Keeping up to date with VAT

James Hurst looks beyond the big news headlines on how to keep up to date on VAT.  

For more information on this topic and more, please visit www.mercia-group.com for further details.

Transcript

[00:00:00] Hello, this is James Hurst at Mercy Group, and I'd like to share some thoughts with you about keeping up to date with VAT. One feature of the world of VAT is that there can be a lot of change, and sometimes there's a big change in the form of a new Policy announcement and obvious example of this is the recent budget, which confirmed the new policy to introduce VAT on private school fees. 

[00:00:43] And incidentally, we have a new mercy, a topical issue on private school fees coming out on the 18th of November. Another relatively recent headline. came at the time of the spring budget earlier in the year when we were all somewhat taken by surprise. It must be said at the then Chancellor's announcement that the VAT registration threshold would rise to 90, 000, not least because only a few months before. 

[00:01:09] It's stated that it would stay at 85, 000 until at least 2026. But in the world of VAT, it's not necessarily about the big headlines, such as the ones I've just mentioned, but more often it's about the less obvious changes and it's about case law. And in particular, VAT tribunal decisions that can result in changes and how we approach VAT accounting in different types of businesses. 

[00:01:37] One of the most famous quotes about VAT the words of Anthony Barber. then Chancellor of the Exchequer when introducing the 18th 1973 and describing it as a simple tax. Well, we certainly know that some 50 odd years later the VAT system has become much more complex and there are new developments all the time. 

[00:01:58] Sometimes because taxpayers are seeking a more beneficial interpretation of the law and maybe some taxpayers seek to push the boundaries a bit. beyond current thinking, but very often these days there are changes because the VAT law struggles to keep up with the pace of change in the real world. 

[00:02:20] And We need to remember that much of the VAT law is framed in terms of the world as we knew it in the 1970s and modern types of supply, new types of products are always being created or developed or invented and often they don't fit neatly into the established VAT framework. And then this creates uncertainty. 

[00:02:44] And the obvious example is the internet, which certainly wasn't in anyone's minds as something that would actually exist in the early 1970s when the BAT law was being drafted. And this led to a sort of fairly long running dispute concerning online newspapers, for example, that rumbled on for a few years where HMRC said that. 

[00:03:06] Online newspapers couldn't be zero rated like a traditional newspaper because the law, with its 1973 view of life, said that newspapers are printed matter and then there was a definition in the law based on the physical characteristics of printed matter. Whereas of course the world has moved on since and many people, if not most people, I would have thought these days, get their news online. 

[00:03:34] Okay, that particular bit of the law is now changed and broadly online newspapers are now also zero rated, but it does usually take some time for the VAT law to catch up and there's uncertainty in the meantime. The new that topical issue edition from Mercia highlights some of the ways in which VAT is increasingly sort of moving online, certainly in terms of VAT administration. 

[00:04:02] So, for example, HMRC have a new online VAT registration estimator tool, the VAT 484 form for changing VAT registration details is moving online or has moved online unless you're an overseas person or a partnership. And there are particular reasons for that to do with a VAT fraud that was taking place. 

[00:04:24] So, there's Sometimes it's a change in the law, other times it's not a change in the law itself, but it's a change in the way that HMRC decide to approach a certain area of VAT. And for example, the new topical issue on keeping up to date with VAT highlights just one such topic, which is where HMRC are currently challenging VAT recovery by businesses, particularly in the construction sector on the grounds that the purchase invoice is inadequate. 

[00:04:58] And that's a very live issue at the moment. So having a heads up on what's happening in VAT can certainly assist with being compliant and also Reducing the risk of getting into a dispute with HMRC, of course, what tends to generate the sort of big news headlines, certainly in terms of the wider news media is cases like whether a food product is a chocolate covered biscuit or not, or whether a snack is potato crisp or a poppadom and we've had cases on both of these areas in the last few years and well indeed in the last year we've had cases on these and these cases tend to be a bit more fun than whether a document is a valid purchase invoice for deducting VAT that's less likely to get into the sort of wider news headlines but it's actually the latter type of case about deducting VAT on an invoice which is more important to a wider number of businesses and therefore it makes it more important to make the effort to keep up to date with what's going on in VAT. 

[00:06:07] Because this affects day to day compliance matters. And I began this piece with a famous quote about VAT and the other famous quote about VAT which comes to mind and certainly when there's any mention of whether an item is a chocolate covered biscuit or not or whether a snack is a potato. crisp or whether it's a popadum and whether therefore whether it's standard rated or zero rated and I'll refer to this quote just to sign off this piece with the famous wise words of Lord Justice Sedley at the Court of Appeal in the case of Royal and Son Alliance. 

[00:06:43] And I quote here, Beyond the everyday world, lies the world of VAT. A kind of fiscal theme park in which factual and legal realities are suspended or inverted. Yeah, so that's one of my favourite quotes there about VAT. So, thank you for listening.