FTAO: Stephanie Allistone
HM Revenue & Customs
Room 1C/06, Central Policy
100 Parliament Street
Withdrawal of extra statutory concessions
We refer to the technical note and call for evidence that was issued on 31 January 2014regarding the withdrawal of extra statutory concessions. The Association of Accounting Technicians (AAT) welcomes the opportunity to respond on behalf of our membership and from the wider public benefit perspective of achieving sound and effective administration of taxes.
Withdrawal of five VAT concessions
Five of the thirteen extra statutory concessions referred to in the technical note relate to VAT. The technical note indicates that are no legal vires in EU law which would permit the five concessions relating to VAT to be introduced in UK legislation and that HMRC intend to withdraw the concessions from 1 April 2015. We note from the summary of impacts that the withdrawal of the five VAT concessions is expected to have a significant positive impact on VAT receipts.
1Withdrawal of concessions regarding student residential accommodation and dining halls
1.1We welcome the fact that on 7 April 2014 HMRC issued Revenue & Customs Brief 14/14 following consultation with those affected by the withdrawal of the concessions regarding student residential accommodation and dining halls. Revenue & Customs Brief 14/14 has clarified that for the purposes of the transitional rules, where single developments of more than one block of student accommodation is constructed in phases a 'meaningful start to the construction of the building' means a 'meaningful start to the construction of the first building' and 'expected to progress to completion without interruption' means 'expected to progress to completion of all phases without interruption'
1.2As the withdrawal of the five VAT concessions is expected to have a significant positive impact on VAT receipts we should be grateful if HMRC could confirm whether or not HM Treasury has agreed to use any of the additional VAT receipts to provide funding to HEIs affected by the withdrawal of the concessions regarding student residential accommodation and dining halls.
1.3The withdrawal of the concessions could have a significant impact on HEIs who make taxable supplies of holiday accommodation when the accommodation would otherwise be empty, for example, during summer holidays. As noted in the HMRC VAT Manual VATEDU51200, generally supplies of accommodation and catering by an eligible body to students are exempt under VATA 1994 Schedule 9 Group 6 Item 4.The recovery of VAT incurred by HEIs who acquire or construct new buildings and use them to make taxable supplies of holiday accommodation to tourists and exempt supplies of student accommodation during term time is subject to the partial exemption rules.
1.4AAT believes that whilst the partial exemption rules should allow HEIs affected to recover at least some of the additional VAT they incur, their withdrawal is still likely to result in a significant increase in irrecoverable VAT. The summary of impacts section of the technical note recognises this point and indicates that some students may pay more in accommodation costs if affected HEIs choose to pass on any additional VAT they incur on the construction of new student residential accommodation and dining halls.This leads us to ask whether HMRC has made other Government Departments aware of this point, in particular HM Treasury and the Department of Education, so that an inter-departmental discussion can take place about using some of the additional VAT receipts to provide funding for HEIs affected and so reduce any negative impact on students.
1.5In an attempt to mitigate VAT when acquiring or constructing new buildings from 1 April 2015 some HEIs may decide not to let out the new buildings as holiday accommodation during the summer. This could be the case if the cost of the irrecoverable VAT outweighs, at least in the short to medium term, the additional income that may be achieved by letting out the accommodation to tourists. AAT is concerned that this potential reduction in revenue from holiday lettings could have a negative impact on the quality of accommodation and education those HEIs will be able to provide to students.
1.6AAT is further concerned that the withdrawal of the concessions may result in a reduction in the volume of new student accommodation and student dining halls to be built from 1 April 2015 and as a direct consequence an increase in the amount students will face having to pay for accommodation in the future.
1.7A direct outcome of our hypothesis is that it could have negative implications for the education sector, the construction sector and the wider UK economy. We feel that the negative impactscould be mitigated if HM Treasury made additional funds available to HEIs affected by the withdrawal of the concessions. Extending our observations made in section 1.4 (above) we strongly recommend that further consideration be given to the impacts on HEIs at a pan departmental level.
2Withdrawal of concession regarding breaks in stays in long stay accommodation
2.1We note from the summary of impacts on page 21 of the technical note that HMRC is only aware of a handful of cases where providers of student accommodation may be using this concession. AAT recommends that HMRC should write to all of those providers that they consider likely to be affected at the earliest possible instance in order tomake them aware that the concession will be withdrawn from 1 April 2015.
2.2 Furthermore, AAT recommends that a revised edition of Notice 709/3 (Hotels and holiday accommodation) should be issued well in advance of 1 April 2015.
3Withdrawal of concessions regarding shore excursions and the airline charter option
3.1The technical note indicates that a revised edition of Notice 709/5 (Tour Operators Margin Scheme) is tobe issued in due course. In view of the relatively long term nature of transactions relating to the airline charter option, for example chartering an aircraft for an entire season, we strongly recommend that revised guidance be issued well in advance of 1 April 2015.
4General comments regarding the Tour Operators Margin Scheme (TOMS)
4.1As noted in Revenue & Customs Brief 05/14, which was issued on the same day as the technical note regarding the withdrawal of extra statutory concessions, the EU Commission initiated infraction proceedings against eight Member States (Spain, Poland, Italy, Czech Republic, Greece, France, Finland and Portugal) in connection with their operation of TOMS, and subsequently the ECJ released its decision in these proceedings on 26 September 2013. The Court ruled that:
- wholesale supplies should be covered by TOMS
- the TOMS calculation should be carried out on an individual transaction basis.
4.2We note that whilst the above decisions are binding on all Member States and are in contrast to the HMRC guidance in the November 2009 edition of Notice 709/5, HMRC has decided businesses should continue to follow the guidance in Notice 709/5 for the time being, while acknowledging that businesses can instead choose to operate in accordance with the ECJ decisions.We understand that HMRC has taken this approach because the EU Commission intends to carry out a review of the TOMS, which may result in significant changes in future, and making changes now, which may be modified or reversed in the future, could be costly and disruptive for businesses. AAT is generally supportive of HMRC’s practical approach.
4.3We appreciate that the TOMS in the UK, and in other Member States, is intended to achieve the objectives of Articles 306 to 310 of the Principal VAT Directive (PVD) and is a mandatory simplification measure. As a professional body we would welcome the opportunity to discuss with HMRC the EU Commission review of the TOMS. For example, we would welcome the opportunity to discuss whether an extended Mini One Stop Shop (MOSS) could replace the TOMS at some point in the future.
4.4AAT believes that the MOSS that is set to operate from 1 January 2015 in relation to supplies of telecommunications, broadcasting and e-services to consumers should enable suppliers of those services to account for the VAT relevant to the Member States in which the consumers belong without having to register for VAT in each of the Member States.
4.5Taking into account our support for the MOSS (as above) AAT recommends HMRC consults upon whether there might be support for an approach to be made to the EU Commission which asks it to consider extending the MOSS so that suppliers of travel services can account for output tax and recover input tax based on the normal place of supply rules rather than account for VAT on the margin under the TOMS.
5F8: Accumulation and Maintenance settlements
5.1AAT is not in support of the proposal for this particular concession to be withdrawn and for the “interpretation” of section 71D IHTA to be “covered in guidance” in its place.
5.2We are concerned that no matter how well structured and intentioned the original guidance might be in the future it could be subject to change without proper scrutiny that could result in a different “interpretation” of the statute, arising from the amendment, to that intended by Parliament when the legislation was first enacted.
5.2Instead, AAT would be in support of a change to the original legislation to ensurethat it is fully fit-for-purpose, thus removing the need for non-statutory interpretation. Adopting our suggested approach would afford taxpayers a greater level of confidence in the underlying legislation.
6Other extra statutory concessions under consideration of being withdrawn
6.1AAT acknowledges that F12 “Disposition for maintenance of unmarried mother” is now obsolete and as a consequence it should be withdrawn:
6.2AAT accepts and agrees that there is no longer a requirement for the concession 18 “Treatment of income tax in Canada on capital gains deemed to arise on a person’s death” and as a consequence it should be withdrawn.
6.3AAT accepts four extra statutory concessions listed below are obsolete and as a consequence they should be withdrawn:
J1: Inter vivos gifts to charities
J2: Agricultural property
J3: Relief for successive charges
J4: Inter vivos gifts: deductions for development gains and development land tax
7ABOUT THE AAT
7.1AAT is a professional accountancy body with over 50,000 full and fellow members and 75,000 student and affiliate members worldwide. Of the full and fellow members, there are 4,000 Members in Practice who provide accountancy and taxation services to individuals, not-for-profit organisations and the full range of business types. (Figures correct as at 31 March 2014)
7.2AAT is a registered charity whose objectives are to advance public education and promote the study of the practice, theory and techniques of accountancy and the prevention of crime and promotion of the sound administration of the law.
7.3Thank you for the opportunity to respond to this Technical Note. We would welcome the opportunity to be involved further if HMRC consider that this would be helpful.
If you have any questions or would like to discuss any of the points in more detail then please contact the AAT at:
telephone: 020 7397 3088
Association of Accounting Technicians
140 Aldersgate Street
Director of Professional Development
t: +44 (0) 20 7397 3075
f: +44 (0) 20 7397 3009