News
Monthly VAT news - February 2011 - 2011-02-22
Outsourcing and joint employment contracts - VAT scare
The tribunal case involving CGI (Europe) Ltd (CGI) might affect charities that entered into joint contracts of employment if they are perceived to be outside the scope of the relief. In this case, an insurance company outsourced its IT department to CGI, and the two companies entered into an agreement whereby CGI was to pay the salaries of the jointly employed staff, and then re-charge the salary costs to the insurance company in its monthly invoices. CGI treated the value of the staff costs element as outside the scope of VAT. HMRC attacked this, and the tribunal ruled that although the employees were jointly employed by both companies, CGI was making standard rated supplies of IT services to the insurance company. It is doubtful that this will affect charities that have legitimate joint employment structures, providing that the structures are within the spirit of the relief and not perceived by HMRC as abusive arrangements.
Warning over zero rating of newsly constructed buildings
The recent tribunal decision of Wakefield College may be of interest to not for profit organisations planning to construct a new building. The tribunal agreed with HMRC that the supplies of construction services relating to the new building cannot be zero rated on the basis that the use for which the building was intended was not restricted to non-business purposes. The business activities highlighted by the tribunal included supplies of adult education, where charges were made to students, and income from a loss-making café which was open to the public, but which was used almost entirely by students and staff of the College.
Interest received by businesses operating the flat rate scheme
The tribunal decision in the Fanfield Limited and Thexton Training Limited case looked at the interest received on the companies' bank accounts and how this should be treated in relation to the Flat Rate Scheme. HMRC was of the opinion that bank interest was earned in the course or furtherance of the business carried on, and issued an assessment to include bank interest in the turnover for the Flat Rate Scheme. The tribunal agreed with the appellants that in this case interest was not earned in the course or furtherance of the business, and as such it was outside the scope of VAT and should not be included in the turnover for the Flat Rate Scheme.
EU consultation on the future of VAT
The EU has launched a consultation on the future of VAT with proposals to simplify, modernise and maximise the VAT yield through blocking opportunities for fraud. The proposals are extremely radical and thought provoking and would produce a completely different tax system. Some of the topics they are looking into include removing exemptions, zero ratings and other reliefs from VAT and have a single VAT rate across the board - a recent OECD paper found this to be the most efficient system. Alternatively, the EU is also looking into extending the destination system for accounting for cross-border transactions with VAT accounted for in the country of destination or, if the current system is to be retained, have a common VAT rate of 15% to be applied on transactions with destination member states "topping up" by additional charge to the local rate. There are also suggestions to alter the method of paying VAT from bank accounts, as well as proposals to collect tax on internet supplies from non-EU suppliers. It is possible that EU VAT changes could be made by majority decision as opposed to unanimous decision in the future. A number of other proposals are included in the consultation specifically aimed at simplifying the system, countering fraud, and maximising the VAT take.
For further information or advice on any of these issues please contact indrect tax partner Bob Jones on 020 7516 2295 or email rjones@littlejohnllp.com
