Indirect taxes newsletter – March 2023

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Hugh Doherty, Damon Wright and Jayne Harrold
Published: 06 Mar 2023 Updated: 07 Mar 2023
Business tax Tax Budget ESG

Over the last month, we have had several key developments across indirect and environmental taxes.

Please send any suggestions for topics you would like to see in future editions to Hugh Doherty.

1. Headlines

1.1 Importance of export evidence

Businesses that are involved in international trade and rely on VAT zero-rating should ensure they keep up to date export records.

A business can zero-rate an export sale provided it holds evidence that the goods have been exported out of the UK within the specified timeframes.

In the Tribunal case of Pavan Ltd, while the taxpayer had good records and was able to produce both official and commercial evidence, HMRC argued that the law required it to physically provide that paperwork to HMRC within 3 months of each export. Fortunately, the Tribunal dismissed HMRC’s arguments confirming that it had erred in law. Namely the law requires the business to obtain and hold the evidence within the 3 months, without having to then submit this to HMRC. This does highlight, however, that HMRC can challenge zero-rated supplies.

Should you need assistance with reviewing your business’ record keeping and/or your export and import processes from an indirect taxes perspective, please contact us.

1.2 Obligatory PPT wording requirement dropped from invoices

One of the biggest surprises that came at the end of last month was the governments removal of formal requirements to include obligatory wording to invoices confirming that PPT had been paid.

This will be of considerable relief for many businesses. Now the question of how much information should be disclosed on each invoice, if any, will wholly be a commercial decision for the business concerned.

If you would like to speak to our specialist team about invoicing or adjustment of prices to account for PPT charges please contact Jayne HarroldDale Cambridge-Sharpe or Hugh Doherty.

1.3 Spring Budget – 15th March

We have collated our thoughts on the tax changes that might be announced here.

2. VAT

We cover 2 interesting topical VAT cases, one covering the place of supply of services rules. These rules determine where a cross border service should be taxed. The second explores the confusing rules (exceptions within exceptions) for UK zero-rating on food.

2.1 Happy Valentine’s Day – VAT is due on dating agency services.

The Court of Appeal in Gray & Farrar International found dating agency services were subject to UK VAT when supplied to non-EU individuals. Specifically, they did not fall within an exception to the general B2C place of supply rules and as a consequence, UK VAT was found to be due.

Historically the business had not charged UK VAT on its supplies to non-UK customers, arguing the services were similar to ‘consultancy services’ and so fell within an exception  such that no UK VAT was due.

The Court held that these were not consultancy services, as the services were not “based on a high degree of expertise” or “specialist and expert” in nature. Instead, the taxpayer simply gave clients the kind of support someone might obtain from a friend as an introduction. As such, the services were subject to the general place of supply of services rules and, as the clients were not in business, were taxable where the supplier was established, and so subject to UK VAT.

The place of supply rules for supplies made to non-UK residents are complex.    The global reporting obligations for businesses involved in providing international services can also be significant, particularly where the service is supplied outside the UK.  Numerous jurisdictions require non-established suppliers to register and account for local VAT. Should you need assistance navigating these global VAT, GST, or sales tax rules, please do not hesitate to contact us.

2.2 Complexities around the rate of VAT on foods continue - Organix and Nakd bars are not confectionary?

A recent Upper Tribunal case highlights the complex rules surrounding the VAT treatment of snack bars.

The First Tier Tribunal (FTT) had ruled that Organix Bars and Nakd Bars were standard rated (20%) for VAT  rather than zero-rated. This is on the basis the bars were considered ‘confectionary’,  because they were sweet to taste, eaten with the fingers and were snacks. Morrisons argued the bars should be classified as cakes instead (which fall within an exception to an exception)..

The Upper Tribunal examined the make up of the cereal bars in detail and found that the FTT had not given due consideration to the perceived healthiness of the cereal bars, nor the lack of other components that would ordinarily be found in confectionary, including sugar, butter and flour.

This success for the taxpayer may act as a litmus test for health snack bars, and could open the window for further VAT claims on similar products.

Should you have products which you believe may potentially have been incorrectly classified for VAT purposes, or simply wish to gain comfort that the liability of your own food products is correct, we would be happy to carry out a review.

3. Customs duty

3.1 Customs changes to movement of excise duty paid goods

From 13 February 2023, it is mandatory for the movement of most excise goods to be monitored by the Excise Movement and Control System (ECMS). The EMCS is a computerised system for monitoring the movement of excise of goods under duty suspension.

Movements that were previously carried out under the cover of paper-based  documentation  will now be made under the cover of an electronic Simplified Administrative Document (eSAD) instead.

In order to facilitate this, two new categories of excise traders have been created; certified consignees and certified consignors.

The main differences between the new and old schemes are:

  • anyone wishing to receive EU duty-paid goods and pay the duty upfront on a consignment-by-consignment basis will now need to gain an approval as a temporary certified consignee before they can do so;
  • anyone wishing to dispatch duty-paid excise goods to an EU member state will need to gain an approval as a certified consignor before they can do so; and
  • all duty-paid movements will no longer be able to travel under cover of a paper SAAD.

Unfortunately, UK EMCS will not have been updated in time to reflect these changes. Transitional arrangements have therefore been put in place to facilitate movements in the interim.  For UK certified traders who need to start a movement, or confirm the receipt of goods, this means following fallback procedures which apply whilst EMCS is unavailable.

Should you wish to discuss the changes or any of the transitional UK arrangements or need assistance with meeting compliance requirements for moving excised goods between the GB, NI and the EU, please do not hesitate to contact us.

4. Environmental Taxes

4.1 Net zero

The final report for the independent review of the government’s approach to delivering its net zero target was published on 13 January 2023.  The report includes several recommendations for tax changes the Government could make to ensure the UK meets its commitments to achieve the target by 2050.

Our comments and views on the tax related recommendations can be found in our dedicated article here.

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.

Tax legislation

Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. You should always seek appropriate tax advice before making decisions. HMRC Tax Year 2023/24.