Bingo
HMRC have clarified how to calculate participation and session fees paid by cash bingo players for VAT purposes as follows.
Where participation and session fees and stake money are received together in one composite amount charged to players, bingo promoters must work out how much of the payment is stake and how much is the participation and session fee in order to determine how much VAT is due.
When a player pays to participate in all or part of a bingo session, the supply made by the promoter is the right to participate in the number of games during that session for which they have received payment. As a player cannot participate in further sessions unless he makes further payment, the supply to the player is completed when the session ends. In these circumstances, the amount of VAT due on participation and session charges should be calculated on a session-by-session basis by deducting the stake money arising in each individual session from the total amount (less any admission fees) paid by players to participate in that same session. Where money from other sources is added to the stake money received in the session in order to meet guaranteed prizes, that additional money cannot be used to reduce the value for VAT of the participation and session charges paid for taking part in that session.
Where a player pays to take part in an additional game that does not form part of the session charge, this is a separate supply of the right to participate in that further game. The VAT due on fees charged for participating in additional games should be calculated on a game-by-game basis.
Where a promoter provides facilities for participating in linked games or a national game, in which players located at more than one venue all participate in the same game, charges received at all the promoter's participating venues should be aggregated in order to calculate the amount of VAT due on par fees relating to the linked game or national game.
Promoters should not perform a single calculation for the whole of each VAT return period, aggregating stake money and receipts taken for all bingo played during that time.
Bingo promoters who have calculated the VAT due on participation and session charges on a game-by-game basis, and who now find that they have done so incorrectly, may make a claim to HMRC for a repayment of any resulting overdeclaration.
HMRC Brief 07/07, 1 February 2007
Forex transactions
Business Brief 21/05 explained HMRC's position following the tribunal decision in Willis Pension Fund Trustees Ltd (19183) and the implications of the decision for other businesses conducting forex transactions. The tribunal found that the forex transactions Willis entered into were not supplies for VAT purposes. HMRC have recently published their view on when forex transactions are supplies for VAT purposes and the implications this has for VAT recovery. They also outline their view on any wider application of the decision to transactions in other financial instruments.
In Willis, forex deals were entered into for the purposes of hedging. In general, forex transactions are supplies for VAT purposes if a spread position is adopted over a period when buying and selling currency. A spread position means a difference between a bid price and a sell price from which an individual would expect to derive a profit. These forex transactions would include both 'spot' and 'forward' transactions, as envisaged by the judgment in CCE v First National Bank of Chicago (C-172/96) [1998] STC 850.
Most businesses involved in forex trading should readily be able to identify whether their forex transactions fall under the First National Bank of Chicago principle of adopting a spread position. If uncertainties remain, the business should consider whether, in selling a currency, it is in a position to set the selling price. If so, it is able to determine the consideration it receives by setting a spread, even if only mimicking market movements, and the business's forex transactions are likely to be supplies for VAT purposes.
Where forex transactions are supplies, the consideration will be the net result of all forex transactions over a period of time and would be exempt under VATA 1994, Sch 9, Group 5, Item 1. Any forex transactions, for which an attributable fee or commission is charged, would also be exempt supplies under Item 1.
The following are examples of circumstances when it is unlikely that a business's forex transactions would be seen as supplies for VAT purposes:
- a business simply exchanging one currency for another to realise foreign earnings into sterling, for example, or to acquire currency to settle liabilities incurred outside the UK, is unlikely to be seen as making supplies for VAT purposes provided such transactions are not part of a wider economic activity being carried out for an identifiable consideration;
- a business entering into forward forex deals in order to limit its exposure to forex fluctuations in respect of future obligations is unlikely to be seen as making supplies for VAT purposes provided such transactions are not part of a wider economic activity being carried out for an identifiable consideration.
The normal input tax recovery rules will apply. Businesses making exempt financial supplies cannot normally recover the VAT attributable to those supplies unless the recipient of those supplies is located outside the EU (in which case recovery is allowed under the VAT (Input Tax)(Specified Supplies) Order 1999). Businesses involved in forex transactions which are not seen as supplies for VAT purposes are able to recover the VAT attributable to those transactions as residual input tax, subject to the partial exemption method used. However, there is no right of recovery under the Specified Supplies Order for such transactions.
Supplies by financial intermediaries can attract recovery under the Specified Supplies Order if the recipient of the intermediaries' supply is based outside the EU, or if the underlying forex transaction is itself a supply which is made outside the EU. There is no right of recovery under the Specified Supplies Order, however, where the recipient of an intermediary's supply is based in the UK or elsewhere in the EU but the underlying transaction is not a supply for VAT purposes.
Businesses may wish to seek clarification on their present partial exemption methods, and some methods may need to be revised.
The Willis tribunal made reference in its decision to interest rate swaps. It suggested that, in its view, there would only be a supply when it was possible to identify the consideration being obtained by a party entering into the contract.
There would appear to be nothing arising directly out of Willis that indicates a shortfall in HMRC's current approach to the VAT treatment of other financial instruments and it is, therefore, not intended to revise existing published policy. HMRC do, however, recognise that there may be particular circumstances where Willis principles could apply to transactions in other financial instrument transactions and would consider such cases on an individual basis.
HMRC Brief 05/07, 26 January 2007
Double money
HMRC have confirmed that changes to the VAT cash accounting scheme, announced in the 2005 Pre-Budget Report, take effect from 1 April 2007. The changes are:
- The annual turnover limit below which businesses can start to use the scheme will increase from £660,000 to £1.35 million.
- The annual turnover limit above which businesses must leave the scheme will increase from £825,000 to £1.6 million.
The scheme allows eligible businesses to account for and pay VAT to HMRC only when they receive payment from their customers. A condition of this treatment is that users of the scheme can only recover VAT on purchases when they pay their suppliers.
HMRC Brief 12/07, 9 February 2007; HMRC news release dated 9 February 2007
