April 9 2010

Businesses including mail order companies and internet retailers could be eligible for a VAT reclaim on certain parcel services going back four years.

It was announced in the Budget that parcel deliveries of this kind would be subject to VAT from 31 January 2011, but a European Court of Justice decision has paved the way for retrospective claims.

Any business with individually negotiated arrangements with the Royal Mail covering mailing services including Parcelforce could be in line for a VAT pay-back, but those involved in large scale mailings will have the most to gain.

iTax can assist businesses in the analysis of the quantum of potential claims and pursue the claim with HMRC and through the Tax Tribunals if appropriate. Businesses should bear in mind that this is a time sensistive opportunity because the four year time limit on reclaims against HMRC is constantly running. The effect of this is that periods of reclaim are constantly falling out of time with any delay by businesses in lodging their claim.

22 June 2010 - Budget Alert

 Indirect Taxes

 VAT - although it is no consolation when having to pay it, the substantial rise announced in the VAT rate to 20% with effect from 4 January 2011 only takes us up to the EU average rate and is still levied on one of the most narrow bases in Europe.  That will stay the same, as there is no planned extension to VAT coverage and zero-rating still applies to housing, food, children's clothing , books, etc.

 The timing of the rise is aimed at allowing people and businesses to make decisions to commit to spending in the short term before the end of the year, and thus keeping the economic recovery going, and also by some small measure tries to avoid disruption to retailers involved in post-Christmas sales.

 However, any business or individual thinking of making up-front payments over the next six months for post-rise supplies to avoid the higher rate should proceed carefully, as there are some VAT anti-avoidance provisions which apply to such arrangements, particularly between connected parties.

 Insurance Premium Tax - the lower rate of IPT will go up from 5% to 6%, with effect from 4 January 2011, and the higher rate will follow the VAT rate percentage to 20%.

 Excise duties - there are no extra rises beyond those already announced by the last Government for fuel, alcohol and tobacco; indeed the rise in cider duty  has been scrapped from the end of this month. 

24 June 2010 Tax Fraud News

 Tax fraud in the construction industry

  In a little-noticed anti-fraud measure, HM Revenue and Customs are extending to the construction business many of the controversial anti-fraud measures they have used to try to stamp out VAT “missing trader” (or “MTIC”) fraud in the mobile phone and computer chip trading sector. 

 The "MTIC" frauds worked by an importer acquiring goods free of VAT from elsewhere in Europe, selling them in the UK and pocketing the VAT charged.  Buyers found that the taxman refused to repay VAT paid to their suppliers, even though there had been no contact with the real fraudster.  This stance arises from several European Court of Justice decisions, which established that customers could be denied input VAT recovery if they "knew or should have known" that a fraud elsewhere in their supply chain would take place. 

 HMRC cite this principle in their leaflet "Use of Labour providers - advice on due diligence"[1][1], making clear their view that failure to carry out "appropriate" checks will be evidence that you knew or should have known of a fraud if you fail to carry out appropriate checks on labour providers.  They have adopted the same procedures in the construction industry, amongst others, because a sub-contract labour supplier effectively acquires his labour “VAT-free”.  The taxman will look to deny the main contractor the input VAT paid out if the sub-contractor goes missing or into liquidation and fails to pay the VAT due.

 The leaflet sets out what HMRC see as some of the indicators of fraud and, as a main contractor, gives some example questions that you can ask:

•  Have you checked your supplier with HMRC and at Companies’ House?  This means a current check, not just accepting a copy certificate that may be years old – in a recent Tax Tribunal case, a company check was ruled worthless because an “s” on an invoice had been missed off the name checked at Companies House.  HMRC now have a central contact to check VAT registration numbers and to hand over details of labour providers.
•  Do you know anything about your supplier’s directors – their history, background, knowledge of work practices?  In one recent case, a supplier claimed to have more years’ experience than it in fact had, and it was ruled that this discrepancy should have put the contractor on notice that something was going to go wrong.  Similarly, references not being taken up by the contractor has been held to be indicative of not taking all due precautions against tax fraud.
• Have you checked out a supplier’s trading address and is it consistent with its business? This can be extremely difficult to gauge if your sub-contractor works from home – one man’s lean organisation is the Revenue’s indication of a fly-by-night.
•  Are the supplier’s charges realistic – do they meet minimum wage levels and allow for reasonable profits?  This is a reasonable indicator in terms of minimum wage costs, but how exactly do you determine what is another person’s “reasonable profit”? 
• What is the financial status of the supplier?  Much adverse comment is heard if the supplier does not have several years’ financial accounts, even though it might be a relatively new business, or has just been incorporated.  Similarly, if the supplier does not have a high credit rating, this is often held to be an indicator of potential unreliability and dishonesty, even though the contractor may pay relatively little attention to this factor because no credit is being allowed.
• Do you have a full written contract with your supplier, covering credit notes, defective work arrangements, etc?  While many contractors will already have this kind of document, some may not, and it will be treated as a negative factor if you have not agreed a full contract, irrespective of whether it is ultimately enforceable, or just thought to be unnecessary.

The above points are just a selection of the issues HMRC now require you to consider, and the kind of working practices they are insisting that you adopt.  However impractical and bureaucratic these measures are, if your supplier does not pay the VAT, the Revenue will be working hard to blame you, the contractor.  They will start with the VAT, and then look to whether further disallowances can be made against such costs for Corporation or Income Tax.  Disturbingly, the Tax Tribunals give zero sympathy to contractors who have not gone as far as possible to avoid dealing with somebody who subsequently defaults on their liabilities. 

 If you are a main contractor using sub-contract labour providers, you need to review your arrangements for satisfying yourself of your suppliers’ bona fides, and be able to demonstrate that your checks have been comprehensive and accurate.  If you fail to do so, the result will be financially painful. 

 [1] This can be accessed at: http://www.hmrc.gov.uk/leaflets/labour-providers-due-diligence.pdf