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Weekly VAT News - 07/08/2017

RCB 2(2017): care homes and hospitals
Residential care homes will frequently provide medical treatment for residents. In the past, HMRC have associated ongoing treatment with a home being a “hospital or similar institution”, meaning that its construction cannot qualify for zero-rating. However, they have now issued RCB 2(2017) which recognises that the test has been applied too strictly. For example, a low secure residential unit for people detained under the Mental Health Act may provide medical treatment; but that is incidental to the fact that the unit may be their home for two years or more, and that the care pathway involves much more than just medical treatment. HMRC now accept that personal care “may include both therapeutic and clinical treatment that can alleviate or improve the condition of the individual” and will consider length of stay when determining whether a care home is a hospital. HMRC set out a 5% test for whether a treatment centre within a home also qualifies for zero-rating. Anyone who has been denied zero-rating on a new care home in the last four years should consider whether they are entitled to reclaim VAT. To discuss the case, please contact Jacqui Nicholls on 0191 202 5222.

MJ Hickey: penalties for delayed tax – Upper Tribunal
MJ Hickey Plant Hire and Contracts Ltd configured its accounting systems to exclude turnover from the final day of each quarter from its VAT returns. The turnover was included on the next VAT return, so this produced a cashflow advantage rather than avoiding VAT altogether. When they identified the error, HMRC issued a penalty for 149,186 for a deliberate inaccuracy. MJ Hickey argued that the error was for delayed tax and therefore the penalty should be reduced to 5% p.a. for a single quarter (i.e. a penalty of 1,865). The Upper Tribunal has agreed with MJ Hickey’s approach. Penalties for delayed tax anticipate a combined view of inaccuracies across two returns, which (when combined) result in the correct amount of VAT being paid at the wrong time. The rules on delayed tax penalties were intended to cover exactly this sort of systematic error which shifted VAT from one quarter to the next. The decision highlights the importance of reviewing any penalties issued by HMRC to identify all possible means of mitigating them. To discuss the case, or its implications, please contact Mark Howard on 020 7303 8102.

Sibcas: when do modular units become buildings? – UT
In Sibcas Ltd, the Upper Tribunal has considered the point at which modular prefabricated units (which can be put together to create large structures) become “buildings” for VAT purposes (and therefore potentially exempt from VAT). Sibcas used 66 modular units to construct a temporary school containing 19 classrooms as well as offices, toilets, stores, and a lift. The UT ruled that the units should not be considered individually, and that it was unnecessary to consider ways that such a large structure was “actively fixed” to the ground. The fact that it took 98 man days to dismantle the temporary building when it was no longer needed was a clear indication that it was fixed to the ground. Therefore, the structure was a “building”, Sibcas should not have charged VAT to the school when it rented the units to it, and was not entitled to recover input tax incurred on construction. To discuss the decision or its implications, please contact Anna McLaren on 0118 322 8271.

Excise Information Sheet 2(2017): cooking wine and other cooking alcohol
HMRC have published Excise Information Sheet 2 (2017), which acknowledges that the excise duty exemption currently applied to any cooking wine (wine with seasoning added) which is less than 5% ABV has no basis in law. Applying the relevant Directive, exemption will (from 1 January 2018) only apply to cooking wine which is less than 1.2% ABV. Potential refunds of duty may be possible under the Alcoholic Ingredients Relief regime, but the fact that this relief only applies after the alcohol has been used as an ingredient means that it is difficult for companies selling cooking wine to claim it. To discuss excise duty on cooking wine, please contact Eleanor Caine on 0161 455 6303.

This publication has been written in general terms and we recommend that you obtain professional advice before acting or refraining from action on any of the contents of this publication. Deloitte LLP accepts no liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

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