Guidance

Administrative agreements with trade bodies (VAT Notice 700/57)

Details of administrative agreements relating to VAT on certain specific transactions between members of trade bodies and HMRC.

• From: HM Revenue & Customs
• Published: 9 August 2004
• Last updated: 23 March 2021 — See all updates

Overview

The agreements in this notice permit the members of trade bodies to use procedures which take into account their individual circumstances so they may meet their obligations under VAT law. The agreements apply only to areas where we can exercise discretion, and they convey no direct financial advantage or relief from the legal requirements of the tax.

But the agreements can provide unique solutions to particular problems and reduce the burdens on business. Some of them might usefully be applied by other businesses, but please remember that you cannot adopt any special method based on these agreements unless HMRC has given approval in advance. Nothing in any of these agreements can override any subsequent change in the law, and they can be terminated at any time by us.

1. Agreement with the London Bullion Market Association about supplies of bullion

1.

HMRC has agreed with the London Bullion Market Association (LBMA) certain practical rules to govern the VAT treatment of supplies of bullion (gold and silver excluding coins) on the London Bullion Market. Supplies on or after the 1 July 1991 come within the terms of this agreement.

2.

Under the terms of the Value Added Tax (Terminal Markets) Order 1973 there’s provision for zero rating supplies of bullion where both parties to the transaction are LBMA members. In addition, supplies to and from an LBMA member and a non-member are zero-rated provided the transaction does not lead to physical delivery. Supplies on the market which are zero-rated can be regarded as taking place within a VAT-free ring or ‘black box’, the term used in this agreement.

3.

It’s been agreed, broadly in confirmation of existing working practices within the market, that with certain exceptions all supplies of bullion, including loans, should be treated as being zero-rated, provided the bullion is not physically removed from the black box. This will apply to all supplies of bullion irrespective of the counterparties involved (whether LBMA members or non-members, or whether the bullion is allocated or unallocated).

Bullion will be regarded as having been so removed when effective physical control is transferred from an LBMA member to a non-member. The term effective physical control includes cases where bullion leaves the possession of an LBMA member but remains under the member’s control and responsibility. Where physical bullion leaves the black box because an LBMA member relinquishes effective physical control, VAT will be charged and accounted for by the LBMA member so relinquishing control. VAT will be charged at the standard rate for domestic transactions and at the zero rate in the case of exports where the actual export is arranged by the relevant LBMA member, subject to the usual satisfactory evidence of exportation being produced.

Where a non-member takes physical delivery of bullion in the United Kingdom for subsequent export arranged by the non-member, the LBMA member would charge VAT at the standard rate, leaving the non-member to reclaim VAT at the time of export.

4.

Under this regime, the LBMA member who relinquishes physical control of the bullion when it leaves the black box will be deemed for all relevant VAT purposes to have made the supply to the non-LBMA member, irrespective of whether the member had title at that point to the bullion in question. In particular, the LBMA member will raise a VAT invoice and treat the VAT charged to the customer as their output tax. The customer will treat it as recoverable input tax provided it is attributable to other taxable supplies.

5.

It’s agreed that this regime will apply to all transactions involving bullion held by LBMA members with the following exceptions:

(a) Safe carriage delivery to a non-member. Where the service provided by an LBMA member receiving bullion from another member amounts only to the provisions of safe carriage, a supply will be treated as taking place when the bullion is passed to the LBMA member providing safe carriage. VAT will be charged at that point at the standard rate by the LBMA member supplying the bullion to the non-LBMA member who is the customer (except in the case of an export or a supply to a Central Bank).

(b) Safe custody or storage. Where, subject to customary safeguards and checks of status, an LBMA member holds bullion for a customer which remains that customer’s property and is not supplied into the black box, the return of the bullion to the customer would not give rise to a VAT charge on the metal. A charge for safe custody or storage is standard-rated irrespective of LBMA membership.

(c) Refining. Where bullion is to be supplied by an LBMA member to a non-member, but before it’s physically delivered it’s to be transferred to another LBMA member for process, the supply will be treated as taking place for VAT purposes when the bullion is released to the LBMA refiner (unless there’s an earlier invoice or payment tax point).

VAT will be charged to the non-LBMA customer at the standard rate at that point (except in the case of an export) by the LBMA member releasing the bullion to the LBMA refiner. The same tax point will also apply to a case when the bullion is the subject of a (physical) loan rather than a sale. The documentation to the refiner must make it clear that VAT has been accounted for by the supplier of the metal.

Where bullion is supplied by an LBMA member who is a refiner to a non-member and it’s to be processed before delivery, the tax point will either be when the bullion is transferred to the customer’s metal account with that refiner or, if the non-member is not required to make payment at that point, when the bullion is physically delivered following processing (unless there is an earlier payment or issue of a tax invoice). Again this will apply both to sales and physical loans.

The rules are not intended to apply to cases where a refiner applies a process to a customer’s bullion which remains the property of the customer (for example, sweepings or scrap). In such cases the bullion does not enter the black box and the supply by the refiner is purely one of refining services.

When bullion is made available by an LBMA member who is a refiner to a non-LBMA member for a process to be carried out, for example, chain-making for and on behalf of the refiner, on the clear understanding that the finished product will be returned to the refiner, who will remain responsible for the bullion throughout, or where bullion is taken to a third party for assay, it will be regarded as remaining within the effective physical control of the refiner and therefore remaining within the black box, unless or until it’s sold or otherwise disposed of, when VAT must be accounted for by the refiner.

(d) Supplies between non-members. In the case of supplies between parties who are not LBMA members, zero rating will be available under the general rule in paragraph 3 where the bullion is and remains within the black box, in this instance, in the effective physical control of an LBMA member, and, unless the special rules in (a) to (c) apply, VAT will be charged and accounted for by the LBMA member relinquishing that control on physical delivery from the black box.

But where the supply is to a UK resident, zero rating is subject to the further condition that the bullion is intended for commercial use by a customer engaged in regular transactions in precious metal as part of their manufacturing or processing trade.

6.

It’s the responsibility of all LBMA members to make sure that VAT’s properly accounted for under the rules, in particular where bullion is sold or loaned and subsequently physically delivered outside the black box to non-members. In order that this responsibility can be effectively discharged it is agreed that there will be close co-operation and exchange of relevant information between members, and in any case where there may be doubt, the VAT status of bullion transferred within or outside the black box will be made clear.

7.

Agreement has also been reached on the correct treatment of bullion loans. These can take 2 forms, purely financial ‘paper’ transactions, where the loan is a pure book transfer not involving any physical delivery of bullion and ‘consignments’, where physical bullion is made available to the customer to work on, but where payment is not required until a later date. In both cases a charge expressed as a rate of interest is made for the duration of the loan.

8.

In the former case, the interest is normally calculated at a predetermined agreed rate denominated in ounces of the precious metal in question, which is then converted to sterling or US dollars at the then prevailing market rate. It’s agreed that in this case, the interest should be treated as consideration for an exempt supply within item 2 of Group 5 of Schedule 9 to the VAT Act 1994. But where the loan could be regarded as taking place within the black box, it would be zero-rated. VAT would not be chargeable on the principal amount of the loan.

9.

In the latter case, where the bullion is physically consigned to the non-LBMA customer on credit, VAT will be charged at the standard rate on the market value of the bullion, even though the actual charge to the customer of the principal amount is deferred, when the tax point arises, in this instance, when it’s physically delivered or made available to the customer (including a transfer to an LBMA member for processing), or when an invoice is issued, whichever is the earlier. This will normally mean issuing a VAT only invoice when the tax point arises.

In this case the financing charge will be seen in all cases as further consideration for the supply of the bullion and taxable at the standard rate, with a tax point arising on each subsequent payment. This treatment replaces an existing concessionary (the concession, which came to an end on 1 May 1991 in respect of all new loans business, allowed the ‘supplier’ to account for VAT only on the amount of interest charged and not on the value of the principal amount of the loan) treatment previously agreed with HMRC.

All physical gold loans will be subject to the VAT treatment with effect from 1 October 1991. Subject to the normal rules, the VAT will be recoverable by the customer as input tax, provided it relates to their taxable supplies. If at the end of the loan period when the principal amount falls to be paid, the price of the bullion has increased, the additional payment would be treated as further consideration for the supply, and taxable at the standard rate. If it has fallen, the reduction in the price would be treated as a reduction in the consideration, and a credit note could be issued adjusting the VAT, though if both parties agree the credit note need not be issued.

If at the end of the loan period, the customer discharges their liability by supplying bullion back to the LBMA member, this would be a separate standard-rated supply, and again a VAT only invoice would need to be issued by the customer, with the VAT payment being remitted by the LBMA member direct to HMRC if the Special Accounting Scheme applies.

10.

This agreement will be subject to regular review between the parties and may be amended or withdrawn after discussion or notice in writing to the LBMA.

The concessionary treatment in respect of existing loans ended on 30 September 1991.

2. Agreement with the Brewers’ Society

With effect from 1 June 2018 this agreement is withdrawn. A business who is currently using this agreement should review their method to make sure that it is still fair and reasonable.

1. This agreement, which took effect from 1 August 1989, covered only those brewers who elected to waive exemption of the rents from all their tenanted properties under paragraph 2 of Schedule 6A to the VAT Act 1983. Brewers who did not elect, or elected from some, but not all, of their tenanted properties, are outside the agreement and should contact their local VAT office if they want to negotiate special agreements.

2. Under the agreement, the entitlement to deduct input tax in respect of tied tenanted licensed houses containing a residential element was as follows:

(a) An agreed percentage of the input tax incurred on the maintenance and repair of, and capital expenditure on, tenanted property and of that incurred in selling or leasing such properties, including professional fees shall be deemed to be non-deductible.

(b) This restriction of an agreed percentage of input tax shall cover the whole matter of the tenanted estate so that no further restriction of input tax shall be required in respect of the exempt supplies made in the form of tenanted rents received and deemed to relate to the domestic accommodation.

(c) The property expenditure referred to in paragraph 1 does not include expenditure on tenants’ furniture, fittings and equipment, on the costs of cellarage or dispense equipment, advertising and other management expenses.

(d) The method will be used for at least 2 years. But HMRC reserves the right to review the arrangements should there be a change in brewers’ circumstances which affected significantly the amount of input tax they are entitled to deduct.

(e) A brewers’ tenanted estate shall be the houses actually tenanted throughout the relevant period. Where this is difficult to ascertain, HMRC will accept an average based on the total of houses tenanted at the beginning and end of the appropriate period.

(f) Nothing in the agreement affects the right of any brewer to question the correctness of the apportionment of their input tax in this way, although in such circumstances HMRC would also be entitled to propose an alternative basis of apportionment.

3. Agreement with the Association of British Factors and Discounters (formerly the Association of British Factors)

The current body UK Finance has been notified that this agreement will be withdrawn with effect from 1 May 2020 and replaced with new guidance in the Partial Exemption Manual. The new guidance PE73700 also provides guidance to businesses currently using this agreement.

About partial exemption and factors (October 1995).

(The responsibilities of this organisation were subsumed into the Factoring and Commercial Finance Association with effect from 1 April 1996.)

1.

These proposals contain provisions for more than one apportionment of residual input tax and for the use of calculations based on transactions counts. Any partial exemption method based on these proposals is, therefore, a special method and members will be required to seek approval from HMRC before applying the formula. Because of the variable level of taxable services in invoice discounting it will be also necessary for members to negotiate individually with HMRC a basis for recovery in this area. Where necessary, the proposals can be incorporated in a wider partial exemption method to take account of members’ other business activities.

2.

Under the agreement, factors are required to sectorise the different areas of their business and the related input tax, in particular, they must identify separately the input tax incurred in relation to invoice discounting and mainline factoring.

3.

Invoice discounting factoring

In this type of factoring the level of taxable services and, thus, the extent of input tax recovery can vary from business to business. For this reason we are unable to propose a set formula for dealing with input tax in this area. Members can agree with HMRC any fair and reasonable basis for apportionment of the input tax attributable to invoice discounting. There would be no objection to the use of a transactions based calculation similar to that for mainline factoring, but it will be necessary for individual businesses to agree which transactions should be included.

4.

Mainline factoring

Businesses must identify all the goods and services received which are used or to be used in mainline factoring (with or without credit) and the proportion of input tax thereon which may be deducted is to be determined in accordance with the following formula:

Taxation transactions ÷ taxable and exempt transactions × Input tax identified as relating to the mainline factoring sector of the business

The only taxable and exempt transactions which may be used in the fraction are:

• taxable transactions:
  • invoices
  • credit notes
  • debtor payments
  • payments to clients at maturity
• exempt transactions:
  • prepayments to clients
  • interests

The transactions included in this calculation are those, in HMRC’s opinion, which are common to all your members and are fully attributable to either the taxable or exempt supplies of your members.

5.

The remaining transactions with the exception of ‘sales ledger adjustments’ are not common to your members and in certain instances are only partly attributable to taxable or exempt supplies and their inclusion could lead to distortions. The variations in sales ledger adjustments indicate a difference in accounting methods of your members and again the inclusion could lead to distortion. HMRC considers that by confining the calculation to 6 transactions it will have the merit of administrative simplicity for your members.

6.

Where input tax cannot be allocated to one of the sectors of the business (for example, audit fees and so on) it will be recoverable only to the extent that the supply on which the input tax was charged is, or is to be, used in the making of taxable supplies. In such cases your members will need to negotiate an appropriate formula with HMRC (for example, a straightforward outputs based proportional formula may be acceptable, provided it produces a ‘fair and reasonable’ result).

7.

At the end of each tax year an annual adjustment should be undertaken using the figures for the whole tax year. Any difference between the amount of deductible input tax recalculated at the end of the tax year and the total amount provisionally deducted during the tax year is an over or underdeclaration of VAT. The amount must be entered in the VAT account for the first tax period after the end of the tax year.

If the recalculation shows that input tax attributable to exempt supplies is below the partial exemption de-minimis limit the business may be treated as fully taxable for the tax year. Any input tax not reclaimed during the year under the partial exemption rules is an overdeclaration of VAT.

8.

Any agreed special method is subject to review by HMRC and can be modified or withdrawn at any time.

9.

Where approval is given for the use of a transactions count method by HMRC, the approval will be based on the numbers and frequency of transactions at that time. If there’s any significant change in the way transactions are recorded, or the numbers or frequency of transactions, the member must advise HMRC so that the method can be reviewed.

10.

These proposals do not constitute a partial exemption method as such but provide a framework within which the members of the association can agree acceptable methods with HMRC.

4. Agreement with the Finance Houses Association Ltd

Cancelled with effect from 31 January 2000.

5. Agreement negotiated with the Association of British Insurers (formerly the British Insurance Association)

Following discussions with the Association of British Insurers this administrative agreement will be withdrawn from 1 February 2019 – it will be superseded by the Partial Exemption Manual.

About recovery of input tax incurred in the UK in connection with supplies by branches outside the European Community (EC).

1.

The British Insurance Association

Regulation 103 provides authority for insurance businesses to recover input tax incurred in the UK in connection with supplies made by their branches outside the European Community (EC). It’s been accepted that insurance businesses have difficulty in identifying this input tax and, following an exercise carried out with the co-operation of some of the members of the British Insurance Association (BIA), agreement has been reached with the Association that from 1 April 1985 this input tax may be identified in the following way:

(a) Identification of recoverable input tax related to the activities of branches and agencies outside the EC Total input tax × expenses incurred in the UK in connection with supplies made by branches and agencies outside the EC ÷ total expenses incurred in the UK

(b) Identification of recoverable input tax related to the activities of branches and agencies outside the EC by 2 stages:

Stage 1

Total input tax × expenses incurred in the UK in connection with supplies made by overseas branches and agencies ÷ total expenses incurred in the UK

Stage 2

Product of stage 1 × premium income of branches and agencies outside the EC ÷ total premium income of overseas branches and agencies

(c) Identification of recoverable input tax related to the activities of branches outside the EC by 2 stages:

Stage 1

Either

Total expenses incurred in the UK in respect of supplies made by overseas branches × premium income of branches outside the EC ÷ total premium income of overseas branches

or

Total expenses incurred in the UK in respect of supplies made by overseas branches and agencies × Premium income of branches outside the EC ÷ total premium income of overseas branches and agencies

Stage 2

Total input tax × incurred in the UK in connection with supplies made by branches outside the EC (product of stage (i)) ÷ total expenses incurred in the UK

(d) Any other formula to be agreed by an individual company with HMRC.

2.

If formula (a) or formula (b) is used, the value of any supplies made through overseas branches and agencies must be excluded from companies’ partial exemption calculations. The value of any supplies to overseas agencies must also be excluded.

3.

If formula (c) is used, the value of any supplies made through overseas branches must be excluded from companies’ partial exemption calculations, but the value of any supplies made through overseas agencies must be included.

4.

Acceptance of any of the options is to be confirmed to insurance businesses in writing. If an insurance business already uses a special method, a new letter of approval is to be issued covering the agreed option.

5.

Foreign-owned insurance businesses

Foreign-owned insurance businesses registered in the UK may regard the parent insurance company and any other branches of the company as ‘a branch of his’ for the purpose of Regulation 103. These businesses may use any of the options set out to identify the input tax incurred in the UK in connection with the activities of any ‘branch of his’ located outside the EC.

6. Agreement with the Association of Investment Trust Companies about partial exemption

Withdrawn.

7. Agreement with the British Printing Industries Federation about apportionment of subsidy publishing supplies

1.

An author who is unable to have a work published through the usual commercial channels may pay to have it published. This is commonly known as ‘subsidy’ publishing. The agreements between publishers and authors may take a number of forms, some of which can cause problems in determining the nature and value of the supplies involved.

2.

In some cases, the publisher, in return for a payment from the author, produces a quantity of books which are all delivered to the author. This payment by the author to the publisher is the consideration for a supply of books and is zero-rated.

3.

More usually the author is supplied only with a small number of copies of the book while the bulk of the print run remains with the publisher. The publisher will undertake to market these remaining books and pay the author a royalty on copies sold. The publishing services will also include providing the statutory copies to the British library and other libraries and arranging for details to be included in directories such as Whitaker’s ‘Books in Print’. In such cases, payment by the author to the publisher is seen partly as a consideration for the supply of books delivered to the author (zero-rated) and partly as a consideration for publishing services (standard-rated). The value of the zero-rated supplies will relate to the total number of books printed, the number supplied to the author, the retail price of the books and the costs of production.

4.

In order to simplify the calculation of the zero-rated and standard-rated supplies, we have reached an agreement with the British Printing Industries Federation. This agreement is reproduced. Steps:

(a) Establish non-variable costs of initial print run.

(b) Establish variable costs of initial print run.

(c) Divide (b) by the number of copies in initial print run and multiply by number of copies issued to author.

(d) Total steps (a) and (c) to calculate cost of the zero-rated element of the supply.

(e) Total costs of initial print run and run on charges to establish full cost of supply.

(f) Divide step (d) by step (e) to calculate zero-rated percentage of cost of supply.

(g) Apply that percentage to the net sales charge to establish the zero-rated element of the supply made.

5.

Implementation

If traders do not wish to calculate the apportionment for each individual supply they may calculate an average by applying the formula set out in paragraph 1 to a number of representative supplies. The method of apportionment adopted will be subject to review by HMRC to make sure it produces a fair result. It should also be regularly reviewed by the trader to take account of changing circumstances.

6.

A working example of the agreed method of apportionment.

Basic costs

Item	Initial 100 copies		100 run on
Paper	£65.96		£57.14
Printing	£478.60		£14.45
Binding	£203.10		£142.88
Composition	£2,650.00		Nil
Origination	£678.10		Nil
	£4,075.76		£214.47

Calculation based on 12 of 200 copies for author

Step	Calculation	Totals
(a)	2,650.80 + 678.10	3,328.90
(b)	65.96 + 478.60 + 203.10	747.66
(c)	747.66 × 12,100	89.72
(d)	3,328.90 + 89.72	3,418.62
(e)	4,076.56 + 214.47	4,291.03
(f)	3,418.624,291.03	79.7%

Calculation based on 12 of 300 copies for author:

3,418.624,291.03 + 214.47 = 3,418.624,505.50 (75.9%)

8. Arrangement allowed to marine, aviation and transport insurance underwriters

Who are members of a particular trade organisation in respect of claims related input tax and associated imported services.

1.

The collection of premiums and payment of claims by insurance underwriters who are members of a certain insurance traders association is co-ordinated by that organisation. In the course of settling claims, expenses are incurred both in the UK and abroad. The latter are often Schedule 5 (VAT Act 1994) services, which formerly came under Schedule 3 (VAT Act 1983), and subject to reverse charge provisions. Such expenses are re-allocated to individual members on the basis of the percentage of the risk underwritten by each, input tax is recoverable according to the proportion of ‘taxable’ supplies made and by each individual member (in this instance, those supplies which are outside the scope of UK VAT but have the right to recovery of related input tax). Members also account under the reverse charge provisions for their proportion of qualifying services received from abroad.

2.

The following procedure has been agreed between the trade organisation on behalf of the membership and HMRC:

(i) The broker will supply the trade organisation with a single copy of the VAT invoice or other supporting documentation. The trade organisation will retain this at their central office.

(ii) Member companies will be advised by the trade organisation on a daily basis of claims processed which will show the detail of the VAT amount and where applicable the imported services.

(iii) On a monthly basis member companies will receive a tabulation showing relevant details for each item processed relating to VAT or imported services. Members will be able to use the tabulation details as evidence to substantiate entries in respect of claims related input VAT or imported services in their VAT Returns.

(iv) The tabulation sheets will show individual amounts of input tax recoverable by the insurer (at the appropriate partial exemption percentage). Imported services amounts will be shown in the original currencies so they’ll have to be converted using the appropriate exchange rates and VAT calculated at the standard rate.

(v) The invoices and other documents supplied to the trade organisation will be retained centrally and available for inspection by HMRC during normal working hours.

(vi) In the event that a member company fails to account for output tax on imported services (for whatever reason) the trade organisation will upon request from that member provide historical details of the appropriate tabulations.

(vii) In respect of these transactions or failure of a member to account correctly for them, it has been agreed with HMRC that the trade organisation does not incur any liability to VAT.

The following Agreement (9) is currently under review.

9. Agreement with the Association of British Insurers, Lloyd’s of London, the Institute of London Underwriters and the British Insurance and Investment Association

About coding supplies of marine, aviation and transport (MAT) insurance services.

1.

From 5 July 1993 the liability of MAT insurance services and the entitlement to input tax recovery must be based on the place of belonging of the insured person rather than on where the journey takes place.

2.

The normal criteria for deciding the liability of these services are set out in Place of supply of services (VAT Notice 741A) but there are instances where it will be difficult to determine the liability using the location criteria. As the result of a pilot study, and discussions between HMRC and the representatives from the insurance industry, an agreement has been reached on VAT coding guidelines which will enable traders to determine the liability for any transactions where, for instance, there are joint insurers or where insurance is arranged through a central point for a number of subsidiary companies.

3.

The Association of British Insurers, Lloyd’s of London, the Institute of London Underwriters and the British Insurance and Investment Association have already issued the agreed coding guidelines to their members. An outline of the guidelines is set out and further guidance is available from HMRC. The guidelines are also available in Insurance VAT Notice 70.

4.

These guidelines apply to supplies made by both insurers and brokers or other intermediaries.

MAT guidelines

(a) Insurers and brokers may continue to code transactions as either Z (zero-rated) with entitlement to input tax recovery, or X with no entitlement to input tax recovery.

(b) Where it’s not possible to determine the VAT liability of MAT insurance services based on the place of belonging of the insured using the agreed guidelines, then the specific transactions may be coded M (mixed) with 50% of the attributable input tax being recoverable and 50% irrecoverable. Transactions may be coded M only where the place of belonging of the insured cannot be determined.

(c) The insured’s address is normally shown on the broker’s slip or equivalent document or can be determined by the broker or other intermediary. This address is to be taken as the place of belonging of the insured. If the insured has more than one address, the one on the slip or document should be used unless it’s clear that this is simply an administrative address for payment or other purposes.

(d) Where business is written in conjunction with an overseas agent and it is not possible to identify the address of each insured dealing with the agent, the agent’s address may be taken as the place of belonging of the insured’s.

(e) If a policy specifically covers the movement of goods from a place inside the EC to a place outside the EC then the transaction maybe coded Z. HMRC accepts that it may be difficult for insurers to identify an entitlement to input tax recovery for policies involving the export of goods to a place outside the EC but this will be the subject of further discussions with the trade.

(f) The VAT liability of additional premiums and return premiums may be recorded under the new rules if the insurer wants to do so. Alternatively all such premiums should be assigned the same code as that given to the original transaction if this is preferred.

(g) HMRC has copies of the coding guidelines and any further queries should be made to the VAT helpline.

10. Agreement with the National Caravan Council Limited and the British Holiday and Home Park Association Limited

About the method of valuing removable contents sold with zero-rated caravans.

This agreement also applies to the removable contents of zero-rated houseboats.

It’s reproduced in Caravans and houseboats (VAT Notice 701/20).

1.

General

Removable contents, when supplied with or as part of a zero-rated caravan, are standard-rated, unless those contents are of a kind ordinarily incorporated by builders as fixtures in new dwellings (see Caravans and houseboats (VAT Notice 701/20), the paragraph on fixtures, fittings and removable contents). Paragraphs 2 and 3 explain how you arrive at the value for tax of the removable contents. You do not have to use any of the methods shown but, if you do use a different method, it must still give a fair and reasonable result and will be subject to inspection by HMRC. More examples of available methods can be found in VAT guide (VAT Notice 700).

Paragraph 6 tells you how to deal with other items included in the selling price of both new and used caravans.

2.

New caravans

You can arrive at a value for the standard-rated removable contents of a new caravan by reference to the costs you have incurred. The following example shows how standard-rated removable contents in a caravan which you have bought from a manufacturer for immediate resale should be valued.

You buy a caravan from a manufacturer. Its cost is £20,000.00, and as the manufacturer has valued the taxable removable contents at £2,000.00 the VAT charge is £400.00.

VAT exclusive cost of caravan and removable contents £20,000.00

VAT (on removable contents only) £400.00

VAT inclusive cost price = £20,400.00

Example: You sell the same caravan for £30,000.00 including VAT. The VAT must be the same proportion of the sale price as it was of the cost price (see paragraph 6).

The VAT due is:

VAT on purchase divided by total cost × sales price

£400.00 divided by £20,400.00 × £30,000.00 = £588.23

If you add further removable contents to those provided by the manufacturer or take out some of the removable contents provided before selling a caravan, you must add or subtract these costs as appropriate, before making the calculations.

If you advertise the caravan and the removal contents at separate prices and the customer is entirely free to purchase the vehicle at the lower price without the removable contents, then the charges for the removable contents may be treated separately for VAT purposes. This is because there are separate supplies of the caravan and the removable contents each with their own consideration.

3.

Used caravans

You may use one of the 2 different ways shown to deal with VAT on removable contents. Whichever method you adopt you must apply it consistently and not alternate between methods when calculating the tax due on each of your supplies.

(a) Actual values. You calculate a precise value for each of the standard-rated removable contents provided you can produce adequate documentary evidence to support each valuation if required.

(b) Standard apportionment of values. You use the standard method of apportionment for caravans that has been agreed with the National Caravan Council Ltd and the British Holiday and Home Parks Association Ltd. Under this agreement, the value of the standard-rated removable contents shall be taken as 10% of the tax-exclusive selling price of the complete caravan.

Where a tax-exclusive price is used, if the VAT rate is 20% the VAT is calculated as follows:

VAT due = price of caravan × standard-rated percentage × tax rate

Price of caravan and contents = £20,000.00

VAT due = £20,000.00 × 10% × 20% = £400.00

Where the caravan is sold on at a tax inclusive price, the tax element can be calculated as follows:

If the tax rate is 20% this is:

Tax inclusive price × tax rate × standard-rated percentage, divided by 100 + (tax rate × standard rate percentage) £20,400.00 × 20 × 10% = £40,800, divided by 100 + (20 × 10%) = 102

So the tax element in an inclusive price of £20,400.00 is:

£40,800.00 divided by 102 = £400.00

The 10% is applied to the price of the caravan including any charges for delivery, unloading connection to mains services and positioning.

4.

Margin scheme for the sale of used caravans

VAT is normally due on the full value of the caravans sold. But if you buy and sell used caravans you do not have to account for VAT on the full sales value. You may use the margin scheme to calculate, and account for VAT on the difference (or margin) between your buying price and selling price. If no margin is made (because the purchase price is equal to or exceeds, the selling price) then no VAT is payable.

5.

Margin scheme

You may use the margin scheme for the sale of used caravans provided that you can meet the conditions of the scheme in The Margin and Global Accounting Scheme (VAT Notice 718) for second-hand goods, works of art, antiques and collectors’ items. If you use a margin scheme in conjunction with the apportionment method described in paragraph 3, you may apply the 10% apportionment to the margin rather than the full selling price. The margin will always be tax inclusive, so the VAT at a rate of 20% should be calculated as follows:

Margin on the sale of the caravan × 10% (standard-rated percentage) × one-sixth

If you adopt an alternative method it must produce a fair and reasonable result.

6.

Other charges included in the selling price

As explained in Caravans and houseboats (VAT Notice 701/20), charges made at the time of supply of the caravan for delivery, unloading and positioning and for connections to mains services are regarded as part of a single supply of the caravan, and form part of its price. If you use any of the methods of apportionment the calculation should be made on the total of all such amounts. Other charges, such as reservation fees, premiums, pitch fees or commissions should be excluded from the calculations.

11. Agreement with the Association of Unit Trust and Investment Managers

Withdrawn.

12. Agreement with the British Bankers’ Association

About the VAT liability of electronic banking, cash management services.

1.

Cash management is one of the electronic banking services supplied by banks to mainly business customers, as an addition or alternative to conventional banking services. The customer uses computer equipment, sometimes leased or purchased from the bank, to obtain services which would otherwise have been provided by the bank in the course of its operation of the customer’s account (such as statements of the customer’s current balance or transfers of funds between accounts), as well as more general financial services (such as information about share prices or foreign exchange rates).

2.

HMRC and the British Bankers’ Association have agreed that the liability to VAT electronic banking services should be determined by examining the status of the individual services provided and determining the liability of each of these on its merits. In principle, services which would have been treated as exempt under Group 5 of Schedule 9 to the VAT Act 1994 if they had been provided by the bank by conventional means should be treated as exempt when provided within the framework of electronic banking services other financial services which are not covered by Group 5 should be treated as liable to VAT at the standard rate.

3.

Where charges are made for the supplies detailed they should be treated as follows:

(a) Provision of information on share prices, foreign exchange rates, balances on accounts with other financial institutions and investment management services – are all standard-rated supplies.

(b) Provision of information on the state of the client’s accounts within the bank providing the electronic banking services, bank statements, the transfer of funds and the debiting and crediting of accounts – are all exempt supplies.

(c) Hire of equipment and related charges, such as training, will be standard-rated if supplied and shown as a separate item on the invoice, otherwise standard-rated or exempt dependent on predominant or intended use when absorbed with other charges. Hire of equipment which can be used for other purposes (for example, where the link gives access to Prestel) will always be standard-rated.

(d) Services charges and overall services charges will be standard-rated or exempt dependent on predominant use.

(e) Sale of equipment will be standard-rated.

4.

Either HMRC or the British Bankers’ Association may seek discussions with the other party on amendment to or amplification of the note, bearing in mind the rapid rate of technical and commercial change in this area.

13. Agreement with the British Vehicle Rental and Leasing Association

About car leasing and repairs and maintenance services.

1.

Introduction

(1) With effect from 1 August 1995, on cars where the lessor has recovered the input VAT on the purchase, lessees of motor cars will be able to recover only 50% of the VAT charged to them by lessors, unless they can show exclusive business use of the car. The issue which concerns contract hire companies is whether the 50% blocking of input VAT will apply to the provision of the various services, for example, repairs and maintenance provided in addition to the basic rental.

(2) The purpose of this paper is to provide guidelines to BVRLA members on the contractual arrangements which would need to be in place, as a minimum, to demonstrate the existence of 2 or more separate supplies. Provided there’s more than one supply, the 50% blocking should apply only to the supply relating to the provision of the car itself, in this instance to the depreciation, funding and profit, overhead element.

(3) It must be stressed that this paper provides guidelines only. As members will be aware, each business will have its own contractual arrangements and simply to impose these guidelines on those arrangements will not, nor cannot, automatically bring about the existence of multiple supplies for VAT purposes. We would recommend, therefore, that members consult their own advisers or HMRC if they are in any doubt.

(4) The notes have been approved by HMRC, but they do not purport to give ‘blanket’ approval. HMRC accepts that these guidelines will certainly be helpful for businesses in determining whether they’re providing one or more services. They’ve been made available to VAT officers for use during their routine inspection of the books and records of each business and may be quoted to them as appropriate.

2.

Outline of types of lease

(1) The 50% input VAT blocking, is to be applied where a motor car is let on hire to a taxable person and there’s some private use of that car. This part of the legislation applies to car leasing and daily rentals. But these guidelines relate to leasing only.

(2) There are various types of leasing contracts available to lessees but broadly, they fall into the 2 main headings of finance leases and contract hire agreements.

The basic elements contained within these 2 forms of leasing.

Finance leasing

(3) Finance leases generally conform to one of 2 standard formats, the residual value lease or the fully amortised lease. The residual value lease usually means that a ‘balloon payment’ is due at the end of the lease period. In theory, this final payment is geared to the anticipated residual value. Accordingly, the lessee makes lower monthly rental payments than the repayments which would otherwise be due on a bank loan for the purchase price of the car. The fully amortised lease, or full pay-out lease, involves the lessee making payments which cover the full cost of the vehicle plus interest.

(4) At the end of both types of lease, the lessee might be invited to act as the lessor’s agent for the purpose of selling the car and will receive a rental rebate amounting to a substantial part of the sales proceeds. Alternatively, the lease may continue into a secondary period at a nominal rental.

(5) For VAT purposes, the key feature of finance leases is that the lessee generally bears the burden of administration in relation to selling the car. The finance lease transfers substantially all the risks and rewards of ownership of the asset to the lessee, so they’re responsible for repairing and maintaining the car, as well as handling the sale at the end of the contract.

(6) The VAT position would seem to be quite clear. The 50% blocking would be applied to the full value of the lease charges, on the basis that repairs, maintenance and other services are not contained within the charge. This means that, where a lessee in these circumstances, buys in, for example, their own repairs and maintenance services, they will be entitled to deduct 100% of the VAT on those charges, subject to the normal rules.

Contract hire agreement

(7) This is one of the most common types of lease and is also known as an operating lease or long term rental. The rental includes depreciation, funding costs, administration and profit.

(8) Most contract hire companies offer a range of additional services aimed at relieving the lessee from the burden of fleet management costs, such as arranging for relief vehicles to replace broken down or damaged cars and roadside repairs and recovery services. Effectively, lessees are able to choose from a menu of options to meet their individual budgets and level of in-house support resources.

(9) Accordingly, the lessor calculates the lease based on detailed historic and manufacturer’s data and annual mileage. Clearly, the annual mileage figure will influence both the service requirements of that vehicle and its residual value and the mileage projection at the outset of the contract can only be an estimate. Accordingly, an excess mileage charge will normally be imposed (or a credit given) when the car reaches the end of the contract.

(10) From the outline, it can be seen that a contract hire agreement could, in its various forms, cover car rental alone, in this instance, amount to a contract hire non-maintenance agreement with the lessor taking the residual risk in the car, or more commonly incorporate at least a standard package of maintenance and other services.

3.

VAT implications

(1) In general, the legal form of a contract hire agreement is a basic master contract hire agreement together with schedules covering the vehicles which are hired. The vehicle schedule is issued to the lessee upon the hire of each vehicle or group of vehicles and specifies the calculation of the rent according to the relevant services which the lessee has purchased. The schedules contain all the other services which the lessor is able to provide at the option of the customer, such as repairs and maintenance, the provision of relief vehicles and roadside repairs and recovery services.

(2) It would be necessary to demonstrate that the additional services are provided separately in order for them to be treated as separate supplies rather than as a single package. The appendix sets out a summary of the conditions, agreed with HMRC, which would need to be met to enable the lessee to treat the input VAT on the additional services as fully recoverable, subject to the normal rules.

(3) Whilst there may be only a single master contract hire agreement, the schedules comprised within it, which set out the additional services available at the customer’s option, are effectively separate sub-contracts within the main contract. Accordingly, the lessee is buying various services over and above the basic supply of the vehicle, which can be separately identified and separately priced. As noted in the appendix it would be necessary for the additional services to be separately quantified to enable the lessee to be able to apply the 50% input VAT blocking to the car rental element only.

Case law

(4) There’s a substantial body of case law on the distinction between single and multiple supplies. Although the cases deal with diverse types of supply, often related to whether the standard rate or zero rate applies, in cases where 2 or more different goods or services are being provided, a number of clear principles can be drawn from them.

(5) In the main, a court will consider what is supplied in ‘substance and reality’. Courts have ruled that single supplies exist where, overall, the customer is receiving an ‘integrated’ service which forms a ‘composite and adhesive whole’. They would also consider whether, where different services are being provided, each one of those services could be realistically omitted from the overall service, or should they be regarded as ancillary or incidental to the main supply.

(6) In applying some of these principles to contract hire, it’s quite clear that the additional services are capable of being treated independently from the basic supply of the car rental (as happens with the independent supply of fleet management services), simply on the basis that finance leases do not normally contain these additional services and there’s certainly no erosion of the basic supply of the car as a result.

Minimum requirements

(7) As a basic minimum, therefore, the contract hire companies would need simply to be able to show from their master contract hire agreements that each of the additional services are optional and that they will describe and quantify them as a separate single amount on the single invoice issued periodically to the customer.

Appendix: contract hire agreements with maintenance

Introduction

With effect from 1 August 1995, lessees of motor cars will be able to recover only 50% of the input VAT on the lease charges, unless they can show exclusive business use of the car.

HMRC has accepted that, in principle, where the lease comprises a range of services such as repairs, maintenance, roadside assistance and so on, the 50% blocking would apply only to the supply relating to the provision of the car itself, such as to the depreciation, funding and profit element.

This is a summary of the conditions which members should fulfil within their contract hire arrangements to make sure the 50% blocking will not need to be applied by the lessees to the additional services.

Summary

1.

HMRC accepts that the provision of a leased car containing services of repairs, maintenance, roadside assistance and so on, services is not a single supply of a fully maintained car upon which the 50% input blocking would need to be applied by the lessee for VAT purposes, if the following conditions are met:

(a) the additional services must be separately described in the contract hire agreement

(b) it must be clear from the contract that the services are genuinely optional, in this instance, at the choice of the lessee

(c) it would be helpful if any quotation sent to the customer detailing the method of payment also included confirmation of the additional services, for example ‘full servicing and maintenance including tyre and battery replacements, roadside, homestart, relay services and relief vehicle’

(d) any vehicle schedule to the master contract hire agreement, which normally provides details of each car including term, rental charge and excess mileage charges, should also specify the additional services and the total costs thereof

(e) the additional services should be described separately on the periodic tax invoice issued to the lessee and quantified separately plus VAT, where appropriate. This will enable the lessee to apply the 50% input VAT blocking only to the car element of the lease rental

(f) subject to the conditions being met input VAT will be incurred by the lessee on 2 distinct elements of the rental as follows:

i. basic rental for the provision of the car inclusive of:

• depreciation
• funding cost
• vehicle Excise Duty licence (VED)
• overheads, risk and profit directly or indirectly attributable to the basic rental
• depreciation and funding of accessories fitted before delivery such as car telephone, sunroof, radio and so on (these are not ‘additional services’)

on which VAT recovery will be subject to the 50% restriction

ii. optional additional charge covering the supply of repairs, maintenance, roadside assistance and so on, on which input VAT will be fully recoverable subject to the normal rules, services inclusive of:

• the cost to the lessor of providing such services
• overheads, risk and profit directly or indirectly attributable to the supply of the additional services

(g) excess mileage charges, being a rental adjustment, should be similarly separated into two distinct elements, on a basis identical to the split of the rental. In this way, VAT on the financing element of the excess mileage charge will be subject to the 50% restriction and input VAT on the services element will be recoverable subject to the normal rules

(h) early termination charges may be subject to VAT, dependent upon the reason for termination. Where VAT is charged on an early termination charge, it will be fully recoverable by the lessee subject to the normal rule

2.

In order to apportion overheads, profit, risk between the basic rental and the additional services elements of the rental, it will be necessary for members to state the price of the optional services and to be able to justify their pricing methodology to HMRC on an individual basis.

3.

Where excess mileage charges are to be apportioned between the basic rental and the additional services elements of the rental, these amounts must be shown separately on the tax invoice issued to the lessee. Again, it will be necessary to be able to justify the basis of the apportionment to HMRC.

4.

Where separate charges are made for insurance services it would need to be very clear in what capacity the lessor is acting. Charges for the making of arrangements for the supply of insurance by an insurance company to the lessee, may qualify to be treated as an exempt supply by the lessor. Claims handling may also qualify to be treated as exempt, depending precisely upon the services being performed. It may be possible, therefore, to itemise charges separately on the tax invoice indicating that they’re exempt. Members would need to be aware of the potential partial exemption implications on their own business if such services are being provided.

5.

The VED element of the rental is 50% blocked because it is regarded as part of the provision of the car, in this instance, the lessee receives a fully taxed car and therefore the VED falls within the finance element of the rental. But if businesses were able to show that the vehicle excise duty licence was provided on behalf of and specifically at the request of the customer it may be possible to treat it as a disbursement. In order to do so, the lessee would have to be the ‘Registered keeper’.

6.

HMRC takes the view that accessories fitted to the car by the lessor, even at the option of the customer, are part of the supply of the car and do not fall to be treated as additional services. This conforms with the treatment applying to the purchase of a car.

7.

HMRC accepts that it is not necessary for the additional services to be provided by a separate company or under a separate contract or series of contracts. This does not, of course, prevent members from structuring their arrangements in this way.

8.

If in doubt, members should consult their own advisers or HMRC.

9.

Where finance leases include separate services relating to, say, supply, disposal of the car, HMRC accepts that the additional services would not be subject to the 50% input VAT blocking provided the conditions were met.

14. Agreement with the Society of Motor Manufacturers and Traders

About calculating output tax on the self-supply of a motor vehicle.

From 1 August 1992, the previous method of accounting for output tax on the total cost of making a self-supply of a car had been amended to the current purchase price of identical goods, failing that, the current price of similar goods, failing that, cost of production. The purpose of the amendment to Schedule 4, paragraph 7, VATA 1983 (now amended to Schedule 6, paragraph 6, VATA 1994) was to allow for the depreciation of goods used in the business and of obsolete goods not used in the business.

These are the formulae for calculating output tax when making a self-supply of a motor vehicle. These methods would be acceptable to HMRC in relation to the self-supply of cars but may not apply to other areas in which there may be other agreed methods. Traders may propose other alternative methods provided HMRC’s approval is obtained before they’re adopted.

1.

Self-supply of a new car by a UK manufacturer and by other traders

For UK manufacturers the value of the self-supply is the full cost of manufacturing the vehicle including all related production overheads. Agreement has been reached with UK volume manufacturers that two-thirds of current retail list price may be used as an approximation of cost. Non-volume manufacturers may apply the two-thirds of retail list price approximation if they’re authorised to do so by HMRC.

For non-manufacturing traders, the self-supply cost of the car should include the purchase price of the car plus any cost of incorporated parts of UK manufacture and delivery charges to the recipient’s premises. In other cases, it will be the purchase price plus delivery charges if they’re not included in the price. Discounts received after the time of the self-supply be disregarded unless these discounts were contractually agreed prior to the tax point.

Where the trader is unable to determine the amount of the delivery charge, a fixed charge of £50.00 per car may be accepted.

2.

Self-supply of a used vehicle

When a self-supply of a used vehicle takes place, the value will be the current purchase price of an identical vehicle, if that cannot be established, the current price of a similar vehicle or, failing that, the current production cost or the two-thirds of current list price approximation of a new vehicle.

The methods are available for non-volume manufacturers to adopt if they wish. But if a manufacturer chooses to apply any of the special methods they must make sure that this is the most appropriate to their type of business and apply it consistently to all self-supplied cars of their own manufacture. The method is subject to review by HMRC and could be modified or withdrawn at any time. Manufacturers would be expected to use the method until such time as HMRC withdraw their approval.

Taxpayers wanting to introduce a special method for a special trade should apply to HMRC for approval of their arrangements.

15. Agreement with Gaming Board for Great Britain and the British Casino Association

About Competitions in Card Rooms (September 2001)

This revision came into force on 1 September 2001.

The following guidelines, relating to all competitions run or sponsored in Great Britain by licensed casino operators, whether or not all or part of the competition takes place in licensed casino premises, have been agreed between the Gaming Board for Great Britain, HMRC and the British Casino Association. Compliance is mandatory. The Board expects that all casino operators will observe the same practices.

1.

Entry for players to the competition shall be by entry stakes and ‘re-buy’ stakes only, both of which must be of the same amount.

2.

All entry stakes and re-buys shall be returned to winning players as prize money. No monies taken from entry stakes or re-buys may be kept by the casino.

3.

At the casino’s discretion, a competition registration fee may be charged in addition to the entry stake. This fee must not exceed an amount up to or equal to 10% of the entry stake, with a maximum ceiling of £50. In accordance with section 14 of the Gaming Act, a schedule of all competition registration fees must be clearly displayed in the card room of any casino participating in the competition. Any decision to initially charge, or amend upwards, a registration fee must be notified to the licensing authority at least 14 days before introduction or amendment.

4.

All players shall be given, and retain, a receipt for their entry stake from a sequentially numbered duplicate receipt book. This receipt shall show the player’s name and will separately record the amount of the entry stake, the amount of any registration fee and the total combined amount paid. A separate receipt book shall be maintained for all subsequent re-buys by players and shall include the player’s name and the amount.

5.

A list of players in the competition showing their names and the stake entered shall be kept and displayed for the information of all participants, for a period of 24 hours following the conclusion of the competition.

6.

The rules of the competition shall be displayed in the card room in a prominent position. They must include a clear notice of the time the competition is due to start and the length of time that re-buys can be accepted.

7.

Re-buys may only be permitted where the value of chips remaining in front of a player is 50% or less than the chip value issued to him in exchange for their original entry stake.

8.

At the discretion of the casino, a maximum of one ‘top up’ rebuy may be issued to each player at the end of the rebuy period, irrespective of the value of chips remaining in front of him.

9.

Any specific conditions relating to re-buys must be detailed in the competition rules. For example, whether ‘top up’ re-buys are to be permitted, whether the number of re-buys per player is to be limited and the amount of chips that a player must have remaining in front of them before a rebuy may be issued.

10.

The rules should refer to playing ‘with’ stakes and not ‘for’ stakes (in this instance, entry stakes or re-buys). Reference should also be made to the fact that no participation charge for the competition will be withheld by the casino from either entry stakes or re-buys.

11.

Where a competition extends over more than one day or session, a re-buy accepted on any subsequent day or session shall have the same value as the initial entry stake.

12.

The final winners of the competition shall receive all the stake money entered in the competition, and there shall be no restriction placed on the use of winnings. The only exception is where the competition is clearly designated beforehand as a ‘Satellite qualifier’ for a subsequent competition or tournament, to be held either in this country or elsewhere (see points 15 to 21).

13.

Winners shall sign and date a receipt, or similar document, as having received their winnings. This will clearly show whether the prize was received in cash or (where the competition was designated as a ‘Satellite qualifier’) whether qualification into a subsequent competition or tournament was accepted. Thereafter, the result of the competition or ‘Satellite qualifier’ shall be displayed for 24 hours.

14.

Travel expenses and accommodation costs may be paid, from within Britain or abroad, for winners to travel to, and stay at, any location in the UK providing that these expenses are the prize or part of the prize for that competition, and there’s no requirement to take part in gaming at that location as a condition of those expenses being paid.

15.

Where travel and accommodation expenses are paid as part of the prize in a ‘Satellite qualifier’, winners must not be required to participate in the further competition as a condition of receiving the hotel and accommodation expenses. But they may be expected to forfeit the entry stake to that further competition, won in the ‘Satellite qualifier’, if they elect not to participate.

Satellite qualifiers

16.

The competition rules must clearly state if winners are required to take qualification into a subsequent satellite or competition as their compulsory prize, or as part of that prize. The date and location of the subsequent competitions must also be made clear. Players may then freely choose whether or not to enter the competition on these terms. Such an event must therefore be called a ‘satellite qualifier’, and not simply a ‘competition’, in order to avoid any doubt.

17.

Where the subsequent competition is to take place overseas, the ‘satellite qualifier’ competition rules must clearly state whether the winning qualifiers are expected to pay their own transport and accommodation costs, or whether these expenses will be met by the organiser as part of the prize.

18.

‘Satellite qualifier’ contests may be used to generate qualifiers into further ‘satellites’ (each with a higher entry stake than the last) ultimately leading to qualification into a main competition or tournament. But the rules must make it clear to players from the outset whether further ‘satellite qualifiers’ are required before entry into the main competition may be achieved. The rules must also state the format that these additional satellites will take.

19.

Winners of ‘Satellite qualifiers’ must not be required to pay an additional entry fee for subsequent ‘Satellites’ or competitions. If the subsequent event is to be organised by the same casino or operator (either held in the UK or abroad) entry must therefore be provided free of any registration fee.

20.

Where the subsequent event is organised overseas by a different operator, the ‘satellite’ prize pool must be divided into qualifier amounts that include both the entry stake and any registration fee that is payable to enter the subsequent overseas ‘Satellite’ or competition.

21.

The competition rules will state the way in which any odd prize money will be split amongst winning players (being the amount remaining after the prize pool has been divided into the maximum number of qualifying places possible).

22.

The casino must provide a full audit trail showing the transfer of all stake monies received from a ‘satellite qualifier’ into the entry stake pool of the subsequent competition or tournament. This is particularly important where the subsequent event is not being held at the same casino as the original ‘satellite’.

Competition prizes

23.

At its own discretion, a casino may contribute additional prize money to a competition. Additional prize money for a competition may also be provided through sponsorship.

Poker only

24.

In addition, poker competitions shall also be subject to the following:

a. The stake entered in the competition, whether by cash or cheque, shall be exchanged for gaming chips having a points value provided that value is clearly established before the competition commences. The points value must be the same for each entry stake and rebuy. The stake of chips to be used in the competition must be issued by the cash desk, on signature, and a chip control sheet must be maintained.

b. All entrants shall be on the premises at the start of the competition. No new players may be permitted to join a poker competition after it has commenced.

c. The latest time for rebuys shall be clearly advertised, strictly adhered to and cannot be altered.

d. Table seating shall be determined by a ‘draw’ and not at the discretion of management or players.

e. In the final game of a poker competition the casino shall provide:

i. a dealer from its certificated staff

ii. supervision by an experienced and certificated member of staff with card room training.

25.

For competitions run in Britain, Gaming Board inspectors shall have right of access to the competition at all times, and access to all records, whether or not on casino premises. Records must be retained for a period of one year, other than for records for tournaments involving ‘Satellite qualifier’ competitions, which must be retained for 3 years.

Important note

26.

The British Casino Association has been informed by HMRC that competitions conducted in strict compliance with these guidelines are exempt from VAT, other than for Registration Fee income.

16. Agreement with British Phonographic Industry

About VAT liability of promotional samples given free of charge (March 1998).

The relaxations introduced from 1 August 1993 by the Finance Act 1993 have overtaken parts of the agreement. Previously VAT was due on promotional samples given to DJ’s, reviewers and so on, as they were not actual or potential customers. By virtue of what is now Schedule 4 to the VAT Act 1994, samples given free of charge to any person are now treated as samples and so are not a supply of goods.

Paragraph 5(3) of Schedule 4 limits the relief to one identical sample for each recipient. It is in some cases normal practice, for ease of administration, to send a box of perhaps 10 copies rather than only one. The donor must therefore account for VAT on the balance over and above the one copy relieved under the Act at the rates in force at the time. (Rates are shown in Annex A with former rates at Annex B.)

When products are sent to dealers free of charge as a form of additional discount, provided they appear on the invoice as no charge items, no VAT is payable. The VAT liability is calculated on the total value of the invoice which takes into account the additional product sent free of charge.

Items sent free of charge under incentive, bonus and dealer loader schemes will not carry VAT provided that all of the conditions of Business promotions (VAT Notice 700/7).

Occasional gifts made to people such as bank managers, auditors and so on, come within the normal business gift concession provided they do not exceed the monetary limit prevailing at the time (currently £15).

Annex A

Rates to be paid (as from 1 April 1995)

Item	VAT per copy (pence)
7 inch single record	5
12 inch single record	11
Long Playing record	14
Cassettes	9
Compact Disc 3 inch single	–
Compact Disc 5 inch single	13
Compact Disc 5 inch album	17
Video cassettes V30	21
Video cassettes V60	24

The foregoing rates will remain in force for at least 6 to 12 months, and it is not expected that any changes will then be made unless there is a fundamental change in the VAT rate or inflation. HMRC will then approach the industry (through BPI) for further discussions on the VAT to be paid. This means that until members are advised by the BPI of any changes arising they should continue to account for and pay VAT.

Annex B – historical rates for promotional records and cassettes

Type of record or cassette	1 April 1983 (£)	1 August 1985 (£)	1 April 1987 (£)	1 April 1988 (£)	1 April 1989 (£)	1 September 1991 (£)
7 inch single	2.28	2.54		2.60		3.03
12 inch single	6.15	6.05		6.51		7.06
LP	7.12	7.18		6.99		8.16
Cassette	5.93	5.73		5.80		6.77
CD 3 inch single			39.00		10.80	12.60
CD 5 inch single			39.00		12.20	14.23
CD 5 inch album			39.00		10.80	12.60
Video cassette V30			48.00		30.60	35.70
Video cassette V60			48.00		34.00	39.67

All the rates are in pence per copy. Where a column is blank the rate shown in the previous column continues to apply until any subsequent change.

17. Agreement with the Thoroughbred Breeders Association

This agreement is still extant but only for businesses formed prior to 1998.

18. Agreement with the British Horseracing Board

About the revised arrangements under which racehorse owners may register for VAT and the procedures that must be followed (January 1998).

1.

The terms of the previous memorandum of 16 March 1993 between the Thoroughbred Horseracing and Breeding Industry and HMRC will continue to apply for those owners who were registered for VAT before 1 January 1998.

Background

2.

The VAT Registration Scheme for Racehorse Owners, ‘The Scheme’, was introduced on 16 March 1993 following representations from all sections of the Racing Industry. In particular, new proposals put forward by the jockey club in connection with sponsorship, appearance money and prize money enabled HMRC to recognise that persons racing horses are intending to make taxable supplies and are subject to VAT registration.

3.

The scheme was introduced on the understanding it would be reviewed in its fourth year of operation. That review has now been completed and it’s agreed the scheme will continue but with some modifications to be effective from 1 January 1998.

New arrangements

4.

The new arrangements, effective from 1 January 1998, are:

(a) Owners applying for registration must have a sponsorship agreement registered at Weatherbys, or be able to demonstrate they have received business income, and will continue to do so from their horseracing activities, for example, appearance, money, sponsored number cloths (SNCs). The effective date of registration will normally be the date the declaration on form D1/D2 is received at Weatherbys.

(b) The sponsorship agreement may be either one payment for participation in one or more races or represent payments over a period of time.

(c) Upon expiry of a sponsorship agreement an owner will be able to remain registered provided they can demonstrate they’re actively seeking sponsorship.

(d) If a sponsorship agreement does not cover all an owner’s racehorses they will nevertheless be allowed to include those racehorses not covered within the scheme registration provided the owner can demonstrate they’re actively seeking sponsorship for them.

(e) Owners holding less than 50% share in a racehorse must register for VAT as a partnership, club and so on. 5.

With the exception of 4(e) the new arrangements for registration will not apply to those owners registered for VAT before 1 January 1998 and who hold a sponsorship agreement or can show they’re continuing actively to seek sponsorship. But if an owner fails to meet these requirements their registration may be cancelled.

Breeders

6.

HMRC will continue to require or allow VAT registration where a business of breeding horses for sale exists. HMRC accepts that where breeders engage in racing activities with the purpose of enhancing the value of their stock or their business, these activities are by way of business. For these purposes stock means colts, fillies and home-bred geldings.

7.

Breeders who meet these conditions will be able to claim all tax incurred as input tax in accordance with the normal rules. Output tax will become due on the full amount realised on the sale of all stock. But no output tax will be due on the transfer of stock to training if the transferor is registered for VAT.

8.

Breeders who own racehorses on their own account, or with others, for racing purposes only may not recover tax incurred. But they may qualify to do so under the arrangements for owners outlined in paragraph 4, paragraphs 16, 17, 18 and 19.

Trainers

9.

HMRC will continue to require or allow VAT registration where a business exists of providing training services to owners. Where racehorses are owned by the trainer and also trained by them, and providing the number are not disproportionate to the training activity, any related costs will be regarded as business expenditure for VAT purposes.

10.

Trainers who own racehorses on their own account, or with others, and which are not trained by them may not recover tax incurred. But they may qualify to do so under the arrangements for owners outlined in paragraph 4, paragraphs 16, 17, 18 and 19.

Dealers

11.

Persons engaged in the purchase and sale of horses in the course and furtherance of a business will continue to be regarded as liable or eligible for VAT registration. The racing, for business purposes, of racehorses held as trading stock by a VAT-registered dealer, is accepted as part of the trading activity whilst the stock remains available for sale, and any tax incurred can be claimed as input tax in accordance with the normal rules.

12.

Dealers who purchase racehorses on their own account, or with others for racing purposes only, may not recover tax incurred. But they may qualify to do so under the arrangements for owners outlined in paragraph 4, paragraphs 16, 17, 18 and 19.

Company owners

13.

HMRC will continue to examine the claims by company owners that racehorses have been purchased for advertising their own businesses against a number of criteria. If they’re satisfied that there’s a business use and purpose any tax incurred may be recovered as input tax in accordance with the normal rules.

14.

Companies that own racehorses on their own account for racing purposes only may not recover tax incurred. But they may qualify to do so under the arrangements for owners outlined in paragraph 4, paragraphs 16, 17, 18 and 19.

15.

Companies that are racing companies set up specifically to acquire racehorses fall to be treated under the arrangements outlined in Registration scheme for racehorse owners (VAT Notice 700/67).

The scheme conditions

16.

Owners will have to complete a declaration confirming they meet the conditions for VAT registration as set out in paragraph 4. The declaration will be certified by Weatherbys to confirm the applicant is registered under the Orders and Rules of Racing as an owner, and has in place a sponsorship agreement. On receipt of the declaration and VAT registration application form VAT1 HMRC will register the owner subject only to normal checks on status and completeness. Where a sponsorship agreement is not held but the owner is requesting registration because they have received business (taxable) income, for example, appearance money, SNCs from their horseracing activities full details should be sent with the application form VAT1.

17.

Owners whose application for registration has been accepted, and those whose racing activities are included within an existing registration, will be subject to the normal rules that apply to new registrations.

18.

Owners will be entitled to recover as input tax the tax incurred on supplies used for the purposes of their business activities subject to the normal rules. Output tax will be due on income received from sponsorship, appearance money, prize money (excluding sweepstake element) and the sale of racehorses. Output tax will also become payable on racehorses diverted to non-business use when the tax should be calculated on the current market value.

19.

Owners registered under the scheme will be subject to normal periodic visits for VAT control purposes and will have to show they meet the conditions of the scheme. If at any time this is not the case, repayment of input tax claimed may be required, and action taken to cancel the registration. Owners will be able to appeal any such decision to the independent VAT Tribunals.

Scheme review

20.

HMRC will review the operation of the scheme in consultation with the British Horseracing Board and other trade bodies during 2001 to 2002 to access whether the levels of business income available to owners justifies them continuing to recover in full the VAT incurred on their racehorse purchases and training and general upkeep expenses. If it transpires the scheme is to be withdrawn all registrations accepted under its terms will be cancelled from a date no earlier than 3 months thereafter. Any other significant changes to the scheme will be implemented from a date to be agreed between the parties.

21.

If the scheme is withdrawn HMRC will not require a refund of input tax claimed unless, in the case of particular owners, it’s clear that reasonable efforts were not made to seek business income from sponsorship. Also no output tax will be due on stock and assets held at the date of de-registration.

22.

In the event of the scheme being discontinued individual owners who consider that they have carried on their activities, and will continue to do so, in a business-like way may ask to keep their registration. In this respect the normal rules will require each registration, and application for registration, to be decided on its own merits with owners having to demonstrate individually that they have a business intention.

19. Agreement with the British Horseracing Board and Thoroughbred Breeders Association

About racehorses applied permanently to personal or other non-business use.

1.

From 16 March 1993, the previous method of accounting for output tax on the cost of racehorses applied permanently to training and racing for no consideration is less likely to apply. But when a racehorse is bred within the single market and is permanently applied to the personal use of the owner or breeder, or a horse is found unsuitable for breeding purposes, and subsequently given away free of charge, the tax value will be the cost of the person making the supply. It has been agreed with the Thoroughbred Breeders Association (TBA) that, in the case of yearlings, the value for VAT is the sum of the following elements of cost:

• the stallion service fee
• *veterinary fees on the foal from birth
• *the total cost of keep of the mare for the year of gestation
• the cost of keep of the foal from date of weaning to date of application to personal use
• any other vatable payments

2.

When no stallion service fee is paid (or a nomination to the stallion is not purchased), with effect from 1 January 1987, you may allow the figure of £275. You should use the same figure when nominations are exchanged without a cash consideration or when any cash consideration is less than £275.

3.

Where an owner or breeder applies a racehorse temporarily to training or racing (either for personal private purposes or for those of another person) but ownership of the horses is kept as an asset of the business, there’s a taxable supply of services. It has been agreed with the TBA that, in the case of yearlings, the cost of such services is to be based on one-eigth per annum of its cost of production (in this instance, 1/32 of the cost for each quarterly period of temporary application), calculated in accordance with the formula in the following paragraph. In the case of an older horse, the cost to be used is that of the animal at the yearling stage.

4.

Breeders who want to adopt an alternative method of calculating the cost to them of making the supply may do so. But the method adopted must take account of the formula for costing the supply of a yearling as agreed with the council of the TBA. The figures used in the calculation are revised from time to time to accord with current values. You can get the actual figures for each year’s calculation from:

The Secretary
The Thoroughbred Breeders Association
Standstead House
The Avenue
Newmarket
SUFFOLK
CB8 9AA

Telephone: 01638 661321

*The rates to be used for these sub-paragraphs are based on those recommended by the Newmarket Stud Farmer Association (NSFA) for the keeping of foaling mares on a stallion stud. The rates agreed with the TBA for past years are set out in the table.

Racehorse: weekly keep rates

Year	Rate
1982	£52
1983	£55
1984	£58
1985	£60
1986	£65
1987	£65
1988 – 1990	£70
1991 – 1996	£72

20. Agreement with the British Horseracing Board and Thoroughbred Breeders Association about keeping of stallions at stud

1.

From 1 August 1992, the wording of section 10(3) VATA 1983 on determining the value of a supply for a non-monetary consideration was modified to accord more precisely with the European law. Section 19(3) VATA 1994 (formerly section 10(3) of the 1983 Act as amended in 1992) no longer refers to the term ‘open market value’. The value of a non-monetary consideration is to be determined by establishing the amount of money for which it is substituting.

2.

Where a stallion is kept at stud, the services of keep are often paid for in whole or part by transferring to the stud one or more nominations to the stallion. There is thus a consideration not in money, or not wholly in money, within section 19(3) of the VAT Act 1994. The value of this non-monetary consideration will be what you would have had to have paid in money for the supply of keep. Since this value is difficult to determine, an agreement has been reached with the TBA on a method of calculating the value by reference to the price in money (if any) plus the value of the nominations up to an agreed maximum charge for the year.

3.

Where there’s a charge for keeping a stallion to the stallion syndicate or stallion owner, expressed only in cash terms and ‘free’ nominations are not involved, no negotiations will be necessary so long as HMRC is satisfied that the cash charge represents the normal price you would have to pay for the supply and there’s no non-monetary consideration.

4.

Where there is no charge for keeping a stallion expressed as payable in cash, and only ‘free’ nominations are involved, or where there’s a combination of cash plus ‘free’ nominations, a value will have to be established for the keep of the stallion. This will take into account:

(a) The values of the free nominations as shown by their sales by the stallion stud, or if no sales have taken place (for example, where used for own mares) by reference to average reported sales values. The VAT on the calculated value of the services supplied by the stud should be accounted for quarterly, in this instance having established the value of the service for a year, 25% of the value and the relevant VAT will be brought to account in the normal quarterly returns.

(b) There are various types of contract for nominations. To arrive at the value of a nomination, the following formula should be used:

Nomination	Formula
Straight nomination	100% of the figure from 2(a)
1 October pregnancy	70% of the figure from 2(a)
Nomination
Split payment nomination	100% of the first payment from 2(a)
	70% of the second payment from 2(a)
Live foal nomination	60% of the figure from 2(a)

The effective value of the service supplied by the stud will be the sum plus any charge made in cash.

(c) A maximum figure has been agreed with the TBA to be applied annually. This maximum will apply when the value of the nominations (or cash plus the nominations) arrived at as in 4(a) and 4(b) exceed the agreed figure. The maximum has been set at £30,000.

The agreement should make it possible for stallion studs to assess the proper value of the services of keeping the stallions and to account for VAT accordingly. HMRC should be consulted in the event of any problems arising from the implementation of these arrangements.

5.

Exchange of nominations

Where a stallion nomination is exchanged or bartered there are 2 separate supplies and tax must be accounted for, under the normal rules, on the established nomination fee.

21. Agreement with the British Horseracing Board and Thoroughbred Breeders Association about racehorses and time limits for exportation.

1.

The normal time limit for the movement of thoroughbreds from Great Britain to a place outside the UK purchased by or on behalf of an overseas resident or from Northern Ireland to a place outside the EU purchased by or on behalf of a third country resident, that are to remain in the UK for breaking, conditioning, training or covering, is 6 months.

2.

The time limit for exports of the these categories may now be extended from 6 months to 12 months from the date of purchase, under the process of goods provisions as laid down in Goods exported from the UK (VAT Notice 703) (see the paragraphs on supplies to overseas persons for export after consolidation, processing or incorporation and time limits for exporting goods and obtaining evidence).

3.

This extension is subject to the following two principal conditions:

(a) The horses must not be raced in the UK prior to export.

(b) This relief may not be transferred to another third country resident. Requests for an extension to the normal 6 months must be made by the vendor to HMRC.

22. Agreement with the Meat and Livestock Commission

About the VAT treatment of levies collected (invoiced) from 1 October 1990 by the Commission from operators of slaughterhouses and exporters of live animals.

1.

Slaughterers

2.

It’s accepted that the total amount of levy invoiced (irrespective of date of slaughter) to slaughterers on or after 1 October 1990 will be subject to VAT at the standard rate, since it represents the consideration for a range of direct benefits received from the Commission:

(a) Both by the slaughterers in respect of the levy whose costs they absorb themselves (50% of the general levy).

(b) By the producers in respect of the levy which is paid by slaughterers on their behalf, and fully recoverable from them (50% of the general levy and 100% of the promotion levy).

In the former case, the levy paid and absorbed by slaughterer is paid principal. The slaughterer will be able to treat the VAT on the levy as input tax, recoverable to the extent that it is attributable to their own taxable supplies (which should normally mean full recovery). In respect of the levy which is charged on to producers, the slaughterer will be treated as an agent rather than a principal, so that the supply of the Meat and Livestock Commission (MLC) services will be treated as made via the slaughterer to the producer. The producer will themselves be able to recover the VAT charged to the extent that it is attributable to their own taxable supplies (and again producers who are registered for VAT will normally be able to make full recovery, since the charge will relate to taxable mainly zero-rated outputs).

3.

In practice it has been agreed that for the ‘charged on’ levy the slaughterer should use the procedure under Section 47(3) of the VAT Act 1994, and effectively treat themselves as an undisclosed agent. This means they should treat the total VAT charge made by the MLC as deductible input tax, and pass it on by charging and accounting for a corresponding amount of output tax in the same tax period to the producer with the tax invoice in their own name. This procedure is explained in VAT guide (VAT Notice 700). VAT is recoverable by the producer as if the supply to them by MLC, for which the levy is consideration, was made direct as it is, for example, in the case of fee-funded services and it will therefore be possible to avoid ‘sticking’ VAT anywhere in the chain.

4.

As regards contract or ‘private’ slaughtering, nothing in the foregoing paragraphs limit slaughterers’ statutory right to full recovery of levy from persons on whose instructions slaughtering is carried out. Such levy invoiced from 1 October 1990 will, be subject to VAT, and that output VAT should be charged to producers (who will require to be issued with a tax invoice) and accounted for by slaughterers to HMRC.

5.

To facilitate this procedure it has been agreed that the MLC will continue to issue a single tax invoice to the slaughterer. This will show:

(i) The amount of general levy charged to the slaughterer in their own right as principal, in this instance, (a) in paragraph 1 and that part of the general levy charged to the slaughterer acting as agent, (b) in paragraph 1.

(ii) The amount of promotional levy charged to the slaughterer acting as agent which he will pass on (in full to the producer (b) in paragraph 1 rather than absorb, charging VAT at 17.5% as output tax under the section 47(3) procedure described in paragraph 3.

(iii) The total levy (i plus ii) and the VAT charged thereon which should be treated by the slaughterer as the input tax.

(iv) The slaughterer’s output tax under the existing self-billing arrangements on the recovery expense allowance. 2.

Exporters –

1.

Agreement has been reached between the Meat and Livestock Commission and HMRC over the VAT treatment of levies collected from 1 October 1990 by the Commission from operators of slaughterhouses and exporters of live animals.

2.

It’s accepted that levy invoiced on or after 1 October 1990 will be subject to VAT at the standard rate, since it represents the consideration for a range of direct benefits received both by the slaughterers and exporters from the Commission. The slaughterer or exporter will be able to treat the VAT on the levy as input tax, recoverable to the extent that it’s attributable to their own taxable supplies (which should normally mean full recovery).

23. Agreement with the Society of Motor Manufacturers and Traders Limited

About how the one tonne payload test will be applied in practice to double cab pick-ups.

Background

1.

Cars are treated quite differently for VAT purposes from commercial vehicles. In brief:

• most ordinary business cars are subject to a block on input tax recovery, which is a proxy for taxing the private use of the car
• the private use of commercial vehicles is taxed, either by means of an input tax apportionment or a periodic output charge on actual private use
• a business that converts a commercial vehicle into a car becomes liable to an output tax charge on a ‘self-supply’ of the vehicle to itself

2.

With effect from 1 December 1999 vehicles are no longer treated as cars for VAT purposes if they have a payload of one tonne or more. Payload is the difference between a vehicle’s maximum gross weight and its kerbside weight. In practice the change mainly affects those vehicles generally described as double cab pick-ups.

3.

Given the different treatment of cars and commercial vehicles (paragraph 1) it’s important for manufacturers, distributors, dealers and business customers to know the payload of any double cab vehicle they sell or buy. It’s especially important to be aware that by adding accessories to the ex-works model they may – by lowering the payload of the vehicle – convert it into a car and make themselves liable to the self-supply charge. Such conversions are most likely to occur with double cabs that have an ex-works payload of 1,000 to 1,050kgs.

4.

In order to provide simplicity and certainty, HMRC and the Society of Motor Manufacturers and Traders Limited (SMMT) have agreed the following arrangements.

Ex-works payloads

5.

SMMT members will take steps to make dealers aware of the ex-works payloads of their double cab models. Dealers should contract the appropriate SMMT member to resolve any queries regarding the ex-works payload figure.

Accessories fitted by dealers or customers

6.

HMRC will, with one exception, ignore as de minimis the addition of accessories. The exception is the addition of a hard top consisting of metal, fibreglass or similar material, with or without windows. In practice this means that a manufacturer, dealer or customer can fit any accessory to the vehicle, other than a hard top, and still rely upon its payload as being the ex-works payload.

7.

Further, HMRC will accord all hardtops a generic weight of 45kgs. So, for example, the addition of a hard top to a double cab with an ex-works payload of 1,010kgs will convert the vehicle into a car (payload reduced to 965kgs). The addition of a hardtop to a double cab with a payload of 1,050kgs, would not convert the vehicle into a car (payload reduced to 1,005kgs).

Reviews

8.

This agreement will be reviewed in the event of a significant change of circumstances, for example, a change of VAT law or significant changes in the market.

24. Agreement with the Society of Motor Manufacturers and Traders Limited

About a simplified method by which motor manufacturers, importers and wholesale distributors may calculate the VAT due on the private use of stock in trade cars provided to directors and employees free of charge.

Background

1.

With effect from 1 December 1999, the stock in trade cars of motor manufacturers are not subject to the input tax block on cars. Provided a car continues to meet the definition of ‘stock in trade’, private use of it will not cause the manufacturer to incur either an input tax block or a liability to declare output tax on a self-supply of the car.

2.

Following the changes, manufacturers must account for output tax on any private use by directors and employees of a stock in trade car. Where the car is provided free of charge, the normal VAT rules would require manufacturers to account for output tax in each tax period on the full cost of providing the car for private use. This would involve, in each tax period, reference to the:

• depreciation of the capital cost of the car
• value (excluding VAT) of repairs, maintenance and other running costs (excluding road fuel) on which VAT has been recovered
• actual proportion of business and private use

3.

Given that:

• the valuation rules are complex and can lead to error, dispute or abuse
• strict application of the rules would be administratively burdensome
• the pattern of depreciation and private use of stock in trade cars is similar across the industry

HMRC and the Society of Motor Manufacturers and Traders Limited (SMMT) have agreed that manufacturers may choose to apply the following simplified method of establishing the output tax due. Manufacturers who chose to use the simplified method must use it for all their stock in trade cars that are used privately by directors or employees.

Manufacturers may use the simplified method for cars within price band 10 (see table) but must use either the actual cost prices of the cars or average cost prices agreed with HMRC – in either event they remain within the simplified method.

Manufacturers who choose not to adopt the simplified method must either apply the normal rules or apply to HMRC to use an individual simplified method.

How the simplified method works

4.

The simplified method works by adopting 9 price bands and average prices within those bands to give 9 standard annual VAT values. It’s these values that are the key to the simplification. Each VAT value represents the full annual cost of providing an employee with a car for private use.

5.

For each VAT accounting period you, the manufacturer, and so on, must calculate output VAT due on the private use of company cars as follows:

Step 1

Identify those persons who use a company car for private journeys in the period.

Step 2

For each person, identify the list price of the car that they have typically used in the period.

Step 3

For each person, identify the appropriate price band in the following table to determine the VAT payable for private use and include the VAT amount as output tax due in your VAT account for the period.

Price band number	List price including VAT band range (£)	Average price including VAT (£)	VAT (@ 20%) due annual returns (£)	VAT (@ 20%) due quarterly returns (£)	VAT (@ 20%) due monthly returns (£)
1	0.00 – 8,999.99	7,470.00	70.00	17.50	5.84
2	9,000.00 – 11,999.99	10,320.00	93.00	23.25	7.75
3	12,000.00 – 16,999.99	14,620.00	126.00	31.50	10.50
4	17,000.00 – 22,999.99	20,470.00	172.00	43.00	14.34
5	23,000.00 – 30,999.99	27,590.00	228.00	57.00	19.00
6	31,000.00 – 39,999.99	35,600.00	290.00	72.50	24.17
7	40,000.00 – 49,999.99	44,500.00	360.00	90.00	30.00
8	50,000.00 – 64,999.99	58,500.00	469.00	117.25	39.09
9	65,000.00 – 79,999.99	72,000.00	575.00	143.75	47.92
10	80,000.00+	Individual calculation based on actual cost prices

Manufacturers with non-standard tax periods should apply the appropriate proportion to the annual VAT due amount.

Reviews

7.

This agreement will be reviewed and updated periodically and in the event of a significant change in circumstances, for example, a change of VAT law, or significant changes in the market.

Calculation of annual VAT charge in the SMMT agreement

The annual VAT due is calculated by:

(a) Taking 75% of the average VAT exclusive list price as being the cost price of the car.

(b) Applying 25% annual depreciation to the cost price of the car.

(c) Adding a standard £250 for repairs and maintenance to the depreciation.

(d) Applying a 25% private use proportion to depreciation plus repairs and maintenance to arrive at the full cost of providing the car for private use (the value for private use).

(e) Applying the current VAT rate to the value for private use.

(f) The resulting figure (rounded down to the nearest pound) is the annual VAT due.

Average price including VAT @ 20% (£)	Average price excluding VAT (£)	Cost price (75%) (£)	Depreciation @ 25% per annum (£)	Depreciation + repairs and maintenance @ £250 (£)	Private use proportion @ 25% (£)	VAT @ 20% (£)
7,470.00	6,225.00	4,668.75	1,167.19	1,417.19	354.30	70.00
10,320.00	8,600.00	6,450.00	1,612.50	1,862.50	465.63	93.00
14,620.00	12,183.33	9,137.50	2,284.38	2,534.38	633.60	126.00
20,470.00	17,058.33	12,793.75	3,198.44	3,448.44	862.11	172.00
27,590.00	22,991.67	17,243.75	4,310.94	4,560.94	1,140.24	228.00
35,600.00	29,666.67	22,250.00	5,562.50	5,812.50	1,453.13	290.00
44,500.00	37,083.33	27,812.50	6,953.13	7,203.13	1,800.78	360.00
58,500.00	48,750.00	36,562.50	9,140.63	9,390.63	2,347.66	469.00
72,000.00	60,000.00	45,000.00	11,250.00	11,500.00	2,875.00	575.00

25. Agreement with the Retail Motor Industry Federation

About a simplified method by which retail motor dealers may calculate the VAT due on the private use of demonstrator cars provided to directors and employees free of charge.

Background

1.

With effect from 1 December 1999, the stock in trade cars of motor dealers are not subject to the input tax block on cars. In practice, this change mainly affects the treatment of demonstrator cars. Provided a demonstrator meets the definition of ‘stock in trade’, private use of it will not cause the dealer to incur either an input tax block or a liability to declare output tax on a self-supply of the car.

2.

Following the changes, dealers must account for output tax on any private use by directors and employees of a demonstrator on which they recovered input tax. Where the car is provided free of charge, the normal VAT rules would require dealers to account for output tax in each tax period on the full cost of providing the car for private use. This would involve, in each tax period, reference to the:

• depreciation of the capital cost of the car
• value (excluding VAT) of repairs, maintenance and other running costs (excluding road fuel) on which VAT has been recovered
• actual proportion of business and private use

3.

Given that:

• the valuation rules are complex and can lead to error, dispute or abuse
• strict application of the rules would be administratively burdensome
• the pattern of depreciation and private use of demonstrator cars is similar across the industry

HMRC and the Retail Motor Industry (RMI) Federation agreed that dealers could choose to apply a simplified method of establishing the output tax due. Dealers who choose to use the simplified method must use for all their stock in trade cars that are used privately by directors or employees.

Dealers may use the simplified method for cars within price band 10 (see table) but must use the actual cost prices of the cars or average cost prices agreed with HMRC – in either event they remain within the simplified method.

How the revised simplified method works

4.

The method works by adopting 9 price bands and average prices within those bands to give 9 standard annual VAT values. It’s these values that are the key to the simplification. Each VAT value represents the full annual cost of providing an employee with a demonstrator for private use.

5.

For each VAT accounting period you, the dealer must calculate output VAT due on the private use of demonstrators as follows:

Step 1

Identify those persons who use a company car for private journeys in the period.

Step 2

For each person, identify the list price of the car that they have typically used in the period.

Step 3

For each person, identify the appropriate price band in the following table to determine the VAT payable for private use and include the VAT amount as output tax due in your VAT account for the period.

Price band number	List price including VAT band range (£)	Average price including VAT (£)	VAT (@ 20%) due annual returns (£)	VAT (@ 20%) due quarterly returns (£)	VAT (@ 20%) due monthly returns (£)
1	0.00 – 8,999.99	7,470.00	78.00	19.50	6.50
2	9,000.00 – 11,999.99	10,320.00	103.00	25.75	8.58
3	12,000.00 – 16,999.99	14,620.00	141.00	35.25	11.75
4	17,000.00 – 22,999.99	20,470.00	193.00	48.25	16.08
5	23,000.00 – 30,999.99	35,600.00	256.00	64.00	21.33
6	31,000.00 – 39,999.99	35,600.00	327.00	81.75	27.25
7	40,000.00 – 49,999.99	44,500.00	406.00	101.50	33.83
8	50,000.00 – 64,999.99	58,500.00	530.00	132.50	44.17
9	65,000.00 – 79,999.99	72,000.00	650.00	162.50	54.17
10	80,000.00+	Individual calculation based on actual cost prices

Dealers with non-standard tax periods should apply the appropriate proportion to the annual VAT due amount.

Reviews

6.

This Agreement will be reviewed and updated periodically and in the event of a significant change in circumstances, for example, a change of VAT law, or significant changes in the market.

Annex calculation of annual VAT charge in the RMI agreement

The annual VAT due is calculated by:

(a) Taking 85% of the average VAT exclusive list price as being the cost price of the car.

(b) Applying 25% annual depreciation to the cost price of the car.

(c) Adding a standard £250 for repairs and maintenance to the depreciation.

(d) Applying a 25% private use proportion to depreciation plus repairs and maintenance to arrive at the full cost of providing the car for private use (the value for private use).

(e) Applying the current VAT rate to the value for private use.

(f) The resulting figure (rounded down to the nearest pound) is the annual VAT due.

Average price including VAT @ 20% (£)	Average price excluding VAT (£)	Cost price (85%) (£)	Depreciation at 25% per annum (£)	Depreciation + repairs and maintenance @ £250 (£)	Private use proportion @ 25% £)	VAT at 20% (£)
7,470.00	6,225.00	5,291.25	1,322.80	1,572.81	393.20	78.00
10,320.00	8,600.00	7,310.00	1,827.50	2,077.50	519.37	103.00
14,620.00	12,183.33	10,355.83	2,588.95	2,838.95	709.73	141.00
20,470.00	17,058.33	14,499.58	3,624.89	3,874.89	968.72	193.00
27,590.00	22,991.67	19,542.91	4,885.72	5,135.72	1,283.93	256.00
35,600.00	29,666.67	25,216.66	6,304.16	6,554.16	1,638.54	327.00
44,500.00	37,083.33	31,520.83	7,880.20	8,130.20	2,032.55	406.00
58,500.00	48,750.00	41,437.50	10,359.37	10,609.37	2,652.34	530.00
72,000.00	60,000.00	51,000.00	12,750.00	13,000.00	3,250.00	650.00

26. Agreement with the British Vehicle Rental and Leasing Association

About a simplified method which daily rental companies may use to calculate the VAT due on the incidental private use of their hire fleets.

1.

HMRC and the British Vehicle Rental and Leasing Association (BVRLA) have agreed a simplified method which daily rental companies may use to calculate the VAT due on the incidental private use of their hire fleets that are taken home overnight, or otherwise used privately, free of charge by directors or employees. The arrangements do not apply to any ordinary company cars, which are not part of the hire fleet – these cars are subject to the input tax block and no further tax on private use is due.

Background

2.

With effect from 1 August 1992, daily rental companies have been entitled to deduct input VAT on the purchase of cars to be used ‘primarily for a relevant purpose’. The use of the word ‘primarily’ was to recognise that there may be a small element of private use by the daily rental company during the rental lifetime of the car. This is in contrast to cars purchased by leasing companies who can deduct the VAT on purchase (from 1 August 1995) provided the car is used ‘wholly for business purposes’.

3.

The VAT legislation requires that where assets are used for private purposes a supply of services takes place. Where the services are provided for no consideration the value of those services is the cost to the employer of providing those services.

The calculation of this value would involve, in each tax period, reference to the:

• depreciation of the capital cost of the car
• value (excluding VAT) of repairs, maintenance and other running costs (excluding road fuel) on which VAT had been recovered
• actual proportion of business and private use

Similar rules apply when services (for example, the leasing of cars) are put to private use.

4.

Given that:

• the valuation rules are complex and can lead to error, dispute or abuse
• strict application of the rules would be administratively burdensome
• the pattern of depreciation and private use of daily rental cars is similar across the industry

HMRC and the BVRLA have agreed that daily rental companies may choose to apply a simplified method of establishing the output tax due. Daily rental companies who choose to use the simplified method must do so for all their daily rental cars, which are put to private use. Daily rental companies who choose not to adopt the simplified method must either apply the normal rules or apply to HMRC to use an individual simplified method.

How the proposed method works

5.

The method works by adopting 9 price bands and average prices within those bands to give 9 standard annual VAT values. It’s these values, which are the key to the simplification. Each VAT value

6.

For each VAT accounting period, the daily rental company, must calculate output VAT on the private use of the daily rental cars as follows:

Step 1

Identify those persons who use a company car for private journeys in the period.

Step 2

For each person, identify the list price of the car that they have typically used in the period.

Step 3

For each person, identify the appropriate price band in the following table to determine the VAT payable for private use and include the VAT amount as output tax due in your VAT account for the period.

Price band number	List price including VAT band range (£)	Average price including VAT (£)	VAT (@ 20%) due annual returns (£)	VAT (@ 20%) due quarterly returns (£)	VAT (@ 20%) due monthly returns (£)
1	0.00 – 8,999.99	7,470.00	46.89	11.72	3.90
2	9,000.00 – 11,999.99	10,320.00	60.01	15.00	5.00
3	12,000.00 – 16,999.99	14,620.00	79.81	19.95	6.65
4	17,000.00 – 22,999.99	20,470.00	106.75	26.69	8.90
5	23,000.00 – 30,999.99	27,590.00	139.53	34.88	11.63
6	31,000.00 – 39,999.99	35,600.00	176.41	44.10	14.70
7	40,000.00 – 49,999.99	44,500.00	217.39	54.35	18.12
8	50,000.00 – 64,999.99	58,500.00	281.84	70.46	23.49
9	65,000.00 – 79,999.99	72,000.00	344.00	86.00	28.67
10	80,000.00+	Individual calculation based on actual cost prices

Daily rental companies with non-standard tax periods should apply the appropriate proportion to the annual amount.

Reviews

This Agreement will be reviewed and updated periodically and in the event of a significant change in circumstances, for example, a change of VAT law, or significant changes in the market.

Your rights and obligations

Read Your Charter to find out what you can expect from HMRC and what we expect from you.

Help us improve this notice

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If you need general help with this notice or have another VAT question you should phone our VAT helpline or make a VAT enquiry online.

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Published 9 August 2004
Last updated 23 March 2021 + show all updates

1. 23 March 2021

   This withdrawn page has been reinstated with changes made due to the end of the transition period. Section 9 Agreement is currently under review.

2. 29 April 2020

   Section 3 'Agreement with the Association of British Factors and Discounters' has been updated to show that this amendment will be withdrawn from 1 May 2020 and replaced with new guidance in the Partial Exemption Manual.

3. 8 January 2019

   Following discussions with the Association of British Insurers section 5 has been amended as this agreement will be withdrawn from 1 February 2019 – it will be superseded by the Partial Exemption Manual.

4. 15 August 2018

   With effect from 1 June 2018 Agreement 2 'The brewers society' is withdrawn. A business who is currently using this agreement should review their method to ensure that it's still fair and reasonable.’

5. 9 August 2004

   First published.