VAT thing you do - Andy Rogers and Phil Mattacks

KPMG Tax Session VAT thing you do Andy y Rogers g – Director KPMG Phil Mattacks - HMRC National Housing Federation Warwick Finance Conference 20 March 2013

“Golf is a game whose aim is to hit a very small ball into an even smaller hole with weapons singularly ill-designed for the purpose purpose”. Winston Churchill

© 2013 KPMG LLP, a UK Limited Liability Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.

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Agenda

■The Cost Sharing Exemption ■Partial Exemption Framework update ■VAT Risk Areas


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Cost Sharing Exemption – a reminder of the requirements Independent group of persons ■ HMRC require a CSG to be a separate entity from, but owned by, its members but the CSG may be under majority j y ownership p of one of its members and could be VAT g grouped p

Members must make exempt/non-business supplies ■ 5% of the members activities must be VAT exempt or non-business

Directly necessary services ■ HMRC will accept that all services received by a member from a CSG may be treated as directly necessary and, therefore, VAT exempt if more than 85% of the member’s activities by value are exempt or nonbusiness (or if the member restricts more than 85% of VAT incurred)

Services supplied at cost ■ A CSG must not make a profit or a loss but may carry cash surpluses/deficits

Distortion of Competition ■ HMRC consider that the provision of services by a CSG on a cost and VAT free basis does not in itself result in a distortion of competition p

Must receive qualifying supplies ■ The HMRC guidance included a further condition that all members must receive supplies that qualify for the CSE CSE. © 2013 KPMG LLP, a UK Limited Liability Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.

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Cost Sharing Groups – Structure 1 VAT Group

HA1 Member

OTS HA2 Member

Exempt

HA3 Member

CSG

Exempt


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Cost Sharing Groups – Structure 2

Before

VAT Group

HA 1

HA 2 Member

HA 3 Member

Sub co

HA 4 Member


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Cost Sharing Groups – Structure 3

After

VAT Group

HA 1 Member

HA 2 Member

Subco. HA 3 Member

CSG HA 4 Member


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Cost Sharing Groups – Structure 4 VAT Group

HA 1 Member

HA 2 Member

Subco. HA 3 Member

CSG HA 4 Member

New HA 5 Member


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Definition of cost and HMRC ■ Direct costs ■ Direct ec overhead o e ead costs cos s ■ Indirect overhead costs ■ Estimation ■ Commerciality ■ Competitive p bid ■ Internal guidance to visting VAT officers


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VAT Risk Areas

■Coding ■Developments


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Developments ■ Golden brick ■ Disapplication sapp ca o o of op option o to o tax a ■ Section 106 ■ Barter agreements g ■ Community Centres


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1

Case study

LOCAL AUTHORITY land • no planning permission • Section 106 – Community Centre on HA land

Community Centre land and lease on lock ups

HA

Design and Build Company


Affordable rent

Shared ownership

Outright sale

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Case study SELLER

OPTED LAND

HA

•Commercial buildings •Barter transactions •Overage payments

Affordable land

DESIGN AND BUILD SERVICES

HA sub co. non charitable

JV developer / builder


OPEN MARKET SALE

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Case study

SELLER Opted land

disapplication pp HA Charitable

Subco (N charitable) (Non h it bl )

Open market sale

VAT group


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“The more I practice, the luckier I get” Gary Player


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KPMG VAT Contacts At the NHF Finance Conference:

Other Social Housing VAT specialists include:

John Rippon – National [email protected] 0151 473 5197

Tom Hudson – London & South [email protected] 020 7311 3887

Andy Rogers – National [email protected] 01293 652078

John Hart – London & South [email protected] 020 7311 3248

Graham McKay – London & South [email protected] 01293 652172

Keith Cardy – North [email protected] 0113 231 3956

Gareth Blower – London & South [email protected] 01293 652768

Louise Phillipps – North [email protected] 0191 401 3888

Joanne Birkinshaw – Midlands & Wales [email protected] 0121 232 3397

Andrew Norris – Wales & South [email protected] 029 2046 8024 Adrian Wood – Scotland [email protected] 0141 300 5709

© 2013 KPMG LLP, a UK Limited Liability Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. entity All rights reserved reserved. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International Cooperative (KPMG International). International)