13 October 2006

HM Revenue & Customs

http://www.hmrc.gov.uk

HMRC Business Brief 16

HM Revenue & Customs (National)

Business brief No 16

Contents:
1. Changes to VAT law in light of the Gambling Act
2. Publication of Tax Avoidance Scheme disclosure statistics
3. VAT: Liability of private tuition
4. VAT: Liability of condoms supplied to charities providing care or medical treatment
5. VAT: Issue of VAT Notes 3 2006

1. CHANGES TO VAT LAW IN LIGHT OF THE GAMBLING ACT

In Business Brief 23/05 (issued on 5 December 2005), we advised that the definition of 'gaming machine' for VAT liability purposes in Group 4 of Schedule 9 to the VAT Act was to be amended by Treasury Order. This was intended to ensure that all gaming machines were excluded from the exemption, and so liable to VAT. In the process of doing this, we updated some of the elements of the definition by reference to the Gambling Act 2005. Section 23 of the VAT Act 1994, which includes a corresponding definition of a gaming machine in the provision which determines the value on which VAT is accounted for on gaming machine takings, was amended in Finance Act 2006, with retrospective effect from 6 December 2005.
Two new Treasury Orders are being laid before Parliament today that will come into effect on 1 November 2006. The new Orders continue to update VAT law in light of the Gambling Act, and will:
* remove the separate definition of 'gaming machine' from Group 4, replacing it by a cross-reference to the identical definition in section 23;
* provide a new definition of 'game of chance' in Group 4 and Section 23, replacing the cross reference to the Gaming Act 1968 definition;
* ensure that the definition of 'game of chance' is the same across the UK for both Group 4 and Section 23;
* restore the application of VAT to pinball machines; and
* ensure that any game of chance which is not played for a prize does not fall within the exemption.

Definition of 'gaming machine'
At present, section 23 and Group 4 contain identical definitions of 'gaming machine'. The new Group 4 Order replaces the definition of 'gaming machine' in Group 4 with a cross-reference to the section 23 definition, which is itself amended by the other Order.

New definitions of 'gambling' and 'game of chance'
The definition of 'gambling' was introduced into Group 4 and section 23 by inserting cross-references to the definitions of 'betting' and 'gaming' in the Gambling Act. The new Order amending section 23 replaces the cross-references to the Gambling Act with stand-alone definitions of 'game of chance', based on provisions in section 6 and section 239 of the Gambling Act. 'Betting' is no longer to be defined. The new definition of 'game of chance' in Group 4 applies for the use of the term in defining the scope of the exemption whether or not the game is played on a machine.

Pinball machines and other games of chance not played for a prize The takings from pinball machines had inadvertently been brought within the scope of the exemption by the PBR Order, when the Gambling Act concept of gaming was imported into VAT legislation dealing with gaming machines. VAT exemption is currently available for the provision of facilities for playing a game of chance, whether or not for a prize. Gaming machines are excluded from the scope of this exemption. Before the PBR order was introduced, pinball machines were taxed as gaming machines as it was not a requirement for a gaming machine to offer a prize. However, the PBR order applied Section 6(1) of the Gambling Act, which provides that gaming is playing a game of chance for a prize, to the definition of gaming machines. Although this meant that pinball machines were excluded from the definition of gaming machines, as they do not offer prizes, they still qualified for VAT exemption as the provisions of facilities for playing a game of chance. .

In future, only a game of chance played for a prize, whether or not played on a machine, will qualify for exemption in any event. 'Prize' will be defined so as to exclude the opportunity to play the game again ('free plays').

Consequently, traders who have been accounting for VAT on pinball machines takings in the period from 6 December 2005 to 31 October 2006 may make a claim to HMRC for a repayment of output tax incorrectly paid, subject to the conditions set out below, by using one of the following (full details can be found in in VAT Notice 700/45 'How to correct VAT errors or make adjustments or claims :
* Where the total of previous errors does not exceed £2000 net tax, an adjustment may be made to your current VAT return.
* Where the total of previous errors exceeds £2000 net tax a separate claim should be submitted to HMRC (in these cases the errors must not be corrected through your VAT returns).

Details of where to send your claim can be obtained from the HM Revenue & Customs National Advice Service on 0845 010 9000.

All adjustments or claims will be subject to the following conditions:
* All claims must take into account input tax that has been claimed, but which, while pinball machine takings were exempt, did not relate to taxable supplies.
* Businesses must be able to produce evidence that they accounted for VAT in the circumstances described above, and must be able to substantiate the amount claimed.

Any claim should be for all prescribed accounting periods in which the liability error occurred.

Should a claim not take into account all errors or all affected accounting periods, then HMRC will seek to set-off amounts owed to us for these periods against amounts claimed in other periods.

HMRC may reject all or part of a claim if repayment would unjustly enrich the claimant. More details on 'unjust enrichment' can be found at part 14 of VAT Notice 700/45 How to correct VAT errors and make adjustments or claims.

2. PUBLICATION OF TAX AVOIDANCE SCHEME DISCLOSURE STATISTICS

This Business Brief article announces HMRC's intention to publish the number of disclosures of tax avoidance schemes received.

Background

In 2004 disclosure rules were introduced requiring promoters and users to notify details of certain direct tax and VAT arrangements to HMRC. The rules were extended to Stamp Duty Land Tax (SDLT) in 2005, and from 1 August 2006 to the whole of Income Tax, Corporation Tax and Capital Gains Tax.

Since the introduction of the rules, tax professionals, business and others have shown a great deal of interest in the total number of disclosures made, and have made many requests to HMRC for the information. These have included requests under the terms of the Freedom of Information Act (FoIA). As the disclosure rules were developed in collaboration with tax professionals and business, HMRC see making the information more accessible part of its continuing commitment to this collaboration. Publication of the information is not inconsistent with the strict rules on taxpayer confidentiality and the provisions of the FoIA.

What will be published
Starting on 31 October 2006 HMRC will publish the total number of disclosures that have been made up to 30 September 2006. The information will appear in two tables, one for direct tax and SDLT and the other for VAT. The statistics will be updated in April and October of subsequent years.

Each tax within a table, with the exception of SDLT, is subdivided by category of scheme. For direct tax the categories are financial and employment up to 31 July 2006, and hallmark from 1 August 2006 onwards.

For VAT the categories are listed and hallmark.
Within these categories the totals received will be given as six-monthly totals (for the six months ending 31 March and 30 September each year) and annual totals (for the financial year ending 31 March). An exception to giving a six-monthly total is for the six months ending 30 September 2006, as this covers the 1 August 2006 change of categories for direct tax disclosures. In this case the totals for each category will be for the period that they are applicable. The latest totals published will always be provisional, and will only be finalised when the statistics are next updated.

Information on the history of the disclosure rules and further details on interpreting the statistics will be published alongside the tables. The information note will give details of the total number of voluntary registration scheme (VAT hallmark) disclosures received to date.

Where to Find the Statistics
The statistics will be published on HMRC's website: http://www.hmrc.gov.uk. Go to the home page and look for the link to the statistics under "What's New" (bottom of screen), otherwise from the home page use the link to the "Practitioner Zone" (top right hand corner) and then use the link under Library to "Anti Avoidance Group". From here follow further links to the statistics.

Next Publishing Date
The updated totals to 31 March 2007 will be published on 30 April 2007.

3. VAT: LIABILITY OF PRIVATE TUITION

HMRC's policy on the liability of private tuition is set out in VAT Notice 701/30 (Education and vocational training), section 6. This advises that the VAT exemption for private tuition only applies to sole proprietors and partnerships who teach a subject that is taught regularly in a number of schools or universities.

It has come to our attention that some businesses that supply private tuition have incorrectly exempted their supplies from VAT. This follows a Tribunal decision in the case of Empowerment Enterprises Ltd, which found that the exemption extended to tuition provided by directors of limited companies and those employed by sole proprietors, partnerships or limited companies.

HMRC appealed against the Tribunal's findings and the Court of Session , confirming that exemption is only available to sole proprietors and partnerships.

Therefore, all suppliers of private education should ensure that they are applying the correct liability to their supplies. Additionally, if you have been using the incorrect liability, you will need to account for any unpaid VAT as follows:
* where the total of previous errors does not exceed £2000 net tax, an adjustment may be made to your current VAT return or
* where the total of previous errors exceeds £2000 net tax, a separate voluntary disclosure should be submitted to HMRC (in these cases the errors must not be corrected through your VAT returns).

Details of where to send your claim can be obtained from update 2 to VAT Notice 700/45: How to correct VAT errors and make adjustments or claims or from the HMRC National Advice Service on 0845 010 9000.

4. VAT: LIABILITY OF CONDOMS SUPPLIED TO CHARITIES PROVIDING CARE OR MEDICAL TREATMENT

This business brief article explains HMRC's position as a result of the Tribunal's decision in the case of Pasante Healthcare Ltd.

Background
The supply of a "medicinal product" to a charity providing care or medical or surgical treatment is zero-rated (VAT Act 1994, Schedule 8, Group 15). Pasante Healthcare Ltd supplied condoms to a charity that provides free and confidential sexual health advice and contraception to young people. It contended that condoms are medicinal products within the terms of the Act, and therefore should be zero-rated when supplied to such a charity.
In order to qualify as a medicinal product the law requires that they be "administered". HMRC contended that the distribution of condoms by a charity did not meet the legal test.

Decision
The Tribunal agreed with the appellant that a condom falls within the legal definition of a medicinal product as condoms distributed by a sexual health charity are administered within the terms of the legislation.

The way forward
HMRC have decided not to appeal the tribunal's decision. Businesses supplying condoms in similar circumstances to those of Pasante's should zero rate their supplies

The decision does not affect supplies of condoms to customers other than charities providing care, medical or surgical treatment. They will continue to be liable to the reduced rate of VAT, which applied to contraceptive products, with effect from 1 July 2006.

Information on making claims or adjustments
Businesses that have accounted for and paid VAT on supplies of condoms that are now consider to be zero-rated may submit claims for overpaid tax to their local Business Advice Centre. These will be subject to a three-year limitation period and unjust enrichment provisions.

More information about claims can be found in VAT Notice 700/45 'How to correct VAT errors or make adjustments or claims' and Business Briefs 25/04 and 28/04.

Further information

For further information and advice, please contact HM Revenue & Customs' Charity Helpline on 0845 302 0203.

5. VAT: ISSUE OF VAT NOTES 3 2006

VAT Notes 3 2006 (September edition) has been issued. This includes items on authorised collective investment schemes; supply of phone cards; Tour Operators' Margin Scheme (TOMS); missing trader intra-community fraud (MTIC); and cold takeaway food.

Copies of VAT Notes 3 will be sent to all registered businesses with returns for October, November and December. Businesses using the Annual Accounting Scheme will be sent a copy separately, with a covering note.

Further information
For further information and advice, please contact HM Revenue & Customs' National Advice Service on 0845 010 9000.

The views expressed in this Business Brief are those of HM Revenue & Customs.

GENERAL ENQUIRIES:

For general enquiries please contact HM Revenue & Customs' National Advice Service on 0845 010 9000.

This release and other information about HM Revenue & Customs can be found at our website: http://www.hmrc.gov.uk

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