UK Tax Representatives – the current VAT regime

If you’re a Non Established Taxable Person making taxable supplies in the UK, you may be required to appoint a tax representative.

NETP

A Non-Established Taxable Person (NETP) is any person who isn’t normally resident in the UK, doesn’t have a UK establishment and, in the case of a company, isn’t incorporated in the UK.

UK Establishment

A UK establishment exists if either:

  • The place where essential management decisions are made and the business’s central administration is carried out is in the UK
  • The business has a permanent physical presence with the human and technical resources to make or receive taxable supplies in the UK

HMRC would normally consider a company which is incorporated in the UK to have an establishment in the UK as long as it’s able to receive business supplies at its registered office.
But clearly only an NETP making taxable supplies in the UK is required to obtain a UK VAT ID, and we are happy to provide advice on this.

Tax Representative

A tax representative:

  • must keep your VAT records and accounts and account for UK VAT on your behalf
  • is jointly and severally liable for any VAT debts you incur

You may only appoint one person at a time to act on your behalf, although a tax representative may act for more than one principal at any time.

For each principal a tax representative represents, they must:

  • keep separate VAT accounts
  • make separate VAT returns

Tax representatives – what you must do if you appoint one

When you register for VAT online, you will be asked for information about your tax representative. You’ll need to give your representative enough information to allow them to:

  • keep a VAT account
  • make returns
  • pay VAT

on your behalf.

When HMRC can make you appoint a tax representative

HMRC can direct some NETPs to appoint a tax representative who:

  • must be based in the UK
  • must be fit and proper

HMRC can’t direct NETPs who are established in other EU member states, or who are based in countries where certain mutual assistance arrangements exist. However, that is likely to change following Brexit, especially if the UK Government continues to seek to leave both the Single Market and the Customs Union at the end of March 2019. We await more clarity on this point – indeed, we await more clarity on Brexit per se!

What makes a tax representative fit and proper?

A tax representative must meet or exceed a particular level of suitability, compliance and integrity in how they conduct, or appear likely to conduct, their tax affairs with HMRC.
In determining whether a particular individual is a fit and proper person to act as a VAT representative for an NETP, HMRC will use the following criteria.

A person may not be accepted if they:

  • have been disqualified as a Director under Company Law
  • are or have been involved in crime and or have relevant criminal convictions
  • have had previous requests for a similar role in VAT or any other tax or duty regime revoked or refused
  • have personally received penalties for deliberate wrongdoing
  • have any connection with the business they wish to represent, or with key persons involved in that business, or with any non-compliant or fraudulent businesses

Where HMRC becomes aware of information that suggests a person may not be a fit and proper person, HMRC may refuse to register them as a tax representative.
Covertax Chartered Tax Advisers, and their sister companies, Scott Botham Chartered Tax Advisers and RyTax are all fit and proper under these rules, and we intend to stay that way!

What if the tax representative I have appointed is not fit and proper?

Where HMRC has reason to believe that a tax representative may not be fit and proper, HMRC may cancel their registration as a tax representative.
If HMRC has directed you to appoint a tax representative, you’ll need to appoint a new representative who is fit and proper.

When you can appoint an agent instead of a tax representative

Covertax Chartered Tax Advisers and our sister company Scott Botham Chartered Tax Advisers already act as UK VAT Agent for many businesses.

As long as HMRC has not directed you to appoint a tax representative, you can appoint an agent to deal with your UK VAT affairs. Any arrangement you make will be subject to whatever contractual agreement you and your agent decide. We can’t hold your agent responsible for any of your VAT debts. We reserve the right not to deal with any particular agent you may choose to appoint. In some circumstances, if we think it’s necessary, we may still insist that you appoint a tax representative. We have a standard form of words which HMRC finds acceptable for our appointment as UK VAT Agent.

As with the appointment of tax representatives:

  • you may only appoint one person at a time to act as your agent (although an agent may act for more than one principal – which, of course, we do)
  • you must still fill in the appropriate form to apply for registration
  • we’ll need your authority before we can deal with your agent – in the case of agents, the authority should be in a letter. We hold a suitable draft. Please note despite the legal status of this authority, HMRC in practice still requires the agent to hold a 64-8 agent authority as well.
  • you’ll need to give us enough information to allow us to keep your VAT account, make your returns and pay VAT on your behalf. We have a standard data capture form which we currently use, and it also captures the information we need for ESL and Intrastat. With the advent of Making Tax Digital (“MTD”) we are sourcing an online accounting package to meet those new requirements

Summary

There is no doubt that these important changes have passed many people by.
With Brexit we expect there will be more issues, although right now all we can do is to plan for the worst and hope for the best.

In theory all of our EU VAT return clients will need to appoint a UK tax representative and we will offer that opportunity to them. Similarly other EU businesses may well find that they have new responsibilities to register for VAT in the UK, following the removal of Single Market VAT simplifications and we are here to help with those needs.

If you have any queries, please email steve.botham@covertax.co.uk

Brexit and references to the CJEU

In a week where we are promised a position paper from the UK Government on the role of the Court of Justice following Brexit, I thought that the attached excellent technical article by Peter Mason (which some CIOT members will have seen) is worth an airing.  Peter identifies some issues which need to be resolved.

Please remember that a “Position Paper” has no force of law, does not represent anything which is agreed between the UK and the rest of the EU, and in reality is little more than a political wish list.

Peter is a Barrister, Chartered Certified Accountant and Chartered Tax Adviser at Cuckmere Chambers. He specialises in optimising the VAT position for businesses, especially in the finance, funds and insurance sectors, as well as for other businesses and non-profit organisations.

He is member of the CIOT indirect tax committee and was on the EU VAT Expert Group. He seeks at all times to work collaboratively with HMRC but where it is not possible to reach agreement on a matter, then he can take a case forward on appeal.
Peter can be contacted at Chambers on +44 (0) 203 858 0043.

UK Provisions

Paragraph 2.3 of the White Paper on the UK’s Exit and New Partnership with the bEU, CM 9417, of 17 January 2017, updated 15 May 2017, states that “We will bring an end to the jurisdiction of the CJEU in the UK. We will of course continue to honor our international commitments and follow international law.”

But how will this work for disputes in progress? Where taxpayers currently pay, and have paid tax, under the EU legal order as transposed into UK law under ECA 1972, they surely have a right to challenge the provision, including a request for a court to make a preliminary reference from the CJEU under article 267 TfEU.

Given it can take one or two years to get to the Tribunal and limitation periods go back four years in VAT (or longer for fraud, up to 20 years) will the courts make a reference and will the CJEU hear it for years to come? There is no guarantee the Court of first instance will refer, and so an appellate process could continue for say four or five years, to the Supreme Court. Are they then prohibited from referring?

Hamlet’s problem, the law’s delay means that cases may not get to the Tribunal, or on appeal, until years after we have left the EU. Does this mean that all currently acquired EU rights are lost?

I have to declare an interest, in that I have current case which in my view, would benefit from a reference. The VAT liability of transactions that have taken place whilst the UK is within the UK being challenged, and the right to request a court for interpretation of a provision of EU law under article 276 TEU, if the court determines that it is necessary, seems to have characteristics of an acquired right that could not simply be replicated in domestic law.

EU Provisions

Importantly, articles 19.1 and 3 TEU state:

Article 19
1. The Court of Justice of the European Union shall include the Court of Justice, the General Court and specialised courts. It shall ensure that in the interpretation and application of the Treaties the law is observed. Member States shall provide remedies sufficient to ensure effective legal protection in the fields covered by Union law.
3. The Court of Justice of the European Union shall, in accordance with the Treaties:
(a) rule on actions brought by a Member State, an institution or a natural or legal person;
(b) give preliminary rulings, at the request of courts or tribunals of the Member States, on the interpretation of Union law or the validity of acts adopted by the institutions;
(c) rule in other cases provided for in the Treaties.

Rule 19 of the Cconsolidated version of Protocol (No 3) on the Statute of the Court of Justice of the European Union states:

Only a lawyer authorised to practise before a court of a Member State or of another State which is a party to the Agreement on the European Economic Area may represent or assist a party before the Court.

These Rules may benefit from further clarification in the light of Brexit. First article 19(3)(a) TEU, which is directly applicable and has direct effect, confers competence to the CJEU in respect of actions brought by a “legal person”. This is not qualified in any way and reads disjunctively in my view with articles 19(3)(b) and (c).

However, representation seems to require that it be made by a lawyer authorised to practise before a court of a Member State. Does this mean that references can continue but that we will need a colleague from another Member State to represent us? That seems do-able in theory.

As regards article 50 TEU, this states:

Article 50 – Treaty on European Union (TEU)
1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union…….
3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2…….

Interestingly, in a European Parliament Briefing, of February 2016, commenting on article 50, stated:

… a withdrawal agreement could contain provisions on the transitional application of EU rules, in particular with regard to rights deriving from EU citizenship and to other rights deriving from EU law, which would otherwise extinguish with the withdrawal.

Discussion

For a UK taxpayer, I cannot see how in respect of legal events that took place  whilst ECA 1972 incorporated the EU Treaties into domestic law, article 19.3(a) acts in any way to prevent a person who commences a legal action, whether during or after the UK’s membership of the EU, from asking the UK court, if it considers it necessary, to refer a question to the CJEU. This is for the following reasons. First, article 50 TEU is clear that the Treaties cease to apply from two alternative dates, the date of withdrawal agreement or two years after the article 50 notification.

In domestic law, s.16 Interpretation Act 1978 says that the law of today applies to events of today, unless Parliament takes the provision away with retroactive effect.
Therefore, unless there is such an amendment of Treaty obligations with retroactive effect, these should continue to apply up to the leave date. This is confirmed by Article 6 of the 1969 Vienna Convention on the Law of Treaties, which states: “Pacta sunt servanda”: Every treaty in force is binding upon the parties to it and must be performed by them in good faith.

Absence any other transitional arrangements, in my view courts and tribunals seem to be able, for years to come, to make a reference to the CJEU, in respect of legal events that took place up the leave date. This is particularly applicable in the case of a so called “hard Brexit”, where no transitional arrangements have been agreed.

This interpretation is supported by not only the important cases cited in Miller [2017] UKSC 5. Including the Case of Proclamations 1608 and Bill of Rights 1688, but also the leading Privy Council case of Madzimbamuto v Lardner-Burke [5] [1969]1 AC 645. In that case, detention of a subject in Southern Rhodesia under the illegal Ian Smith regime which had usurped power, was held to be unlawful.

The majority opinion stated:

“But the fact that the judges among others have been put in a very difficult position cannot justify disregard of legislation passed or authorised by the United Kingdom Parliament”

I would echo the Privy Council, in particular in the light of Miller. This tells us that rights conferred to a person by Parliament can only be removed by Parliament.

As Parliament has conferred competence to interpret EU law to the CJEU, until that competencies brought home, it must surely reside in Luxembourg, in the same as the legal power to detain Mr Madzimbamuto at that time, resided in the UK, and not with the usurpers of power in his homeland.

I have never understood why those arguing for Brexit and the supremacy of Parliament tried to resist this approach, particularly as the Referendum Act 2015 made no provision for the outcome to be legally binding. The sovereign Parliament’s intention, in enacting the ECA 1972, included the conferring of EU law rights on persons, and accordingly these can only be taken away prospectively in my view, by Parliament itself, unless international agreements, again approved by Parliament in this case (because the rights affect UK law, per Miller) so provide.

What the CJEU does with a reference that a UK court may decide to make after we have left the EU, in the absence of any withdrawal agreement, is however another matter! I would have thought that the CJEU, in calling itself a court of justice, would be minded to hear a case, but it does not write its own rules and the matter is of course very political.

It is to be hoped that as matters proceed, a working arrangement can be agreed. Some countries have very short limitation periods such as the Netherlands, and may not see this as an issue, so it may be important to raise the point as a potential issue at this stage.

Peter Mason

Brexit and Future Customs Arrangements

Thank you to Barbara Scott from Customs Associates for sharing this article with us.

While we all welcome the paper on Future Customs Arrangements which, finally, tells us something about the Government’s thinking on how we might trade with EU member states once we have left the European Union, there are some major concerns and plenty of unanswered questions about the potential solutions. Many of these have been covered in the press recently but here are my own thoughts.

A highly streamlined customs arrangement between the UK and the EU is, of course, a must for trade to continue to flow unhindered between us and the mainland but, of course, more importantly, between Eire and Northern Ireland. It is that latter arrangement that is going to drive the processes for the rest of UK/EU trade. IT solutions, based on vehicle number plate recognition or supply chain information supplied by sender/recipient to customs authorities can be developed over time and should be available for trade with all countries not just the EU.

But, even if there is the political will and finance available to do this, it will take many years of planning and implementation. It is the interim solution that we need to be working on now and, hopefully, that will be the main thrust of discussions in Brussels once the two sides get talking on how the future might look. However, the paper does not give any indication of how long this time-limited interim period might be and that is a worry when we speak about EU systems – an interim solution often becomes the final solution when there are difficult political or financial decisions to be made. And there are some very difficult decisions for the EU to make.

No matter what the UK Government wishes, the other member states and the Commission must agree on their position on trade with the UK. They are unlikely to want to develop “new innovative facilitations” for trade with the UK, especially when they are still introducing all the new requirements of the Union Customs Code which will continue to be implemented through to 2020 at least. Interestingly, it is listed as one of the UK’s priorities to negotiate an outcome with the objective of ensuring continuity, where possible, with current rules and processes that align with the Union Customs Code. Yet, while the backbone of processes should remain as presently operated, I certainly hope that there will be a number of changes we will make, not least the reintroduction of a duty drawback system for the recovery of duty on goods imported and subsequently re-exported.

But it is the second option for a new customs partnership with the EU that intrigues me. Having a two stream system for imports into the UK depending on whether the “final” destination of the goods is the EU or somewhere else is a model that has not, as far as I am aware, been considered by any customs administration before. The paper states that this would be challenging to implement with the UK mirroring the EU requirements for imports going into the EU and having our own requirements for goods coming into the UK. Would this mean that a UK company buying a shipment of goods from the US will have to determine, at import, which of those goods are to be used in the UK and which are to be used in the EU – with different customs rules (duty rates, origin rules, etc) being applied? I can only see that working if the UK was some large customs warehouse or Freeport. However, the paper talks about the tracking of goods along supply chains and robust enforcement mechanisms (oh dear).

I am looking forward to discussing these ideas with HMRC. Finally, there are some nice snippets in the paper about customs compliance and facilitation measures that the Government will look to introduce for UK importers generally. These include a system of self-assessment to enable traders to calculate their own duties and aggregate their customs declarations, which will split the security/safety and the fiscal responsibilities of importing; this is something that many UK businesses have been wanting for many years but which has been held up while an EU wide system is agreed.

The paper also mentions making simplified procedures easier for traders to access and speeding up authorisations for duty relief systems; both of which will be simple to accommodate provided there is investment in our UK customs administration – the current poor levels of service are nothing to do with our membership of the EU/ the constraints of the Union Customs Code.

Barbara Scott

Brexit – tax on consumption – principle must be protected

Here’s an interesting article from one of our colleagues, Alan Powell, a specialist excise duties consultant. We refer all of our excise work to him.

At the very moment Britain prepared to vote for Brexit, the EU court (CJEU) was giving a massive boost to the beleaguered UK alcohol excise industries by confirming a simple but massively significant principle – excise duty is a tax on consumption. This might seem obvious and trite but HMRC has always refuted this principle because of its beneficial consequences to the industry and taxpayers.

Alan Powell, specialist excise duties consultant, said: “The plain legal facts are now clearly spelled out and must be protected post Brexit. In summary:
Excise goods must be produced in a tax warehouse and there must be a system to suspend the duty (i.e. a relay system of tax warehouses);
Since excise duty is a tax on consumption, it is necessary that the duty is suspended as near to the real consumer as possible;
If goods do not physically leave tax warehouse/duty suspension, there is no availability for consumption and no duty liability, even for technical irregularities.
Powell explains: “The UK has failed to apply these principles in most cases and, in terms of duty charged for “technical irregularities” has been unlawfully plundering alcohol businesses for many years. HMRC must immediately recognize and implement EU law correctly.

Powell goes on “The best principles of EU law for excise duty in UK law must be confirmed during the Great Repeal Act, especially that excise duty is a tax on consumption. But Powell warns “If industry does not press its case, there is a risk – as evidenced by HMRC’s latest attacks on the alcohol sector – that HMRC will look to drive the duty point further back for alcohol products as they have for oil and tobacco and become, in effect, an “early” tax and burden on business.”

Background – excise as a consumption tax

Under EU law, excise duty is liable on eg alcohol following production within, or importation into, the EU but the duty is suspended by holding the goods in a tax warehouse (production premises (eg brewery, cider makers etc) or general “bond”). The duty is not due until the goods are released for consumption and physically depart the tax warehouse.

HMRC has always argued that “consumption” doesn’t mean consumption by a consumer but this is not true and proven to be the case last year (2016) at the CJEU.

The CJEU case C‑355/14 Polihim-SS’ EOOD (“Polohim”) of 2 June 2016 has now ruled incontrovertibly that excise duty is a tax on consumption (per recital 9 to Directive 2008/118/EC as also found in the BP Europa SE case (also 2016)).

In looking at what a tax on consumption means, Polohim also builds on foundations set out in previous case law that identifies that whilst excise goods have a liability to duty following production or importation, there is a structure of duty-suspension (ie tax warehouses) that enable the duty liability to be suspended and that the duty, as a tax on consumption, should be suspended as near as possible to the (final) consumer.

Moreover, Polohim determines that “so long as the goods in question remain in the tax warehouse of an authorised warehousekeeper, there can be no consumption, even if those goods have been sold by that authorised warehousekeeper”.

UK law and HMRC policy imposes arbitrary duty points and restrictions on duty suspension in clear breach of EU law and denial of fundamental rights.

Post Brexit

It is vital that the best principles of EU law are not only carried over in the Great Repeal Act but confirmed clearly in UK law. The risk of not being vigilant is that HMRC unpicks good law and legislates domestically to deny that excise is a tax on consumption and to withdraw alcohol duty suspension which they cannot do under existing fundamental EU law. Nevertheless, there are indications this is being mooted at high level. HMRC’s end game may be to roll back alcohol duty suspension when they already have severe and punitive powers (latest being AWRS).

HMRC actions – Business under attack – burdens and lack of proportionality

The gross alcohol tax gap figure is said to be £1.8 billion and there has been significant duty fraud in popular UK beer brands and some wine products. The fraud figure is disputed by some in the trade but illicit diversion – mainly smuggling – has been a problem in supply chains made worse by the failure of the electronic movement and control system (EMCS) to fight the fraud as was its express intention. Paradoxically, EMCS has inadvertently made the fraud worse.

Due to the failure of EMCS and inability of revenue authorities to effectively combat the fraud, HMRC has instead been requiring business to undertake ever more onerous auxiliary duties, including risk assessment and due diligence of supply chains which are already highly regulated and many businesses are now complaining of “compliance fatigue”. Worse, HMRC is now requiring businesses to “police the supply chains” or risk revocation of approval if not. This is a consequence of how HMRC is applying the due diligence condition imposed upon business. The legal test for due diligence is simply to assess the risk and take (appropriate) mitigating action but HMRC is instead requiring a “blunderbuss” approach to be taken by business, which misses the point of due diligence entirely.

Furthermore, HMRC has been taking disproportionate action against any minor breaches of the rules. it is becoming evident that HMRC has either lost sight of its need to guard against acting disproportionately or doesn’t care. Either way, the consequences for business are perilous. This led to the most senior Tribunal Judge, Mr Colin Bishop censuring HMRC in such a case (United Wholesale) earlier this year. Mr Bishop’s decision records his mounting astonishment at HMRC’s failure to act proportionately and his displeasure at HMRC’s reviewing officer acting in a way that was blinkered and unfair. But HMRC has not heeded the lesson and is continuing its actions in this vein, which in turn is putting business, jobs and revenue at grave risk for no benefit whatsoever.

Contact Alan at alanexcise1@gmail.com