EXPERT LEGAL INSIGHTS / VAT and Indirect Tax

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This article is a guide for US businesses in relation to VAT issues in the UK.

In essence, value added tax (“VAT”) is a tax on personal consumption or use of goods and services. Businesses charge VAT when supplying their goods or services to individuals who bear the cost of the VAT charge; thus these individuals are taxed on their consumption of those goods and services as measured by their expenditure. The business, having collected the VAT from the customer, will then pay that VAT over to the tax authority.

In the 2012 Autumn Statement, the Chancellor of the Exchequer confirmed plans (first announced in September 2012) to use of the public procurement process to deter tax avoidance and evasion. A discussion document and draft guidance for consultation followed in February 2013 and on 20 March 2013, in the 2013 Budget report, the government confirmed that the new policy would be introduced from 1 April 2013.

Apart from the leak the big headlines were a drop in the main corporation tax rate, new and improved reliefs to support SMEs and entrepreneurs, measures to help the UK investment management industry, a new tax regime for shale gas, a boost for investment in housing and infrastructure and some unexpected inheritance tax restrictions.

Central Government will be able to ban companies and individuals that have taken part in failed avoidance schemes from being awarded Government contracts. The rules concern all major suppliers to central Government, including defence, IT, building and infrastructure companies. Other public bodies will be encouraged to consider applying the rules. The far-reaching proposals are open for an unreasonably short consultation period ending 28 February.

Following the recent ECJ case of Field Fisher Waterhouse (FFW) it looks likely that the VAT treatment of service charges paid under most leases will continue to depend upon whether the landlord has opted to tax the property. If a landlord has not opted to tax the property but wants to charge VAT on the service charge it should consider using a separate management company to supply the services.

HMRC’s long-held view is that a lease grant cannot be a transfer of a going concern (TOGC) because it involves creating a new asset rather than transferring an existing one. However, in Robinson Family Limited v HMRC the First-tier tribunal held that granting an “overriding” lease of a “let” property should be treated as a TOGC. This will have […]

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