Potential changes to VAT on the supply of staff
VAT implications of salary sacrifice schemes
Sole proprietors on Flat Rate Scheme (‘FRS’)
Potential changes in VAT liability of golfing fees
Insolvency Practitioners – liability of supplies
Changes for caravan site owners
Further VAT resource at Henderson Loggie

An important decision of the First Tier Tax Tribunal was recently published concerning the VAT liability of the supply of temporary staff. The case of Reed Employment Limited centred around whether employment agencies should be charging VAT on the whole value of the supply of staff, which would include charging VAT on wages and National Insurance, as well as their commission. HM Revenue & Customs has now set out its position at Revenue & Customs Brief 32/11.

There are potentially wide ranging issues with this decision which could affect both employment bureaus and businesses which have been incorrectly charged VAT on the supply of staff but have been unable to recover this (eg) charities, financial institutions and private individuals.

A significant VAT change will be introduced on 01 January 2012, when salary sacrifices made by employees will be treated in exactly the same way as salary deductions from their wages. The main points of this are;

Cycle to work schemes – output tax will become due on the value of salary foregone each month by the employee in exchange for the hire or loan of a bike.

Face value vouchers – again, where these are given under a deduction of salary output tax will now be due on the value.

Childcare vouchers – these will not be subject to output tax, but as these vouchers relate to an exempt supply the employer may no longer be able to recover any input tax related to these on these.

More details on this can be found at Revenue & Customs Brief 28/11.

Guidance on existing arrangements can be found at http://www.hmrc.gov.uk/specialist/salary_sacrifice.htm.

Sole proprietors using the HM Revenue & Customs FRS should be aware of what is classed as ‘income’ for VAT accounting purposes. Under the FRS businesses account for VAT at a fixed rate based on the trade sector on all income, not only on what would normally be standard rated. This means that all income received, including what may be thought of as non-business such as rental income from flats or the sale of a car, needs to be included in the FRS calculation and VAT declared on this.

The charges made by golf clubs to non-members playing on their course have historically been treated as standard rated for VAT, but a recent tribunal decision has suggested otherwise. Bridport and West Dorset Golf Club Limited successfully argued that the sporting exemption should apply to non-members. It is understood HMRC intend to appeal. Based on this ruling it is recommended that clubs seek advice on submitting similar claims for overpaid VAT if they have not already done so, although they should also consider and bear in mind that the increase in exempt income is likely to affect their entitlement to input tax deduction.  Details of the case can be found at Revenue & Customs Brief 30/11.

A recent VAT tribunal has ruled in a case over the VAT liability of Individual Voluntary Arrangements made by insolvency practitioners (IP). The IP carries out two services; preparation of the proposal and monitoring the agreement. The tribunal agreed that this was a single exempt supply and HMRC advised they will not be appealing this. IP’s should consider making claims for overpaid tax, but also be aware of potential input tax restrictions due to the increase of exempt income. Legal advice sought by The Institute of Chartered Accountants of Scotland confirms the decision applies to Trust Deeds in Scotland. Further details of the decision can be found at Revenue & Customs Brief 27/11.

HMRC recently announced its intention to withdraw three Extra Statutory Concessions relating to caravan sites, with effect from 1 January 2012. The following services will be affected;

Recharges of business rates will now follow the liability of the pitch, which is standard rated for holiday and leisure sites.

Recharges of non-metered water and sewerage services will again now follow the liability of the pitch; standard rated for holiday and leisure sites, exempt for residential sites.

One-off charges for first time connection to gas, electricity, water and sewage. These will also follow the liability of the pitch unless these services are metered to the individual pitch, in which case the charge will follow the liability of the service (reduced rate for gas and electricity, zero rated for water and sewage).

Full details of this can be found at Revenue & Customs Brief 37/11.

We are delighted to be joined in our VAT team by Alan Flavelle who will be based in our Glasgow offices. Alan has a wealth of experience in HM Revenue & Customs and will further develop our VAT and indirect taxes offering in the Central belt.

Please contact any of our VAT team;

Alan Davis (alan.davis@hendersonloggie.co.uk),

Alan Flavelle (alan.flavelle@hendersonloggie.co.uk),

Kathryn Williamson (Kathryn.williamson@hendersonloggie.co.uk),

or your normal contact if you would like further information about any of these issues or other indirect tax matters.