Posts tagged VAT

How to avoid being a VAT geek when on holiday

Whilst checking our bill for dinner at our favourite restaurant in Puerto del Carmen, Lanzarote recently, my husband commented on the 7% ‘tax’ which is added to all restaurant bills there. I immediately launched into an explanation that this was IVA, the Spanish equivalent of our beloved VAT and that back in the UK we are charged the standard rate of 20% for all meals eaten in a restaurant. Fortunately, for his sanity and my continued existence, I noticed pretty quickly that his eyes had glazed over.

I was reminded of this conversation just yesterday when I read that Brussels was targeting VAT on ebooks which could cut the VAT on them. It is an anomaly that whilst printed books are VAT free, ebooks attract VAT at the full standard rate of 20%.

Why should this remind me of my Lanzarote VAT geek moment? Well as I have highlighted before, the VAT treatment of many goods and services differs wildly between EU countries and the treatment of ebooks is just another example. Other EU countries already enjoy lower rates of VAT in respect of ebooks with France taxing both printed and ebooks at 5.5%.

As the French would undoubtedly say ‘vive la difference’.

Will your holiday cost you more in the future?

Well if the European Court of Justice (ECJ) has its way then the answer to that is yes!

In a ruling handed down by the ECJ certain VAT exemptions secured when Britain joined the EU are going to be abolished which, it has been suggested, could increase the cost of holidays by 3%.

Although the details are in short supply, in this writer’s opinion this can only mean that the cost of a package holiday will be broken down into its constituent parts with VAT being charged on those elements which attract the tax, e.g. meals on board a plane.

This looks like the thin edge of a very wide wedge and we may expect other exemptions previously granted to be removed.

Crédit Lyonnais VAT case

In the Crédit Lyonnais VAT case the CJEU has found that a company which operates branches outside the Member State of its headquarters and which performs activities that give rise to a VAT deduction right and activities that do not, must not take into account the turnover of its foreign branches for the calculation of its input VAT-deduction right.

Crédit Lyonnais is a credit institution with a head office located in France and with branches both within and outside the European Union. In computing its deductible proportion of VAT for the period from 1 January 1988 to 31 December 1989, the head office of Crédit Lyonnais took into account interest arising under loans granted by it to its foreign branches. The French tax authorities challenged the calculation of the deductible proportion of VAT on the basis that transactions entered into between a head office and its foreign branches are disregarded for VAT purposes  and that the interest received was therefore improperly taken into account.

This decision once again highlights the lack of ‘harmonised’ practice in the EU with respect to the inclusion of branches’ turnover for the calculation of the head office’s deductible proportion. It also must put in doubt VAT calculations being carried out by all businesses with branches in other member states.

The VAT trap for DIY builders

The plans for the new home which you were going to build yourself were passed; the build went ahead with no problems, even the weather was on your side; you were  correctly charged VAT at the standard rate on the building materials which you bought from your local building merchant; you completed the forms required by HM Revenue & Customs to reclaim the VAT on your building materials and submitted them together with the other required paperwork; all that remains is for the repayment of the VAT to hit your bank account.

But what’s this? The postman has just returned to you all your paperwork, with the addition of a letter from HM Revenue & Customs advising you that you are not entitled to reclaim the VAT on your lovely new home. This a major blow to you as the funding of the project was calculated on the basis that the VAT would be repaid to you.

So what has gone wrong? The letter from HM Revenue & Customs appears to be saying that what you have built is not a dwelling house when quite clearly it is- or is it?

The definition  of a ‘dwelling house’, as qualified by the notes to Group 5 of Schedule 8, VAT Act 1994 states that ‘a building is designed as a dwelling or a number of dwellings where in relation to each dwelling the following conditions are satisfied:

  • The dwelling consists of self-contained living accommodation;
  • There is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;
  • The separate use, or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision; and
  • Statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent.

The letter from HM Revenue & Customs refers you to your planning consent which states that your new house cannot be disposed of separately from the other pre-existing buildings on the site, the results being that your home does not meet the requirements to be considered as a dwelling and you therefore are not entitled to your VAT reclaim.

The moral of this story is ‘always check your planning conditions for any restrictions’.

VAT on holiday caravans

With summer threatening to become a reality at last it’s probably a good time just to refresh  our memories on the changes to the VAT liability of the supply of caravans made on or after  6 April 2013.

Under the new rules the VAT liability of a caravan will either be standard, reduced or zero  rated although in all cases the sale of removable contents remains standard rated.

The sale of a caravan is standard rated if it does not exceed 7 metres in length and 2.55  metres in width.

The sale of a caravan is reduced rated if it is longer than 7 metres or wider than 2.55 metres  and is not manufactured to BS 3632:2005.

The sale of a caravan is zero rated if it is longer than 7 metres or wider than 2.55 metres and  is manufactured to BS 3632:2005.

The liability of the sale of a second hand caravan is standard rated unless it is longer than 7  metres or wider than 2.55 metres, was occupied prior to 6 April 2013 and meets BS  3632:2005 or an earlier version of that standard, in which case it can continue to be zero  rated.

The sale of a second hand caravan may qualify for the second hand margin scheme if it was  purchased from a private individual or a business that is not registered for VAT.

The same rules apply to other types of supplies of caravans (eg, leases and deemed  supplies).