EXPERT LEGAL INSIGHTS / VAT and Indirect Tax

HMRC has publishes a brief in response to the CJEU decision in Skandia (which said VAT should be charged on supplies from a US company to its Swedish branch). HMRC is still considering whether the UK needs to amend its VAT grouping rules. In the meantime it says businesses should continue to follow existing guidance. However, it might still be a good idea to VAT group a UK branch if you can. Keep reading to find out why.

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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 A discussion document and draft guidance for consultation followed in February 2013 and on 20 March 2013, in the 2013 Budget report, the government confirmed that the new policy would be introduced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.

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