a registration agent of preparing and lodging the original memorandum and articles of association with the Registrar of Companies is wholly standard rated. In this situation, one or more copies of documents, such as the certificates of incorporation and the memorandum and articles of association may be provided. Where these are provided in hard copy form, as opposed to digital format, the question arises as to whether there is a single supply of company registration services to which the supply of printed matter is ancillary, or separate supplies of zero-rated printed matter and standard-rated services.
On the basis of the principles in Card Protection Plan, where a taxpayer acquiring a registered company also receives hard copy documents as part of a fixed-price package, he would normally be seen as receiving a single supply of company formation services rather than separate supplies of company registration services and printed matter. Where additional copies of documentation are offered as an option for additional payment, there may be either a single supply or multiple supplies.
Affected businesses should review their VAT treatment of these supplies and ensure that any necessary changes are implemented. Where there has been historic incorrect treatment businesses should account for underpaid output tax as appropriate.
Business Brief 1/06 dated 18 January 2006
Conference facilities
HMRC have changed their interpretation of the law on the VAT treatment of hotel conference/function facilities. This change will be incorporated in an update to VAT Notice 709/3, Hotels and Holiday Accommodation, to be issued in due course. The change affects the liability of supplies of rooms by hotels that are to be used for meetings, conferences and similar functions. Supplies of rooms where the primary use will be for the purpose of supplies of catering, such as dinner dances, wedding receptions, etc. are always taxable supplies.
Where a room is provided for a meeting, conference or similar function organised by a third party, HMRC now accept that the provision of conference/function room hire, meals and sleeping accommodation (24-hour delegate rate), even where made in return for an inclusive charge, should be treated as separate supplies. These will be taxable supplies, with the exception of the conference/function room hire, which will be an exempt supply, unless the hotel has opted to tax its supplies. In cases where a single consideration is paid for supplies having different liabilities, for example where a charge for room hire is made under the 24-hour delegate rate by a hotel which has not opted to tax its room hire, a fair and reasonable apportionment of the consideration must be made.
There is no change to the treatment of 8-hour delegate charges, i.e. use of conference room and meals.
Where hotels organise and run conferences or similar events themselves and charge for entry to delegates, their supplies are always taxable supplies.
Hotels that have made an option to tax will be unaffected by the change and should continue to charge tax on their supplies. For other hotels and businesses, the change described above should be implemented from 18 January 2006. Hotels or other establishments which wish to make a claim to HMRC for a repayment of output tax incorrectly paid, may do so.
Some hotels will now be making exempt supplies as a result of these changes. The input tax that they incur will, as a result, be subject to partial exemption rules and some restriction on the amount they can reclaim may follow. If hotels prefer, they can continue to treat their supplies as taxable (and thereby be entitled to continue claiming their input tax in full) by opting to tax.
Business Brief 1/06 dated 18 January 2006
