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Beneficial ownership
Beneficial ownership
A recent consultation sought views on a proposed redrafting of VATA 1994, Sch 10 para 8 and, in particular, the effect this would have on business if adopted. The document contained draft legislation designed to restrict the use of the measure to instances where there was an actual separation of legal and beneficial interests. HMRC have decided not to make the proposed changes. From the responses to the consultation, HMRC are satisfied that para 8 can be applied in situations where someone, other than the legal owner, is engaged in economic activity in respect of an interest in land. While there remain some concerns about how para 8 may be interpreted, not least that the provision could be used for tax avoidance, HMRC recognise that the proposed amendment of the current provision could result in administrative difficulties for some businesses. Therefore, it sees no reason to make any changes now. However, HMRC will keep the use of the provision under review and if evidence of abuse is found they will take all necessary steps to tackle it, including making proposals for legislative change.
The consultation did identify the need for better and clearer guidance which HMRC intend to issue later this year.
While no substantive changes are to be made to para 8, following the consultation on the rewrite of Schedule 10 issued in December 2005, para 8 is to be redrafted in a similar style, retaining the current meaning of the provision.
Travel agent funded discounts
Now that the litigation in CCE v First Choice Holidays plc (C-149/01) [2004] STC 1407 is concluded in favour of HMRC, it is confirmed that there is no change to HMRC's policy on discounts within the tour operators' margin scheme. Thus the consideration for travel services is the total received by a tour operator, including any discount offered by a travel agent. As such, this is the amount that should be used to calculate the selling price for VAT purposes and, where applicable, entered into the TOMS calculation. It also confirms that there is no separate supply of a 'right to a discount', as found by the High Court.
Where tour operators have already declared and paid VAT in line with HMRC's view (either via their VAT returns or by paying the preferred protective assessments issued to them), the VAT paid should already be correct. Protective alternative assessments, issued to tour operators, based on the High Court view of transactions, will now be withdrawn and voluntary disclosure claims using the High Court decision will be formally rejected (if this has not already been done). Any protective assessments issued to travel agents who reclaimed input tax on separate 'top up' supplies made to them by tour operators will now be enforced, because it has been determined there were no such supplies and therefore there was no entitlement to input tax.
Businesses who have previously lodged appeals that were stayed pending the Court of Appeal decision in this case, are now invited to withdraw them.
Business Brief 8/06 dated 7 July 2006
