Value Added Tax

Overseas Businesses Selling Goods in the UK

With effect from Royal Assent, Finance Act 2016 will give HMRC enhanced powers in respect of businesses established outside the EU who make supplies in the UK via online marketplaces.

HMRC will be able to direct:

  • that a VAT representative of such a business must be established in the UK;
  • that a VAT representative of such a business must be appointed from a specified date;
  • that such a business must provide security instead of, or in addition to, appointing a VAT representative.

In the event that the overseas business does not comply with a direction, HMRC will be able (after a period during which the online marketplace may take action to secure the compliance of the overseas business, or to remove it from the marketplace) to hold the online marketplace jointly and severally liable for the VAT due from future sales of the overseas business.

New Criteria for VAT Refunds to Museums and Galleries

With effect from 16 March 2016, the VAT refund scheme for museums and galleries is to be extended to any museum or gallery that:

  • is open to the general public for at least 30 hours per week, without exception;
  • offers free entry, without prior appointment;
  • holds collections in a purpose-built building; and
  • displays details of free entry and opening hours on the museum website.

Museums and galleries must apply to the relevant body and must support their application with a strategic business case.

Power to make Refunds to Named Bodies

Government departments are permitted to obtain refunds of VAT which they incur in relation to non-business activities. However, this does not extend to Non-Departmental Public Bodies and similar arm’s-length bodies.

With effect from Royal Assent to Finance Act 2016, new legislatation will provide that the Treasury may, by order, name any such bodies as ‘specified bodies’, with the result that they will be able to recover the VAT which they incur on goods or services which relate to non-business activities. The aim of the measure is to prevent VAT from being a disincentive to cost-sharing arrangements between such bodies. (Such arrangements currently give rise to irrecoverable VAT.)

Any hope of a windfall for a specified body will, however, be short-lived; since the body will be government-funded, the extent of its funding will be adjusted downwards to take account of the VAT which will be recoverable.

Isle of Man Charities

For a charity to qualify for the VAT reliefs set out in VATA 1994, it must meet the conditions set out in FA 2010, Sch 6, one of which is that the charity must fall under the jurisdiction of the High Court, the Court of Session, or the High Court of Northern Ireland.

With effect from Royal Assent, Finance Act 2016 will amend Finance Act 2010, Sch 6 to include a reference to the High Court of the Isle of Man to make it clear that charities subject to that court’s jurisdiction will qualify for the UK VAT reliefs.