Customs wants to collect more VAT to fill a budgetary black hole, says Adrian Houston.
It was not so long ago that a visit from the VAT man, while it was not the most welcome diversion from running your organisation, was not the dreaded experience it has now become. The Customs officer used to help you with transactions to get the right amount of VAT, from the right person, at the right time, even when that would not be in their interest.
Now Customs seems to look for revenue-raising opportunities, sometimes when their case is on shaky foundations. It is also fair to say that some elaborate tax-saving structures have warranted the attention of Customs.
Overall, no doubt, they will become more zealous with detection and collection, rather than less so.
During the recent election campaign, a substantial part of the tax debate concerned council tax and property taxation. However, the new Government has to deal with a problem that all the main parties tried hard to avoid: what to do with business taxes. The Institute for Fiscal Studies believes that, in four years' time, the Treasury's revenues will be about £9bn-£11bn below its plans. This black hole can be explained mainly by slower growth in tax revenues from company profits and VAT receipts.
On top of that, Revenue & Customs is bracing itself for a fresh set of tax refund claims. Two significant examples are: first, cases arising from the decision of the European Court of Justice, which ruled that EU companies could recover VAT on professional fees charged for advising on the raising of capital; and, second, from Marks & Spencer's claims for tax rebates for losses by its EU subsidiaries, although this latter case is waiting for the ECJ judgement.
So the officers responsible for collecting VAT will be working even harder to collect more VAT and help fill the 'hole'. Some of the sectors that they have been targeting will continue to feel the pressure, for example, village halls, where the legislation says that the construction of a village hall or similar is zero-rated. Customs goes to great lengths to try to prove that it is not a village hall and thus not zero-rated. Universities have also been targeted with increasing frequency, where Customs tries to prove that they have a high level of non-business income and therefore a high level of VAT that cannot be recovered on their costs.
No doubt Customs will continue to attack homes and playgroups where it has tried to claim that they are not charities for VAT purposes, even though Customs has lost several cases in this area. There have also been several cases concerning culturally exempt charities.
Suffice it to say, you will have spent your time wisely if you make certain your VAT affairs are in order.
- Customs appears to be looking for revenue-raising opportunities and has become more zealous in collection of VAT
- Customs has been increasingly targeting village halls and universities
- Making sure your VAT affairs are all in order is therefore advisable.