VAT and Indirect Tax

Due to the wide ranging nature of supplies made by academies, their VAT position can be very complicated encompassing a number of complex areas of VAT such as:

• Business v non-business
• Partial exemption
• VAT exemptions
• Charity VAT reliefs
• VAT Refund Scheme under s.33B VAT Act 1994

We are specialists in VAT for academies and can assist academies in managing all areas of VAT from liability of supplies to maximising VAT recovery.

HMRC has changed how it now approaches determining whether or not an activity is a business activity. HMRC has also updated its VAT Business/Non-Business staff internal manual. The changes feature in a policy paper from HMRC, ‘Revenue & Customs Brief 10 (2022)’ and confirm a significant departure from HMRC’s longstanding policy of the last 40 years of applying the principles laid down in the cases of Lord Fisher [1981] STC 238 and Morrison’s Academy Boarding Houses Association [1978] in deciding whether an activity is a business or non-business activity for VAT purposes. HMRC’s approach moves away from the 6 criteria that emerged from the above cases, known as the ‘business test’, being replaced by a new two stage test.

New 2-stage test:

• Stage 1: The activity results in a supply of goods or services for consideration
• Stage 2: The supply is made for the purpose of obtaining income therefrom (remuneration)

Businesses and organisations with non-business activities need to review the potential impact of the change in HMRC policy on an activity by activity level, especially where reliance has been placed on the old ‘business test’ e.g. the organisation’s overall objective or non-profit motive to determine non-business income.

We can provide further support in undertaking a detailed review of the VAT position in relation to business and non-business income and the impact of changes on VAT recovery

Whilst charities do not have a general exemption from VAT, VAT law does provide a number of beneficial exemption for specific supplies made by charities and ‘not for profits’ .

In addition there are a number of beneficial VAT reliefs on certain goods and services which a charity buys including:

• advertising and items for collecting donations
• aids for disabled people
• construction services
• drugs and medicine
• medical, veterinary and scientific equipment
• goods for disabled people
• motor vehicles designed or adapted for a disability

In particular VAT reliefs for construction of new buildings can provide significant cash saving as charities generally cannot recover VAT in relation to non-business supplies

However, the VAT rules in this area can be extremely complex.

As charity VAT specialists we can provide VAT support on all aspects of VAT exemptions and VAT relief for charities.

Our general VAT review, often referred to as ‘VAT health checks’, provide your business with reassurance that VAT is being correctly dealt with. A typical general review:

• Identifies opportunities that there may be to improve your VAT position
• Highlights areas of VAT risk
• Reviews the VAT liability of your income streams
• Checks that the maximum input VAT recovery is being achieved
• Considers whether any simplification schemes, such as the flat rate scheme or cash accounting would be beneficial for you.
• Reviews VAT systems to identify any improvements that could be made
• Gives you the opportunity to ask questions
• Considers partial exemption and capital goods scheme position
• Allows the chance to act on any errors before HMRC discovers them, potentially mitigating penalties that may fall due
• Availability of VAT reliefs

We also offer more bespoke tailored VAT reviews if you have a specific area you would assurance on that VAT is being correctly dealt with.

Getting a compliance check from HMRC can be a stressful event.

Our VAT Team has years of experience dealing with HMRC compliance check and can support you from start to completion of a compliance check.

It is advisable to get support from the start of any check as many businesses fail to get appropriate support from the beginning of a check and a check that could have been quickly resolved can turn into a lengthy and more expansive check.

Our team includes staff who have spent many years working in HMRC including a former HMRC Head of Tax Professionalism and a Large business specialist. We therefore understand how HMRC works and its approach and procedures when dealing with compliance checks and disputes.

Armstrong Watson also offers an HMRC Investigation Service which is fully backed by an Insurance Policy, by Markel Tax.

If you are subject to an enquiry, as a member of our HMRC Investigation Service you will have one of our expert tax consultants defend and negotiate your position with HMRC, protecting you from any costly fees, free of charge.

Visit our Tax Investigations Service.

Trading internationally whether goods or services can be extremely complex and lead to unwanted consequences such as inadvertently triggering overseas VAT registration obligation.

Post Brexit the landscape has gotten ever more complex.

• Place of supply rules goods and services reviews
• E-Commerce
• Reverse charge VAT accounting
• Import VAT accounting
• Duty
• Rules of origin
• Customs reliefs

Through our membership of the MSI Global Alliance of Accountants and Lawyers, we can provide you with a global reach, and access to local knowledge and expertise in over 100 countries worldwide. We will work with MSI members or your existing advisers to coordinate your affairs across the globe, ensuring that you comply with local regulations, optimise tax planning and satisfy legal requirements unique to the specific international region/s relevant to your business need.

VAT in relation to supplies of land and construction services is one of the most complex areas of VAT. The high value of land and property transactions often leads to significant exposure and such transactions should be considered in detail.

There are also significant VAT reliefs available, for qualifying works and these can make a significant difference for customers which cannot recovery the VAT they are charged. It is essential to maximise reliefs to avoid significant irrecoverable VAT.

• VAT liability of supplies of land and buildings
• VAT reliefs new build construction
• VAT reliefs for relevant residential and relevant charitable purpose buildings
• VAT on conversions and renovations
• Option to tax
• Compensation and dilapidation payments

Our Team are specialist in all aspects of VAT in relation to land and property.

Due diligence

Whether you are buying or selling a business or restructuring an existing business, VAT is a key and often overlooked consideration.

It is important for vendors and acquirers to fully understand the VAT position of the business being bought or sold.

For vendors, ensuring a business is in the optimum VAT position for sale is a key consideration at the stage a transaction is first considered. Identifying (and rectifying) any VAT risks or exposures at this point means that the business is as attractive as possible from a buyer’s perspective, and can ensure that buy-side due diligence does not uncover any surprises that lead to a reduction in consideration achieved.

For purchasers, a thorough due diligence into a target business is also of vital importance. This is to ensure that any VAT risk is identified pre-purchase and the appropriate consideration is paid, as well as the required warranties and indemnities being written into the legal agreements governing the transaction.

The form of the transaction also has VAT consequences for both the buyer and seller – a share sale and a trade and asset deal are treated differently for VAT purposes. Similarly, the acquisition structure of the buyer must also be given careful consideration.

Deal costs

VAT recovery on the deal costs (often significant) has long been the subject of litigation.

The recovery of VAT incurred on the professional fees associated with share transactions is currently an area where the historic view that VAT in relation to share sales is irrecoverable in virtually all instances is currently being challenged.

The recent Upper Tribunal in the case of Hotel La Tour Ltd v HMRC [2023] UKUT 178 (TCC), highlights the courts willingness to examine an alternative approach. In this case the appellant was a member of a corporate group which ran a hotel business. In order to raise funds needed to construct a new hotel it sold one of its subsidiaries. HMRC disallowed input tax recovery on the professional fees associated with the share sale on the grounds there was a direct and immediate link between those costs and the share sale and it was not possible to look through the share sale to the wider business purpose for entering into the transaction.

If you have sold a business in the last 4 years and blocked VAT recovery on deal fees you should reconsider their VAT recovery position . There is a potential to submit a claim to recover VAT on deals costs. Please et in touch for further information.

At Armstrong Watson, our VAT Team have extensive knowledge and experience in M&A and restructuring support.

We provide can extensive support with M&A transactions including buy side and sell side VAT due diligence and support on restructuring and deals fees.

When a business that is VAT registered makes exempt supplies it falls within the scope of complex partial exemption rules. This in particular impacts recovery of input VAT associated with the exempt supplies which generally cannot be reclaimed where inputs are directly connected with the exempt supplies.

We have helped clients maximise VAT recovery and ensure partial exemption calculation are correctly dealt with.

The standard method for calculating VAT recoverable is based on turnover. However this does not suit all business and we can assist businesses in agreeing an alternative (‘special method’) with HMRC.

The Senior Accounting Officer (“SAO”) rules were introduced in 2009 and the purpose of these rules was to enforce the need for large companies to have appropriate and adequate tax accounting arrangements in place, from accounting for business transactions through to computing and paying final tax liabilities.

The rules apply to large companies which for these purposes are defined as those who, either standalone or aggregated with all other UK companies in the same group, have turnover of more than £200m and / or a balance sheet total of more than £2bn.

Armstrong Watson’s Tax Consulting team has many years of experience in supporting clients with preparing for, and complying with, the SAO regime since its introduction in 2009. We approach each SAO project on its own merits, based on our understanding of the business-structure, internal operations, sector and other factors. This helps us to tailor our services so that we are focussing resources on the areas likely to cause the business most risk or challenges in respect of SAO requirements, and so that we are providing maximum value to the business.

Even if your business is not subject to SAO, understanding whether VAT systems and processes are robust is essential.

Our team have experience in reviewing VAT systems and processes for businesses ranging from small owner managed business right the way up to FTSE 100.

Where businesses cannot afford to make their tax payments to HMRC, we can assist in negotiating and agreeing affordable monthly payment options, known as a time to pay (“TTP”) arrangement with HMRC.

If you are having difficulty in meeting VAT obligations it is essentially to manage this proactively including engaging with HMRC at the earliest opportunity.

VAT is often overlooked when considering savings and efficiencies. We regularly assist clients ensure where possible VAT costs are managed effectively and where cashflow opportunities exist these are maximised .

This can be through ensuring VAT is recovered to the fullest extent or making sure options for effectively managing cashflow are implemented through timely claims and tax point management.

Ensuring VAT is effectively managed is more important than ever.

VAT grouping is a facilitation measure by which 2 or more eligible persons can be treated as a single taxable person for VAT purposes.

Supplies between group members are normally disregarded for VAT, which can provide significant benefits where supplies would ordinarily result in irrecoverable VAT e.g. between connected businesses which cannot recover all the VAT they incur due to making exempt supplies.

We assist businesses evaluate whether VAT grouping would be advantageous and agreeing VAT grouping with HMRC.

We regularly provide VAT training for our clients on all aspects of VAT.

We can tailor our training to the exact needs of your business ranging from an overview of VAT for non-finance staff to detailed technical training to specialist staff.