VAT update - July 2011

The Bridport and West Dorset Golf Club

HM Revenue & Customs (HMRC) has issued guidance following the first-tier tribunal decision in The Bridport and West Dorset Golf Club case (TC/2009/122260).

The case concerned the VAT liability of the green fees charged to non-members. As with many golf clubs, Bridport and West Dorset Golf Club is a non-profit making club. Green fees paid by members of the golf club are exempt from VAT, as directed by legislation. The green fees paid by non-members fall outside this exemption and have been subject to the standard rate of VAT.

The decision given was to place all green fees on a level footing and exempt them regardless of who was paying it. The tribunal concluded the restricting of the exemption was contrary to the principle of the VAT Directive and was not persuaded by any of HMRC’s arguments.

HMRC has clearly pointed out that it disagrees with the decision and believes that the tribunal have erred in its interpretation of EU law. It is therefore not changing its guidance to golf clubs and insists that they account for VAT as they have always been.

HMRC is discouraging any claims on the back of this case and will reject any such claims. As this is a first-tier tribunal decision, the decision is only binding parties involved.

For further details, please see Revenue & Customs Brief 30/11.

Salary sacrifice

HM Revenue & Customs (HMRC) have issued guidance on salary sacrifice arrangements. From 1 January 2012 businesses will need to adjust the VAT treatment of salary sacrifice arrangements. From this date changes need to be made to reflect the treatment of certain supplies made by employers under salary sacrifice arrangements following the CJEU Judgment in Case C-40/09 which states that businesses ‘must account for output VAT on supplies, where they are subject to VAT’.

The annex to the guidance details how this change of practice will apply in particular circumstances:

  • cycle to work scheme: under the Cycle to Work Scheme employers purchase bicycles and safety equipment and provide them to employees. Where this has been done under a salary sacrifice arrangement, the effect of the judgment is that employers must account for output tax based on the value of the salary foregone by the employee in exchange for the hire or loan of a bicycle. 
  • face value vouchers: in the case of supplies made under a deduction from salary arrangement input tax is recoverable but output tax must be declared.
  • childcare vouchers: childcare vouchers are not directly affected by the judgment as they are not subject to VAT. However, employers that incur administrative fees from their voucher provider have, to date, been permitted to recover VAT on those fees as a general business overhead. However, because the fees are directly attributable to the exempt supply of vouchers the normal partial exemption rules must be applied with the result that the VAT incurred may no longer be fully recoverable
  • food and catering provided by employers: where employees pay for meals etc under a salary sacrifice arrangement, employers must account for VAT on the value of the supplies unless they are zero-rated.

Correcting liability errors

HM Revenue & Customs (HMRC) has issued guidance regarding correcting liability errors made by HMRC. The guidance withdraws previous guidance provided with in Business Brief 28/04 item 2 and is effective from 1 August 2011.

The announcement states that ‘taxpayers will usually only be required to apply the new interpretation of the law from a current or future date that HMRC will announce when advising on the correct interpretation.

If, following HMRC's announcement of its new interpretation of the law, a business nevertheless chooses to correct historical errors, HMRC will accept the corrections providing all of the following conditions are met: 

  • all past errors are corrected 
  • the neutrality of the tax is respected 
  • the business is no better off and the Exchequer no worse off than they would have been if the mistaken interpretation had not been made.’

Services provided by insolvency practitioners

HM Revenue and Customs (HMRC) has issued a brief following the recent first tier tribunal decision in Paymex Ltd (Case ref (2011) UKFTT 350).

The case concerned certain services provided by insolvency practitioners and the applicable rate of VAT. Paymex Ltd was part of a group containing a member, Blair Endersby that provides licensed insolvency practitioners (IPs) to run and maintain individual voluntary arrangements (IVAs). IPs provided two services:

  • nominee services (involving the preparation of the proposal between a debtor and creditors)
  • supervisory services (involving supervising and monitoring any agreement in addition to taking regular payments from the debtor in order to pay creditors).

The decision was to conclude, the Nominee and the Supervisory services should be treated as a single supply and that they should be exempt from VAT. The nature of the service provided by the IP was of negotiation of debts and transactions.

Due to the fact that both services were considered to be exempt, the tribunal made no judgement of the dominance of one service over the other. HMRC is not appealing this decision and are encouraging claims for any over declared output tax.