The document summarizes recent indirect tax changes and cases in the UK. Key points include: - The VAT and excise duty registration thresholds will increase, and most duty rates will increase in line with inflation. - Countries are increasingly moving to a destination-based model for taxing digital services to reduce unfair competition. - New rules have been introduced for the UK alcohol wholesale registration scheme to tackle fraud.

1. INDIRECT TAX HOT TOPICS
A summary of this month’s important indirect tax changes and cases
March 2017
Spring Budget 2017
A few indirect tax changes and announcements have been
made in Chancellor Phillip Hammond’s first Spring Budget.
VAT updates:
• The Chancellor announced an increase to the VAT
registration and deregistration thresholds to £85,000
and £83,000 respectively. This will be effective from
1 April 2017 but is not expected to have any significant
economic impact.
• In an announcement which may have caught the
telecommunications sector by surprise the right to treat
non-EU roaming charges to UK customers as VAT-free
has been removed. Such charges will now be subject
to VAT regardless of where the service is “used and
enjoyed”. This brings the UK in to line with the majority
of EU countries. Strangely, this change was announced
under an anti-avoidance heading, but all this measure
will presumably achieve is an increase to the cost the
consumer will now have to pay for this service.
• In 2016 the Government introduced new measures
to combat VAT non-compliance in respect of online
sales by introducing measures which make the “online
market place” jointly and severally liable for unpaid
VAT due from overseas online sellers. In this budget it
was announced that a consultation will take place on
alternative methods of collecting VAT on online sales
e.g. using technology to ‘extract VAT from the transaction
at point of sale’, terming this the ‘split payment model.’
It appears from this the Treasury is acknowledging
the challenge of ensuring it maintains tax yields as
consumers increasingly buy online from overseas
suppliers rather than from the traditional high street.
This drive is consistent with other recent proposals from
the EU Commission and with measures that a number of
governments in Europe are currently considering, such
as the use of banks as a means of collecting VAT via the
customer’s bank or credit card payment.
• Another consultation aimed at combatting VAT fraud is
to be launched. This one will target supply chain fraud
in the construction sector. Options being considered
include applying a reverse charge mechanism to the
supply chain which will make the recipient of the service
responsible for accounting for the VAT due. The purpose
of the consultation is to ensure any option taken forward
is targeted effectively and causes minimum disruption
to law abiding taxpayers. The consultation will give
stakeholders a chance to put forward their views and
potentially shape future legislation.
• Lastly, there has been a refinement to the proposed
penalty for participating in VAT fraud which was
announced in the last budget. This includes limiting
the naming of a company officer to instances where
the amount of tax due exceeds £25,000.

2. Excise duty changes:
• A minimum excise tax of £268.63 per 1000 cigarettes
(from 20 May 2017);
• Increases in the Gaming Duty Gross Gaming Yield
bandings in line with inflation (from 1 April 2017);
• The Soft Drinks Industry Levy will have two rates:
18 pence per litre (ppl) and 24ppl for the main and higher
bands respectively. The levy takes effect from April 2018;
• Air Passenger Duty rates shall increase in line with RPI
(from 1 April 2017);
• Alcohol Duties on beer, cider, wine and made-wine and
spirits will increase with inflation (from 1 April 2017);
• Duty rates on tobacco products increased by 2% above
RPI (from 6pm on 8 March 2017); and
• Vehicle Excise Duty rates for cars, motorcycles, and vans
will increase in line with RPI (from 1 April 2017).
Heading towards destination based taxation for
e-commerce
The trend of international digital VAT continues to move
away from supplier-based taxation to one of consumer-
based taxation. This is largely in an effort to reduce unfair
competition from overseas suppliers of digital products to
resident companies supplying the same products.
In 2015, the Organisation for Economic Co-Operation and
Development (OECD) approved the principle of destination-
based taxation. A report published at the time stated “For
consumption purposes internationally traded services and
intangibles should be taxed according to the rules of the
jurisdiction of consumption”.
The countries below have or are planning to introduce new
laws on the consumption of digital services.
Israel – The Israeli Tax Authority proposed in April 2016 to
change its VAT legislation so that foreign tech firms have
to register in Israel to account for VAT on digital services
sold to Israeli consumers.
Australia – On 1 July 2017, Australia is set to introduce
a new 10% GST on digital services downloaded and
consumed by Australian residents.
New Zealand – On 1 October 2016, New Zealand
introduced a new GST rate aimed at taxing the supply of
digital services by overseas-based companies.
Russia – On 1 January 2017, Russia started charging VAT
on the supply of digital services to Russian consumers.
India – A new GST on e-commerce is set to come into
effect on 1 July 2017, although, unlike the above countries,
this tax is likely to be collected at the source of the supply.
Canada – There are ongoing debates within the Canadian
government about whether they should be charging tax
on digital services supplied by foreign companies. This is
commonly referred to as the ‘Netflix Tax’ as Netflix is the
biggest foreign supplier of digital streaming services.
Turkey – As a result of the challenges of taxing a digital
economy, the Turkish Government is looking to introduce
the concept of an ‘electronic taxpayer’ and ‘electronic place
of business’.
Singapore – Currently, the Singaporean government only
taxes digital sales where the supplier has a permanent
establishment in the country. Recently, there has been
increasing pressure from tax experts and resident
companies alike to change this by applying GST to
non-resident suppliers of e-commerce sales in the
same manner.
Thailand – The Thai Revenue Department say it will
enforce a new law on cross-border e-commerce
transactions by April. Currently, laws to tax cross-border
e-commerce transactions are under review, with changes
expected soon.
Uruguay – In very similar circumstances to the above
countries, the issue of unfair competition has been
raised. The Directorate General of Taxation in Uruguay
is assessing the possibility of a ‘Netflix tax’.
Singapore, Thailand and Uruguay have also joined this
trend.
Furthermore, the European Commission (EC) has proposed
that on 1 January 2018, a threshold of €10,000 will apply
to digital services. Below this threshold, the place of supply
of such services will remain in the supplier’s Member
State. This should allow micro-businesses supplying
such services to do so without needing to register for VAT
(whether under a domestic VAT registration or through the
Mini One Stop Shop (MOSS)).
Where you provide such B2C services globally it
appears that accounting for indirect sales tax and VAT in
multiple jurisdictions will become a key tax compliance
consideration for digital businesses.
As discussed above, with the trend in international
e-services moving towards destination-based taxation, it is
necessary to determine whether you are making a supply
to the consumer or to the internet platform operator.
It is crucial that both suppliers and platform operators
understand their obligations to account for indirect tax in
respect of such supplies.
Mazars Global Network now operates in 79 countries, this
expansive network allows us to provide businesses with
multijurisdictional advice. If you believe this would be of
benefit to you, please contact us.
Changes to the flat rate scheme
The most recent anti avoidance measure to be introduced
on 1 April 2017 is a business category for “limited cost
traders” (LCT). The rate applying if a flat rate trader
falls into this category is 16.5% and will invariably
be disadvantageous when compared to standard VAT
accounting.

3. An LCT is defined as a trader whose VAT inclusive
expenditure on goods is less than the greater of:
• 2% of their VAT inclusive turnover in a VAT return period
• £1,000 per annum or £250 per quarter depending on
the period VAT is accounted for
The LCT test is applied for each VAT return period.
The above measure will affect service providers that do
not have significant expenditure on goods, the extent
depending on the pre 1 April 2017 rate they use. These
businesses typically have rates ranging from 12% to
14.5%, but in some cases the rate can be lower, e.g. a gym
that leases its equipment currently qualifies for the 8.5%
“sports or recreation” rate; however, post 1 April 2017 this
could increase to 16.5% due to low purchases of goods.
Where businesses are uncertain whether the above will
apply to them it is important that they review historic
VAT returns to establish the possible extent to which they
would have been an LCT. For those traders that would
have an LCT issue going forward based on historic activity,
the trader should assess the financial impact of this
and consider either: reverting to normal VAT accounting,
deregistering if their turnover is below the turnover
threshold, or taking action so that they do not qualify as
an LCT. Ideally, this review should be undertaken in the
near future so that the trader is able to take appropriate
action before the end of the first VAT return period after
1 April 2017.
VAT Payments
The First-Tier Tribunal (FTT) has confirmed that when
a VAT payment date falls on a weekend/bank holiday,
payment is considered to be late if it is not paid on the
last working day of the prior week.
Fashionizer Ltd recently appealed a default surcharge it
received on the basis that it did pay its VAT liability per its
VAT return on time. The payment date fell on a Saturday
and the appellant paid the VAT amount owed on the
following Monday.
The appellant’s argument was that “where the due date for
payment is on the weekend it is normal and permissible to
delay payment to the next business working day.”
Both HMRC and the FTT disagreed with the appellant’s
statement and HMRC confirmed that its guidance is clear
in that payment has to be made on or before one calendar
month and seven days after the end of the accounting
period.
The FTT did not consider the appellant’s misunderstanding
of the payment date to be a reasonable excuse and
therefore the appeal was dismissed.
We advise all companies to ensure VAT payments reach
HMRC within the specified time frame and to ensure that
the payment reference used is the VAT number only. If the
wrong payment reference is used a payment trace must be
made and this can be very time consuming.
Supplies through online retailer attributable to
a third party
Avalaya.com Partnership (ACP) successfully appealed in
relation to payments received for supplies through the
Amazon sales portal and whether ACP, or a third party,
had made the supplies.
ACP is a VAT registered online jewellery seller, which
agreed to provide a $60,000 interest-free loan to Jewellery
4 All (J4A), a company owned by a close friend of the ACP
owners. J4A made sales through Amazon, rather than its
own website as ACP did.
ACP was assessed by HMRC in relation to transactions not
declared on its VAT returns but the payments for which
were in its bank account. ACP appealed, stating that those
transactions were supplies by J4A, that they were not in
business together and that ACP had allowed J4A use of its
bank account in relation to the collection of loan payments.
The FTT dismissed HMRC’s contentions; it found that
the businesses were separate and that the agreement
supported this. Although the payment into ACP’s account
from Amazon sales appeared to infer that ACP was the
business making the supply, this was not in reality the
case due to the contrary evidence of the loan repayment
agreement resulting in J4A sales going through ACP’s
bank account.
The FTT recognised that the result may be disappointing
as the question remains open of whether VAT was
accounted for on these sales, but went on to state that the
question in this appeal was whether the VAT was a liability
of ACP, and the FTT have found that it was not.
This case highlights the importance of written contracts in
supporting the economic reality of commercial situations.
Are you a charity purchasing agency services
from outside the EU?
In the recent FTT judgment, University of Newcastle-upon-
Tyne, the university enjoyed limited success in its appeal
regarding services purchased from overseas agents.
Overseas agents provided services in relation to the
recruitment of students from outside the EU, for which
the university paid a commission. The university went to
the FTT to appeal against HMRC’s view on the following
matters:
(1) Split Supplies
The university argued that the agents based overseas
made two supplies:
• A supply to the university of recruitment services; and
• A supply to the students of support services
As such, the university contended that the commission
paid to the agents needed to be apportioned to reflect part
consideration in respect of the above supplies.
The supplies to the students were not made in the UK and
as such, would not be subject to VAT.

4. Judgment
The FTT favoured HMRC and held that the agents made
a single supply of services to the university and made no
supplies to students.
As such the entire consideration paid by the university was
in respect of the supply made to it.
(2) The Intermediary Argument
To the extent that services are supplied to the university,
the general place of supply rules applied to the period up to
1 January 2010, meaning that the place of supply would be
deemed to be the place where the supplier was established.
The university argued that the exception to the general
rule in the case of when an intermediary supplies services
and acts in the name and on behalf of another person
should not be applicable.
Judgment
The FTT agreed that the place of the supply was subject to
the general rule and was where the agents were based for
supplies made up to 1 January 2010.
It also agreed that the agents did not act in the name
and on behalf of the university. As such, any supplies of
services made after 1 January 2010 were subject to the
reverse charge by the university.
As above, this related to a single supply and so the
university would be required to account for the reverse
charge on the entire supply of commission made to it.
(3) Input tax deduction
The university contended that, to the extent the agents’ fees
were subject to VAT, the university should be entitled to VAT
recovery on the basis it was residual input tax and should
be recovered under the partial exemption special method.
Judgment
The FTT held that the university was not entitled to recover
any input VAT that it had accounted for on the reverse
charge as there was no direct and immediate link between
the commission paid to the agents and the taxable
activities of the university.
This is a significant point for charities, as the services
were supplied to the university, not the students, requiring
the university to self-account for the VAT due, whilst being
unable to recover the input tax fully. This therefore created
an irrecoverable VAT cost.
The judgment seems to have protected the position of
the university pre-1 January 2010 but has given a bleak
outlook for the university and other such charitable
entities that incur such services going forward.
Important changes in the alcohol sector
HMRC will be implementing changes in the next few
months as part of measures intended to tackle tax and
duty fraud in the alcohol sector. The Alcohol Wholesaler
Registration Scheme (AWRS) came into existence in 2016,
however, further new regulations are due to take force
imminently.
From 1 April 2017 if a business buys alcohol to sell from a
UK wholesaler, they will need to check that the wholesaler
has registered with HMRC and has an AWRS Unique
Reference Number (URN).
If a business is a trade buyer or wholesaler, then it will
be able to use an online look-up service of approved
wholesalers to check that the wholesalers they buy from
are registered.
All businesses that supply alcohol to other businesses for
resale need to apply. This includes:
• breweries and microbreweries
• wine producers and vineyards
• spirit producers
• cider producers who make more than 70 hectolitres of
cider a year
• wine importers
• general wholesalers selling alcohol, including cash and
carry businesses
• specialist wine wholesalers
New criminal and civil sanctions have been introduced for
both wholesalers and trade buyers found buying alcohol
from non-registered wholesalers.
The penalties will be for:
• wholesalers trading without having submitted their
application to HMRC (came into force from 1 April 2016)
• trade buyers who buy alcohol from unregistered
wholesalers (will start from 1 April 2017)
Also from April this year, anyone registered on the AWRS
must show the URN on all sales invoices.
We would be happy to talk to you about how you may be
affected by these changes to help ensure that you are
compliant with the scheme and its potential implications.
It is increasingly important that businesses in this sector
are able to demonstrate to HMRC that they are ‘Fit and
Proper’ for the purposes of approvals held in the UK. We
would be more than happy to assist with reviews to ensure
that you are undertaking alcohol related transactions
in a way required by HMRC, including reviews and
implementation of supply chain due diligence checks.
Reverse charge mechanism proposed for goods
prone to fraud
The EU Commission has presented a proposal to expand the
VAT reverse charge mechanism in areas liable to VAT fraud.
Applying the reverse charge mechanism places the onus
for VAT payments on the customer as opposed to the
suppler. VAT fraud should be prevented as suppliers are
unable to withhold payment from the tax authorities. This
proposal would be applied to domestic supplies above a
threshold yet to be decided. Furthermore, the mechanism
would only be implemented in sectors at a high risk of
fraud. The types of goods mentioned so far include mobile
telephones and integrated circuit devices as well as
perfumes and precious metals.
This proposal will require approval at both the European
Council and European Parliament.

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© Mazars LLP 2017-03 34873
Please get in touch…
If you have any questions or you would like some further information on the articles above, or Indirect Tax in
general then please contact us on the details below, or get in touch with your usual Indirect Tax contact at Mazars:
LONDON
Sean Glancy
Indirect Tax Director
Tower Bridge House
St Katharine’s Way,
London E1W 1DD
T: +44 (0)20 7063 5016
M: +44 (0)7823 520 654
SOUTH
Chris Hall
Indirect Tax
Senior Manager
Bristol, 90 Victoria Street,
Bristol BS1 6DP
T: +44 (0)117 928 1739
M: +44 (0)7880 602 845
CENTRAL
James Hurst
Partner, Head of
Indirect Tax
45 Church Street,
Birmingham B3 2RT
T: +44 (0)121 232 9656
M: +44 (0)7976 198 706
NORTH
Juliet Bailey
Indirect Tax Director
Mazars House,
Gelderd Road, Gildersome,
Leeds LS27 7JN
T: +44 (0)113 387 8713
M: +44 (0)7881 284 194
Making or receiving supplies of temporary staff?
CoA make a decision on Adecco…
Adecco have again lost their appeal, this time at the Court
of Appeal (COA), and have to account for VAT on the whole
cost of providing provision of temporary staff to clients.
The Judge in this hearing considered primarily the
principles derived from the Airtours case in determining
the nature of a supply and who is making and receiving
that supply, with this being a two stage process. This
process first requires the consideration of the contractual
position, and then whether the contractual analysis
reflects the economic reality of the transaction.
The CoA decided that Adecco made a supply of the
provision of the non-employed temps to the clients in
return for the total fees paid by the clients. This decision
was based on that the temps agreed to work for clients, in
return for payment by Adecco, and that only Adecco could
supply the temps to the clients and, absent or in breach of
their agreements, the temps could not work for the clients
except through their agreement with Adecco.
The CoA ended its analysis by making reference to putting
the non-employed temps and the employed temps, for
which there was no dispute that Adecco made a supply of
the temps, in the same position for VAT purposes. With this
in mind, they decided that the economic and commercial
reality should be the same in the case of supplies of both
types of temp, especially as the client would not be able to
distinguish between them.
As is always the way in such case types, each case has to
be considered on its own merits, this further demonstrates
the importance of the contractual and commercial reality
being reflected in the VAT treatment. However, this is
another case to reinforce HMRC’s long-held position that
the whole of the supply of staff is taxable.
We would point out that despite this decision, in certain
circumstances, there are other measures that can be
considered for reducing the impact for entities that cannot
recover VAT and would encourage you to contact us to
discuss if this decision has an impact on your organisation.