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Cost sharing exemption

Online services, and VAT threshold for non-established businesses

Extra statutory concession - reverse charge

Public bodies

Cost sharing exemption

Where businesses and organisations make exempt and/or non-businesses supplies, they are not able to reclaim the input VAT charged on the supplies they receive.  If they were to co-operate by forming a cost sharing joint venture to take advantage of economies of scale by procuring the services necessary to their activities collectively, they would normally incur additional irrecoverable VAT on the costs involved in running the joint venture - particularly the cost of its employees - in addition to the VAT on the services bought in from third parties.  The EU VAT Directive requires member states to provide an exemption for cost sharing, but it has never been implemented in the UK.

After a consultation earlier this year, it is proposed that a new exemption will be added to the UK domestic VAT legislation. The exemption will cover the supply of services by a cost sharing group entity which consists of persons engaged in exempt or non-business activities. This exemption will apply so long as the services are supplied to group members at cost and the supplies are directly necessary for the exempt or non-business activities in question. HMRC hope that this exemption will benefit all sectors undertaking exempt and/or non-business activities including charities, universities, banks and insurance businesses.

Online services, and VAT threshold for non-established businesses

Currently, most businesses are able register for VAT purposes with HMRC online.  A business must submit a paper registration form in certain circumstances (for example when registering a group of companies) and can always choose this option. All deregistration forms must also be completed in hardcopy. The format of the underlying forms is prescribed in secondary legislation and that legislation must therefore be amended to update the paperwork required.

From October 2012, HMRC will introduce an enhanced online service for VAT registration, deregistration and variations of business details. This will utilise "smart forms" designed to reduce cost and error. The process of amending forms will also be simplified so that changes to secondary legislation are no longer needed. Going forward, HMRC will be able to determine to correct format of any form.  For the time being, it will still be possible to submit paper forms, but in due course it may be expected that HMRC will move to online-only filing.

Under the current VAT legislation, a person must register for VAT in the UK if they have made (or expect to make) supplies or acquisitions which exceed a certain threshold (currently £73,000 in most cases). These thresholds apply to UK established and non-UK established businesses. The ECJ confirmed in the Schmelz case however, that a business without an establishment in a member state is prohibited from benefiting from that state's VAT registration threshold.  The UK rules will therefore be amended so that non-UK established businesses are no longer able to benefit from the UK VAT registration thresholds from 1 December 2012.

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 Extra statutory concession - reverse charge

Under the existing legislation, a reverse charge can arise on supplies within a VAT group in certain circumstances, where supplies are made to a UK group member by another group member established outside the UK.  An extra statutory concession is currently available when determining how those reverse charges should be valued, which allows the value of the reverse charge to be based on the cost of services purchased by the group members established overseas.
The proposed amendments will place this concession on a statutory footing. The provisions will expressly provide that, where supplies are made to the overseas members for less than market value, HMRC will be able to direct that an open market value be substituted when determining the value of the reverse charge.

The new legislation is to apply from the date of Royal Asset to the Finance Bill, and the concession will continue in force to that time.

Public bodies

It is proposed that the UK VAT legislation will be amended to expressly transpose Article 13(1) of the EU VAT Directive (Directive).  Article 13 provides that public bodies shall not be regarded as taxable persons for VAT purposes in respect of the activities and transactions in which they engage as public authorities. This is subject to specific exceptions in Annex I to the Directive (for example the supply of utilities, and passenger transport) and also does not apply where it would lead to significant distortions of competition.
Article 13(1) has never been expressly transposed into English law but HMRC has claimed to interpret the existing legislation in such a way that English law achieves the same result. To prevent any legal challenge to this approach, however, a provision will be added to the VAT Act which will broadly mirror the terms of Article 13.  HMRC state the new provision should not change the VAT position of any public body.

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