At first sight you would expect that a payment called a donation cannot also be a price. The two words are seemingly mutually exclusive. For VAT, "price" implies consideration for a supply. "Donation" implies a payment given to help a wider agenda of doing good and thus not in respect of a supply to its payer. On that basis a "price" is subject to VAT (unless the supply is exempt) whereas a "donation" is not subject to VAT as it is a pure gift.

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It is well known that the UK operates a very high VAT registration threshold (which has been the past subject of discussion in my blog for other reasons than the following). Other EU states on average have a threshold in the region of €30k, compared with ours of £73k. This means that, if our businesses make supplies in another EU state (under rules which require them to register there rather than allow the reverse charge to apply to the overseas customer) they will be more likely to be swept up into VAT registration than if an overseas business makes similar supplies in the UK.

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At this festive time of year it is tempting to carry out a bit of entertaining to warm the commercial hearts of others towards our wares. If one's own wares are entertainment, then the spend ranks, arguably, as both entertainment and sampling of the product itself.

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In September I published a blog about the consultation then in progress concerning a VAT exemption for cost sharing between VAT exempt bodies. The purpose of this blog is to provide a brief follow up, in the light of the details published thus far by HMRC on the shape of its likely implementation.

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If there is a subject likely to induce a coma in a non-VAT expert it is "partial exemption", otherwise known as VAT cost apportionment. But to businesses with exempt activity (or charities with exempt and non-business activity) it is an unavoidably important issue. And one aspect of this subject is that it presents choices for the taxpayer, between cost allocation methods. The choices are effectively the same (bar some details) as a management accountant faces when allocating costs to activities.

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This blog is about bingo, not about the future UK VAT rate (though it would not be a surprise if that moved to 23% in due course, not least as a result of the bingo story).

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Last week I read an HMRC public document on a proposed change of process for submitting EU trade statistics; a process that involves submitting an "intrastat". This document deals with a change that is to be introduced in April 2012. From then the current two modes of submission will be whittled down to one. Currently you can file electronically or on paper. From April, only the electronic mode will be available.

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There are circumstances in which a customer can claim VAT charged to him, and others where he cannot. The obvious example where that works is where the customer incurs VAT on a business purchase which he uses to make taxable supplies, and where he simply claims the input tax.

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VAT only comes into play if you pay "for" something. In that case we call the payment "consideration" for a supply, and VAT applies (assuming it involves a business and is not exempt). Obviously there can be cases where the payment you make was never intended to be for anything, and that is usually a donation or gift. But what happens if you pay under a contract for services (or goods) which you did not receive, because of your own failings?

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That title is not always true, of course, but most readers will instantly know that I am referring to the addition of VAT to a purchase which might have cost a business nothing in VAT (e.g. employing staff or paying the rates on an office building) but, if recharged as a simple sharing arrangement, is magically increased by 20% additional VAT when charged to a business the activities of which are exempt from VAT (such as insurance, banking, housing, care, education, burying the dead, and many others).

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It is not unusual to find that clients who have no (apparent) obligation to register for VAT also have a marked fear or detestation of ever having to register. It is as if they think that coming into the VAT tent puts them inside the jaws of the inspectors and leaves them with worrying and arduous tasks which are prone to error and liable to give grief. And so they are and might, but that is only one side of it, and in fact it is actually much safer to be in the tent than outside it.

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Holmes reached for his famous hat, and rose languorously from his armchair.

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HMRC has a knack of shocking us when they unveil new policies by appearing to bury them in a revised draft of a long and multi-function policy notice, as if to challenge us to a clandestine game of hide and seek. They did this a few days ago when releasing a new draft of Public Notice 708 (about construction services) for comment and consultation without forewarning us of the major change to be found in new paragraph 3.4.1. Anyone who is tempted to go to the HMRC website to review Notice 708 will not find the change. It is restricted to consultees only.

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I have now read the text of the Bridport Golf Club case (TC01214), and discussed it with others, allowing me to add to my last blog on this subject.

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This will be a short blog, because the case decision to which it refers (Bridport Golf Club) has not yet been published, and we are in that brief period that always arises where news of an outcome is heard from the litigants but the detail of the decision remains essentially private. Nonetheless it is clear that the long awaited case concerning whether green fees charged to non-members by members’ golf clubs ought to be exempt in line with the supplies made to members themselves, has given rise to a decision by the tribunal. That decision is in favour of exemption for the services. The UK VAT legislation purports that the services should be taxable. The result is a direct strike at UK VAT legislation.

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Something has moved HMRC to launch an enquiry into its approach to a specific class of “cheat”, namely the person who trades above the compulsory VAT registration threshold, but does not register and does not pay the tax. Quite right. The black market can never be encouraged, but there are some who feel that it is tacitly encouraged by the turning of a blind eye in situations where HMRC has not seen enough revenue in it for themselves. They are consulting on the measures (albeit the terms of reference appear a little secretive), and no doubt this will produce many good practical suggestions about how best to smoke out the wrong-doers. But I want to add some comments of my own, based largely on a statement of general principle which I would encourage HMRC to embrace explicitly. That principle is that the underlying purpose ought to be to create fairness between businesses and not simply to forage for cost efficient revenue.

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Only a few days ago I posted a blog on the VAT case of Reed Employment, concerning a VAT case appeal in regard to temp worker supplies, which pointed out certain surprising elements in the tax tribunal's analysis. The blog ended predicting that HMRC would appeal, or else clarify its reasons not to, which would, in effect provide their reasoning as to why the case had little or no general application.

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One of the most dispiriting of costs created by VAT is the imposition of VAT on the salary element of charges made by employment businesses for temp staff. This particularly harms finance businesses and charities which generally cannot reclaim VAT and which rely for good operational reasons on using temps.

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It is often (rightly) said that customers or clients who return time and again are the best thing for business. At the least, it shows the business is doing the right thing by the customer. It is also said that consultancy practices (be they legal, accounting or “other”) are “people businesses” who are only as good as the people they employ. What is less often acknowledged is that employees are a bit like customers: they can leave, and try someone or something else. There is no obligation for them to return, just as there isn’t for a customer. But if they do, then surely that says something positive about the business too. Interestingly, where the employee is client facing, it is a vote of confidence in the business’s clients as well.

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“Society frowns on blowing one’s own trumpet” said Michael Flanders, and regular readers (assuming I have any) will know that I do not use this blog platform for that kind of activity; normally. But here is the exception that proves the rule.

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This is not a Budget Briefing. It is a note of some random thoughts arising after the March 2011 Budget.

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Last week we learnt that the European Court of Justice was messing with the taxation of our sausages. Horror! But on this occasion many were inclined to have warm feelings for the EU because it seemed they were saying that our hot takeaway sausages (and for that matter fish & chips, fried rice etc) ought to have no VAT on them because they were not “catering services”. The case is one concerning a German vendor, but we all know that the British stand only second in the line behind the Germans in regard to their love of the hot takeaway sausage (just as they do for the great German culinary invention, the doner kebab).

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Shortly after writing my “shopping list” blog, requesting a reconsideration of the penalty for careless errors, I learnt of a tax tribunal decision which made my point perfectly.

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More in hope than expectation I venture some suggestions for change in the taxes that interest me, to which I hope the government will pay attention. I will treat it as “going without saying” that there are helpful reforms afoot particularly in the area of deregulation, so please do not assume that I am attacking the powers that be by making suggestions. They are proffered in a constructive spirit.

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In VAT it is the sum of the parts that count, not so much the parts themselves. If what you do for a customer comprises several distinct aspects, each of which could be separately supplied in some context or other, but all of which are needed to deliver the final desired outcome, then what you do is look at that outcome, and work out the VAT treatment accordingly. It is dangerous, and usually wrong, to look at the supply’s anatomy and try to tax each limb and organ as a separate exercise.

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At one level HMRC is careful about how the public views them. They offer time to pay when cash is short, or when foot & mouth stalks the land. They write helpful leaflets and updates. But they seem to have a habit of washing these brownie points away by moments of carelessness, and a general lack of awareness. The following two cases are examples.

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“Abuse” is a technical term in the field of VAT. It denotes a case where a taxpayer has adopted a business structure primarily in order to save VAT, and where that structure is essentially contrived, is apparently un-commercial, and thus results in the frustration of the clear purposes of the VAT Directive. Where a court holds that an “abuse” has occurred, then it needs to consider what the result would have been had the artificial aspects of the structure not been introduced, or, put another way, if it had been structured on a simple commercial basis. That then determines the amount of VAT that needs to be accounted for.

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To be a VAT consultant is to be fascinated by endless new views of the world. For instance, a VAT Tribunal case out this week told us that more than 70% of ferrets owned in the UK are pets, the balance being used on farms to control vermin. Moreover, a “pet” is an animal which is “an object of affection, or an ornament”. Interesting stuff. The point? Basically that ferret food is therefore pet food, so is subject to VAT.

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I wrote a blog, before Christmas, concerning fundamental reform proposals tabled in a Green Paper by the European Commission, which covered a wide range of proposed areas for review. My blog covered the issue of where the revenues fall to be collected. I now consider the reform of VAT exemptions.

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We have known that this was coming for many months. Most of us felt we knew it was coming from before the 2010 General Election. We now have the position that one sixth of a retail price goes to the Treasury (unless the goods are zero rated, where it is none, or exempt, where it is an unquantifiable component). What is the upshot?

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Today (22 December) The European Court of Justice (ECJ) published two landmark decisions concerning VAT avoidance and the concept of “abuse”. Both went in favour of the tax payer. It is my contention that both delivered a reasonable result, and that the contrary result in either case would have precipitated us into a “wild west” (to borrow a famous phrase) where all mitigation options could be hunted down by anti-avoidance sherrifs.

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A few days ago the European Commission launched a fundamental review of the VAT system within the EU, entitled: “Towards a simpler, more robust and efficient VAT system”. Any changes to the EU VAT rules would directly affect our UK VAT rules. Fundamental change would affect us significantly. The Commission stops short of saying that the VAT system isn’t working, but they appear to say that it is not working particularly well, and they feel that it should work better.

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The Fanning report from the gift aid consultation, and even the government's response of partial acceptance of its recommendations, contain many worthy promises of change and improvement, and it seems akin to crying "Humbug!" to disagree with any of it, but unfortunately I feel more inclined in that direction than to sing a verse of “Hark the Herald”.

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With the fate of cheques as a method of payment under review, and with a plethora of payment alternatives ranging from cash to internet banking, via credit card etc., some suppliers of goods and services are trying to stear customers onto the methods that suit the supplier best. Unless they refuse to accept certain methods, the alternative is to charge extra to accept them. An example has been T-Mobile (or "Everything Everywhere Limited" as they are now called). They set up an extra charge for "handling" the less attractive payment methods. They then argued that this charge was for a financial supply which was exempt from VAT, as a kind of bank charge.

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It is tempting to view changes in tax law and practice rather like building blocks of an ever developing edifice. Under this metaphor each principle which is established creates a new certainty upon which future certainties can be built. Areas of uncertainty are gradually whittled away except to the extent that the world itself throws up novel situations, or clever people invent new interpretations to argue before the courts. This view is reinforced by the general principle of precedence in legal cases. If courts never go back on their previous decisions that sets legal principles in stone.

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There is no point trying to hide it; the subject of this blog is pretty dry. But it is also “popular” in the sense that a large part of the tax-paying community needs to understand it, whether they like it or not.

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The sheer quality of much of our built environment is one of the chief joys of belonging to our country. Ranging from protected monuments as ancient as Stone Henge to the much more contemporary listed Arts Tower of Sheffield University, I love the superb backdrop to our life, and the fact that we are so careful, as a country, to maintain this fabric of our heritage and identity. They are riches without price, but, as the cliche goes, they are not without cost...

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When the 30% penalty was introduced, in 2009, in respect of VAT errors that did not involve dishonesty, but were “careless”, this replaced a 15% penalty for any error over a certain size. Under the old rules it was irrelevant whether or not enough care had been taken, but the penalty could be waived if the taxpayer passed the tough test of “reasonable excuse”.

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It amuses me to look for unlikely pairings of subjects, and here is one that tickled my proverbial fancy. The clue is in the title. Two changes take place with effect from 1 January 2011, one affecting “jet” and the other affecting “performers” (of the jet-set variety, for reasons that will become clear).

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It is well known, and much resented, that Stamp Duty Land Tax (SDLT) is calculated on premiums or rent inclusive of any VAT that may be added irrespective of whether the purchaser or tenant can reclaim any of that VAT. The effect, where VAT is chargeable on either premiums or rent, is to levy SDLT at a higher effective percentage than the underlying cost to the tenant. The obvious unfairness of this is borne out by the fact that VAT is intended not to “stick” with suppliers in a supply chain, but to be relieved until the final supply transaction through the ability to reclaim input tax. However, a tax which is increased by reference to the input tax that is claimed does not work in such a neutral fashion, and thus distorts the VAT system itself.

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If you are reading this blog on or around the day it was first published then you will appreciate that there is approximately two months to go in order to be ready for all aspects of the new 20% rate of VAT. “But”, I hear you cry “it’s more like two months and two weeks”. Well, on a very literal basis that is true, but if you were planning on having Christmas off, or any of your staff are, or your contractors, customers, or indeed your advisors, then everything really has to be done and dusted by around about 20 December to stand any chance of being ready.

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When the last Government temporarily dropped the standard rate of VAT to its legal minimum, 15%, for a period of 13 months, there were many commentators who chanced their arm on an observation that it would not incentivise further public consumption, nor save businesses, and was little more than a wish to be seen to be doing something for the beleaguered economy in the hope of not appearing impotent. I am happy to say that I was one of those commentators. So, were we Cassandra commentators right or wrong?

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I remember at school an amusing school performance of the famous play “Servant of Two Masters” in which the servant, Truffaldino, attempted to increase his income by serving two masters at the same time. The play demonstrated just how difficult (and potentially comical) this can be in practice.

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Perhaps it is a little cheeky to paraphrase a former “strap-line” adopted by HM Revenue & Customs when discussing the need to ensure that not too much tax is paid unwittingly on not-for-profit training provision, but in our new climate of the promotion of “fair” taxation, there is something peculiarly “fair” about paying as little tax as possible on training and education.

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I have always thought that if something is “essential” to another thing then this means either that: 1. The other thing cannot happen without the first thing, or 2. The first thing forms the bedrock of the other thing, perhaps being the most central aspect, or the most important outcome.

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In more than 25 years working with VAT, I have seen countless examples of cases where a taxpayer’s dispute with HMRC has gone beyond the narrow legal analysis of the position.

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