UK tax system (DOC) by leader6


The official Newsletter and Information Service of the City                        March
Council’s VAT & Taxation Advice Office incorporating the City
Council’s VAT Manual Update Service.                                               2003
UK tax system:                                    With effect from that date, the standard rate
Air Passenger Duty (APD)                          of APD has been just £5 per passenger for a
Our review of the UK’s tax system continues       fight to a domestic or other EU or EEA
to ‘meander on’ and this month we take            destination (plus, from 1 November 2002,
another look at Air Passenger Duty or APD.        Switzerland) and £20 per passenger for all
This was covered in VATTax20 in January           other destinations (a higher-rate of APD
2001 but some significant changes have            applies to first, club and business class
taken place since then.                           passengers set at £20 for domestic, EU and
                                                  EEA destinations and Switzerland and £40
APD is, in effect, a UK airport departure tax     for other destinations).
and most countries around the World impose        (contd on page 7)
such a tax. With just one or two exceptions,
it is payable by all fare paying passengers       INSIDE VATTax33:
flying from a UK airport on any aircraft          p.2 ‘Retirement gifts’: actually ‘long service
having at least 20 passenger seats.               awards’ - must be ‘tangible asset’ to be tax-
                                                  free - VAT can be recovered on purchase but
The exceptions are detailed in Appendix K4        any contribution from beneficiary is VATable.
of the VAT Manual and include ‘non-               p.3 Customer Survey 2002: summary of
passengers’ (such as flight crew, cabin crew,     results of 2002 Customer Survey.
escorts, security and catering staff), children   p.4 VAT on bridge and tunnel tolls: tolls now
under two years of age, deportees and transit     VATable unless bridge or tunnel operated by
and connecting passengers. In addition APD        local authority or similar - where VAT
is not charged on UK pleasure flights or          incurred remember to reclaim.
military flights.                                 p.5 Leases, etc: summary of VAT treatment of
                                                  leases, reverse premiums, surrenders,
It is important to note that APD is               assignments, reverse assignments, etc.
chargeable on UK domestic flights,                p.6 VAT and electronic supplies: plans to
however, and this is where the most               change VAT treatment of electronic supplies,
significant changes have occurred.                eg internet services - no change for business
Prior to 1 April 2001, no APD was payable         customers but for private customers, non-EU
on the return leg of a UK domestic flight         suppliers must charge VAT.
(providing APD was paid on the outward            p.6 VAT ‘tolerances’: where VAT amount
leg). This was declared to be illegal by the      ‘within reason’ no need to query or return
                                                  VAT invoice to supplier.
European Commission though and
                                                  p.7 Schools and Climate Change Levy: only
consequently substantially reduced rates of
                                                  VA and VC schools can certify eligibility for
APD were introduced from 1 April 2001.
                                                  exclusion from CCL.

                                                  VATTax is published by the City Council’s VAT and
                                                  Taxation Advice Office, Room B2.10, New Walk
                                                  Centre (Tel: 0116-252-7470). Articles and items from
                                                  VATTax may be freely reproduced and used but the
                                                  City Council accepts no liability whatsoever for any
                                                  loss occasioned to any person acting or refraining from
                                                  action as a result of material herein.
                     INCOME TAX/NIC’s             cannot recover VAT when we purchase gift
‘Retirement gifts’                                vouchers, so, in the example above, only
It is customary to reward a long serving          £400 worth of vouchers could be given as
member of staff with a gift on their              opposed to a £470 gift with VAT recovery.
retirement. There are though very specific        Fourthly, if the employee wants a particular
rules that must be observed if such a gift is     gift costing more than the award which the
not to land the employee with a tax bill.         Council is prepared to give, this is okay
Firstly it should be noted that, under tax law,   providing we still buy the gift and then seek
the is no such thing as a ‘retirement gift’.      reimbursement of the excess from the
What tax law allows for is a ‘long service        employee. Remember then that, though the
award’.                                           Council can recover the VAT incurred on
                                                  the gift’s purchase (subject, as ever, to
A long service award can be made at any           having a VAT invoice), the ‘contribution’
time - not necessarily on retirement -            from the employee will be subject to VAT, it
providing the employee has worked for at          being effectively the selling price of the
least 20 years for the Council and has not        asset.
received a similar award in the previous 10
years.                                            For example, using the £400 maximum once
                                                  more, the Council could purchase a gift
To be exempt from Income Tax (and NIC’s),         costing £705 including VAT. We could then
however, the award must take the form of a        recover the £105 VAT leaving a gift costing
tangible asset, ie it must be a physical gift     £600. The employee’s contribution would
and not cash, and cost not more than £20 per      then have to be £200 plus VAT, ie £235, in
year of service.                                  order not to breach the rules.
A number of things should be noted.               Remember though that only gifts subject to
                                                  VAT require VAT to be accounted for on
Firstly a gift of cash, even of not more than     the employee’s contribution (and of course
£20 per year of service, can never be tax-free    are eligible for VAT recovery on the
and so must always be made through Payroll        purchase price). In particular remember that
and subject to Income Tax and NIC’s               books are zero-rated.
(including employer’s NIC’s which will be a
charge to your budget).                           Finally can the employee buy the gift on the
                                                  Council’s behalf? This is fraught with
Secondly, ‘cost’ means cost to the Council.       difficulty. If the employee can purchase the
As the Council can recover VAT on assets          gift using a petty cash advance or an imprest
purchased, the £20 per year of service limit      account cheque, such that he or she is clearly
is net of VAT. The limit is effectively           buying the asset on behalf of the Council, it
£23.50 per year of service including VAT          is probably okay.
(though remember the Council will need a
VAT invoice to be able to recover that VAT        However, if it is proposed he or she buys the
and so not breach the £20 rule).                  gift and seeks reimbursement for the cost,
                                                  this should be avoided. If you must buy the
This means, for example, that an employee         gift in this way, have a colleague buy the gift
with 20 years of service can be bought a gift     subject to reimbursement, not the
of up to £470 including VAT, the £70 VAT          beneficiary employee.
being recoverable by the Council (subject to
us having a VAT invoice).                         If you have any questions on ‘retirement
                                                  gifts’ (or more correctly long service
Thirdly gift vouchers may be eligible for tax-    awards) - and it is a complex area -
free treatment providing they can only be         contact the VAT and Taxation Advice
redeemed for tangible assets. Generally           Office on extension 7470 (direct dialling
speaking this will be the case but giving gift    0116-252-7470) or e-mail
vouchers should normally be avoided as it is
a ‘grey area’ and, furthermore, the Council

page 2: VATTax33 - March 2003
Customer Survey 2002                             Written queries to the ‘helpline’ received an
Though disappointingly only 24 replies were      overall satisfaction rating of 75% ‘very
received to the 2002 VAT and Taxation            good’ or better and all as ‘good’ or better
Advice Office Customer Survey (out of over       (97.6% and 100% respectively in 2000),
200 questionnaires circulated), those that did   80% rated the answers given as ‘very good’
reply, once more show a high level of            or better and all as ‘good’ or better (100%
satisfaction with the services delivered by      ‘very good’ or better in 2000), whilst all
the Office.                                      such queries received an answer within one
                                                 week, the same as in 2000.
Overall, 87.5% of respondents rated the          The VAT Manual
work of the Office ‘very good’ or better         Overall rating of the VAT Manual was
whilst no-one rated the Office worse than        94.4% ‘very good’ or better with no-one
‘good’; this is exactly the same as the          rating it as worse than ‘good’. This
results of the 2000 Customer Survey.             compares to a comparable 94.8% ‘very
                                                 good’ or better and 100% ‘good’ or better
The ‘helpline’                                   rating in the 2000 Customer Survey.
The ‘helpline’ service received an overall
satisfaction rating of 80% ‘very good’ or        One respondent felt the VAT Manual did not
better, with again no-one rating the service     address their needs giving a 95% satisfaction
delivered by the Office as worse than ‘good’.    rating. This again is directly comparable to
This is a considerable improvement on 2000       the results from the 2000 Survey where one
when, although there were no ratings of          respondent felt the VAT Manual did not
worse than ‘good’, only 62.5% rated the          fully address their needs.
‘helpline’ as ‘very good’ or better.             In both cases the issue concerns applicability
Personal callers to the Office rated the         of the VAT Manual to schools, an issue it is
service 100% ‘very good’ or better (86.7%        hoped to address when the VAT Manual
in 2000), 87.5% rated the answers given as       ‘goes electronic’ for schools later this year.
‘very good’ or better and all as ‘good’ or       VATTax Newsletters and VATTax Alerts
better (92.3% and 100% respectively in           The VATTax newsletter received an overall
2000), whilst all such callers received an       rating of 66.7% ‘very good’ or better and
immediate answer (66.7% in 2000).                91.7% ‘good’ or better, two respondents
Telephone queries to the ‘helpline’ received     rating VATTax as only ‘fair’. In the 2000
an overall satisfaction rating of 77.8% ‘very    Customer Survey, the overall rating was
good’ or better and all as ‘good’ or better      slightly better at 80.5% ‘very good’ or better
(86.7% and 100% respectively in 2000),           and 99.6% ‘good’ or better, with just one
88.2% rated the answers given as ‘very           ‘fair’ rating.
good’ or better and all as ‘good’ or better      If this is indicative of a general falling in
(87.5% and 100% respectively in 2000),           satisfaction with VATTax, remember it is
whilst 72.2% of such queries received an         published to meet your needs; if you have
immediate answer and 94.4% an answer             any particular needs, issues or views, let
within one day (69.2% and 100% in 2000).         the VAT and Taxation Advice Office
E-mail queries to the ‘helpline’ received an     know and, rest assured, we will do our
overall satisfaction rating of 85.7% ‘very       best to address these in future editions.
good’ or better and all as ‘good’ or better      The VATTax Alert service received an
(100% ‘very good’ or better in 2000), 85.7%      overall rating of 71.4% ‘very good’ or better
rated the answers given as ‘very good’ or        and 92.9% ‘good’ or better. Reflecting the
better and all as ‘good’ or better (75% and      VATTax results, the comparative figures
100% respectively in 2000), whilst all such      from the 2000 Survey were 88.2% ‘very
queries received an answer within one day        good’ or better and 100% ‘good’ or better.
(83.3% in 2000).

                                                        page 3: VATTax33 - March 2003
Training                                             Humber Bridge (over the Humber Estuary
All respondents rated the VAT and taxation            south of Hull),
training offered by the Office as ‘good’ or          Itchen Bridge (over the River Itchen in
better, with a 69.9% ‘very good’ or better            Southampton),
rating. This apparently reflects a decline in        Mersey Tunnel (both Kingsway and
satisfaction, the 2000 Customer Survey                Queensway under the Mersey Estuary
figures being 85% ‘very good’ or better               between Liverpool and Birkenhead),
(100% ‘good’ or better).                             Tamar Bridge (over the River Tamar west
As regards training received, 66.7% rated the         of Plymouth),
training as ‘very good’ or better with no            Tay Bridge (over the Firth of Tay south of
ratings of worse than ‘good’. As with the             Dundee),
training offered rating, this seems to suggest       Tyne Tunnel (under the River Tyne
falling satisfaction, the 2000 ‘very good’ or         between Gateshead and North Shields).
better rating being 88.9%.
                                                  Conspicuous by its absence from this list is
If there are VAT or taxation training             the Severn Crossing (both the old Severn
needs that are not being addressed or if          Bridge - now the M48 - and the new Bridge
you have any comments on the actual                - the M4 - over the Severn Estuary between
training delivered, contact the VAT and           Bristol and South Wales).
Taxation Advice Office. The only way we
know we are not meeting your needs or             As there does, therefore, now seem to be
delivering the training you want in the           scope for staff travelling on Council business
way you want it is if you let us know.            to incur VAT on bridge and tunnel tolls,
                                                  officers processing expenses claims should
             * * * * * * *                        look out for this and code out the VAT for
                                                  reclaiming from Customs and Excise
                                                  wherever possible.
VAT on bridge and tunnel tolls
The European Court ruled some two years           Strictly speaking a VAT receipt should be
ago that road bridge and tunnel tolls in the      obtained to support the VAT recovery but
UK should be subject to VAT. So far the UK        Customs have confirmed that, providing the
Government has procrastinated in                  toll is less than £25 (including VAT), no such
implementing this but now, threatened with        VAT receipt will be needed as long as you
further action by the European Court,             can demonstrate that VAT has clearly been
Customs and Excise have announced that,           incurred (this is the same concession as
with effect from 1 February 2003, VAT is be       operates for VAT on car parking - see
payable on such tolls.                            Section 8 of the VAT Manual).
The only exception is where the bridge or
                                                  Thus, VAT incurred on bridge and tunnel
tunnel operator is a local authority or similar
                                                  tolls, where appropriate, should be calculated
public body. The bridges and tunnels covered
                                                  and coded out for recovery from Customs and
by this exception (and where the toll will,
                                                  Excise when claiming reimbursement of such
therefore, remain outside the scope of VAT)
                                                  expenses (remember though that the VAT
                                                  element of a VAT-inclusive figure is 7/47ths
 Cleddau Bridge (over the Cleddau                not 17.5% - eg VAT on the £4.50 Severn
     Estuary north of Pembroke),                  Bridge toll amounts to 67p).
 Dartford Crossing (both the Queen
     Elizabeth II Bridge and the Dartford          Note that the Road Congestion Charge
     Tunnel crossing the River Thames east of     recently introduced in Central London (and in
     London),                                     Durham, and also being considered by a
 Erskine Bridge (over the River Clyde            number of other cities around the country,
     west of Glasgow),                            most notably Edinburgh) is outside the scope
 Forth Road Bridge (over the Firth of Forth      of VAT.
     north of Edinburgh),

page 4: VATTax33 - March 2003
                                           VAT                        Landlord
Leases, etc                                             surrender ↑               ↑ payment
Recent European Court of Justice case law                             Tenant
appears finally to have definitively clarified          Supply of interest in property by
the correct VAT treatment of the various                landlord to tenant, therefore, exempt from
transactions that may occur under the broad             VAT unless landlord has opted to tax the
heading of a lease of property.                         property in question (in which case
There are essentially six models which cover            VATable at standard-rate).
the possible scenarios, which might best be         5. Assignment of lease for a premium:
summed up in diagrammatic form:                     assignee pays tenant to take over lease -
1. Lease for a premium:                                    Landlord
tenant pays landlord to lease property -            lease ↓            assignment →
                 Landlord                                  Tenant                      Assignee
       lease ↓               ↑ payment                                 ← payment
                 Tenant                                 Supply of an interest in property by
    Interest in property supplied by landlord          tenant to assignee, therefore, exempt from
    to tenant, therefore, exempt from VAT               VAT unless tenant has opted to tax the
    unless landlord has opted to tax the                property in question (in which case
    property in question (in which case                 VATable at standard-rate).
    VATable at standard-rate).                      6. Assignment of lease for a ‘reverse
2. Lease for a ‘reverse premium’:                   premium’ (‘reverse assignment’):
landlord pays tenant as inducement to take          tenant pays assignee as an inducement to
on lease of property -                              take over lease -
                 Landlord                                   Landlord
       lease ↓               ↓ payment              lease ↓            assignment →
                 Tenant                                     Tenant                   Assignee
                                                                       payment →
    No supply of an interest in property by
    tenant to landlord (as tenant has no                No supply of an interest in property by
    interest in the property until lease signed),       assignee to tenant (as assignee has no
    therefore, outside the scope of VAT,                interest in the property until assigned),
    unless there is some other supply by                rather supply by assignee to tenant is the
    tenant to landlord, eg acting as a high-            service of agreeing to take over the
    profile ‘anchor tenant’, which might be             responsibilities of the tenant under the
    regarded as a supply of (VATable)                   lease, which is VATable at standard-rate.
    advertising.                                    Conclusion
3. Surrender of lease for a premium:                Land and property transactions remain
landlord pays tenant to surrender lease -           among the most complex you will ever come
                 Landlord                           across from a VAT perspective. Though
   surrender ↑                ↓ payment             Section 29 of the VAT Manual covers land
                 Tenant                             and property, given the huge sums involved
                                                    and the consequent potential to make
    Interest in property supplied by tenant to     enormous VAT errors, the watchword
    landlord, therefore, exempt from VAT            generally is contact the VAT and Taxation
    unless tenant has opted to tax the property     Advice Office for guidance before
    in question (in which case VATable at           embarking on any such project.
                                                     The VAT and Taxation Advice Office, in
4. Surrender of lease for a ‘reverse                conjunction with Legal Services, is running
premium’:                                           a More Advanced VAT: Land and Property
tenant pays landlord to be released from            course on 13 May 2003.
lease -

                                                            page 5: VATTax33 - March 2003
                                        VAT     political, cultural, artistic, sporting, scientific
VAT and electronic supplies                     and entertainment broadcasts and events,
Some of you may be aware of the ongoing          electronically supplied distance teaching.
row between Customs and Excise, Freeserve       These supplies - which cover virtually
(amongst others) and AOL over the VAT           everything an internet service provider, such
treatment of internet services supplied to      as Freeserve and AOL , would supply - are
private customers.                              brought definitively within the reverse
This arises as a result of the EU VAT rules     charge mechanism for business (VAT-
on the place of supply for services and, in     registered) customers, whilst for private
particular, the fact that the ‘reverse charge   (non-VAT-registered) customers, the
mechanism’ - which makes services               supplier will, from July 2003, have to charge
VATable in the country where the customer       VAT in the customer’s country.
is located - only applies where the customer    As a simplification measure, non-EU based
is a VAT-registered business.                   suppliers of electronic services will only
In the absence of the reverse charge            have to register for VAT in one EU country,
mechanism, supplies of internet services to a   defined as the ‘Member State of
private (non-VAT-registered) customer by        Identification’, and not in every country
an EU-based supplier, such as Freeserve, are    where they have customers, but the rate of
liable to VAT in the supplier’s country, ie     VAT charged will be that applicable in the
the UK in the case of Freeserve.                customer’s country, defined as the ‘Member
                                                State of Consumption’.
By contrast, internet services supplied to an
EU private (non-VAT-registered) customer        Thus, from 1 July 2003, non-EU based
by a supplier located outside the EU escape     internet service providers, such as AOL, will
VAT altogether, there being no (EU) VAT in      no longer enjoy an effective 17.5% price
the supplier’s country (the United States in    advantage over UK-based suppliers, such as
the case of AOL).                               Freeserve.

Freeserve, et al had, not unreasonably,         The same E-Commerce Directive also
argued that this puts them at an unfair         makes supplies of radio and television
disadvantage when compared with non-EU          broadcasting services subject to the reverse
based suppliers of internet services, such as   charge mechanism when supplied to a
AOL. Customs and Excise, however, had           business (VAT-registered) customer. In all
refused to concede, pointing out that the EU    probability though, ‘pay-per-view’ services
is currently considering the VAT treatment      are caught by the definition of electronic
of electronic services.                         services.
And the EU has now published its Directive
on E-Commerce, which covers the place of
                                                VAT ‘tolerances’
supply of electronic services and which         Some departments have apparently been
comes into force on 1 July 2003.                querying with the supplier - or even sending
                                                back VAT invoices - where the VAT
The EU Directive defines electronically         amount is more than a penny or two different
supplied services as:                           to 17.5% of the value of the VATable goods
 website supply, web-hosting and               or services supplied.
distance maintenance of programs and
                                                This is incorrect providing the VAT amount
                                                is ‘within reason’.
 electronically supplied software and
software updates ,                              Whilst there is no precise definition as to
 electronically supplied images, text and      what is ‘within reason’, Customs and Excise
information, including access to databases,     themselves have indicated that a ‘tolerance’
 electronically supplied music, films and      of up to £1 is not unreasonable, whilst the
games (including games of chance and            corporate AP system will accept anything
gambling), and electronically supplied          between 17% and 18% as valid.

page 6: VATTax33 - March 2003
                                   VAT/CCL       certified eligibility as a VA or VC school, do
Schools and Climate Change Levy                  not worry as this means that the supplier has
It has been reported in some parts of country    applied the low volume threshold and
that schools have been certifying their          decided that the supply qualifies for lower-
eligibility to receive supplies of fuel and      rating (and so exclusion from CCL)
power, ie electricity and gas, at the lower-     automatically.
rate of VAT, this, therefore, resulting in the    Appendix K12 of the VAT Manual covers
fuel and power being excluded from liability     CCL in more detail, whilst Appendix EC
to Climate Change Levy (CCL), with               deals with eligibility to VAT lower-rating
consequent significant savings.                  for supplies of fuel and power; see also
This is a misunderstanding and schools           Section 23 on VA and VC schools.
generally CANNOT certify such
eligibility.                                                    * * * * * * *
VAT lower-rating, and so exclusion from
                                                 UK tax system:
CCL, can be claimed where the fuel and
power is used for a ‘qualifying charitable       Air Passenger Duty (APD)
purpose’. This generally means that the          (contd from page 1)
building is used by a charitable body            The effect is that the total APD payable on a
otherwise than in the course or furtherance      UK domestic return flight remains £10 (the
of business.                                     standard rate prior to 1 April 2001 being £10
                                                 for flights to a UK, EU or EEA destination).
However, Customs and Excise now accept           However, flights to another EU or EEA
that both voluntary aided (VA) and               destination are now only liable to £5 APD,
voluntary controlled (VC) schools are            though remember that the return leg may
‘charitable buildings’ - due to the              well be liable to ‘departure tax’ in the
technicalities of who owns and manages the       country visited.
buildings at such schools - and so can
certify their eligibility to VAT lower-rating    The other major change with effect from 1
(and exclusion from CCL); but this only          April 2001 is to exempt from APD
applies to VA and VC schools, not to             altogether flights departing from an airport
Council schools generally.                       in the Scottish highlands and islands. Thus
                                                 flights from Barra, Benbecula,
ACTION: If you have certified eligibility        Campbeltown, Inverness, Islay, Kirkwall,
for VAT lower-rating (and so exclusion           Stornoway, Sumburgh, Tiree and Wick are
from CCL ) on your supplies of fuel and          now exempt from APD (though remember
power but are NOT a VA or VC school,             that flights to these destinations are liable to
contact the VAT and Taxation Advice              APD unless they originate from one of the
Office on 0116-252-7470 urgently.                other exempt airports).
 If you are a VA or VC school and have          Full details of APD can be found in
not certified your eligibility to receive        Appendix K4 of the VAT Manual.
supplies of fuel and power at the lower-rate
of VAT and so excluded from CCL, you                            * * * * * * *
should do so immediately. This is done by
the school governing body writing to the
supplier and certifying ‘qualifying charitable
                                                 Question and Answer?
use’ per the VAT Act 1994, Schedule 7A           Due to pressure of space, there is no
Group 1.                                         ‘Question and Answer’ in this edition.
                                                 Remember though that this is ‘your
Note: Certain small primary schools,
                                                 VATTax’; if you have a question, no matter
consuming only low volumes of fuel and
                                                 how seemingly trivial, let the VAT and
power may automatically qualify for VAT
                                                 Taxation Advice Office know and we can
lower-rating; if you get a gas or electricity
                                                 include it in a future ‘Question and Answer’.
bill showing VAT at lower-rate but have not

                                                         page 7: VATTax33 - March 2003
Electronic submission                            The Construction Industry Scheme (CIS)
of the VAT Return                                - 3 June 2003;
The VAT and Taxation Advice Office               Employed versus Self-Employed Status -
recently made the Council's first electronic     3 June 2003.
submission of the VAT Return.                    To book a place, contact the VAT and
Apart from meeting both the Government's         Taxation Advice Office on extension 7470
and the Council's desire to e-enable services,   (direct dialling 0116-252-7470) or e-mail
this move achieves substantial financial
savings for the authority.
The Council reclaims, from Customs and           VAT Manual Update Service
Excise, something in the order of £1.5-          A comprehensive review and update of the
£2million per month in VAT. The                  VAT Manual and associated guidance
traditional paper submission of the VAT          (notably the Notes for Guidance on
Return resulted in this being received, on       Employed or Self-Employed Status) has
average, 7 to 8 working days later.              recently been undertaken. The resulting
                                                 updated guidance can be found on the
Electronic submission, however, results in       LeicesterNet (with a publication date of
reimbursement being received after just 3        1 March 2003), whilst a paper copy of the
working days. Once the money is in the           significant changes will follow shortly if you
Council's accounts it earns interest and thus    have previously indicated your preference to
the quicker we receive it the better off we      retain a paper version of the VAT Manual.
are. Accelerating receipt of the
reimbursement by electronic submission in        To access the LeicesterNet version of the
this way is estimated to earn the Council        VAT Manual, etc - which includes
something like £1,000 to £1,250 every            comprehensive automatic cross-referencing
month in additional interest, a 'saving' of      and e-mail facilities - go to ‘Policies and
£12-£15,000 per annum.                           Procedures’ (under ‘Corporate Information’)
                                                 and then ‘VAT and Taxation’.
 Leicester is one of the first local
authorities in the country to move to             Work to replicate the LeicesterNet VAT
electronic submission of the VAT Return,         and taxation information on the Education
which required the Council to obtain an          Intranet site has not been forgotten.
'electronic signature'. This was done using      However, the technical issues are proving
Equifax at a cost of £25 per annum, the e-       more difficult to resolve than had been
signature being in the name of Ian Harris and    anticipated and other options are currently
loaded on his PC in the VAT and Taxation         being investigated, such as a CD circulation.
Advice Office.                                   If you have any views on this, contact the
                                                 VAT and Taxation Advice Office.
Training courses
The full VAT and taxation training course
prospectus for 2003 has now been published       If you have not received a personal copy of
on the LeicesterNet (go to ‘Policies and         VATTax and would like to be put on the
Procedures’ - under ‘Corporate                   circulation list, contact the VAT and
Information’ - and then ‘VAT and                 Taxation Advice Office. If you have any
Taxation’).                                      items you would like to see covered in a
                                                 future edition of VATTax, or would even
Forthcoming courses include the following:       like to contribute an item yourself, again
VAT Basics - 29 May 2003;                        contact the VAT and Taxation Advice
More Advanced VAT:                               Office on extension 7470 (direct dialling
Land and Property - 13 May 2003;                 0116-252-7470), fax 0116-247-0689 or
More Advanced VAT:                               e-mail
Business or Non-Business - 8 May 2003;
                                                 ** VATTax34 will be out in May **.
VAT for Project Managers - 1 May 2003

page 8: VATTax33 - March 2003
VAT Manual Update Service:                      Section 7: generally re-written.
                                                Section 8: para.8.2.1 expanded to cover
Addendum                                        VAT invoice addressed to employee -
A comprehensive review of the VAT
                                                para.8.2.2 amended to clarify £100 limit
Manual and associated Notes for Guidance,
                                                includes VAT - new para.8.2.4 inserted on
has now been completed. Almost all
                                                ‘tolerances’ for VAT amount - subsequent
Sections and Appendices of the VAT
                                                sub-para re-numbered - para.8.4 amended
Manual and the Notes for Guidance on
                                                to include reference to ‘VAT receipts’; also
Employed or Self-Employed Status have
                                                bridge and tunnel tolls covered by ‘£25
been reviewed and are now available on the
LeicesterNet with a publication date of 1
March 2003.                                     Section 9: para.9.1 amended to include
                                                reference to ‘VAT receipts’ - para.9.2;
Significant changes, which materially affect
                                                bridge and tunnel tolls added to list for ‘£25
guidance or procedures to be followed, are
                                                concession’ - new para.9.2.1 inserted on
listed below; many other Sections and
                                                car parking - new para.9.2.2 inserted on
Appendices include minor, inconsequential,
                                                bridge and tunnel tolls.
changes, such as tidying up, improvement of
cross-referencing and deletion of out-of-date   Section 12: para.12.1; three-year cap
information.                                    clarified.
Note: If you have requested a paper copy of     Section 14: para.14.2; three-year cap
the VAT Manual, etc updates, only those         clarified - para.14.13 amended to cover
Sections and Appendices subject to a            role of solicitor in instructing a barrister.
significant or material change have been
                                                Section 16: para.16.4 amended to make
reprinted and are attached.
                                                reference to residual input tax -
Index: generally updated.                       para.16.7.1; operation of Capital Goods
Section 2: para.2.3; VAT-registration           Scheme clarified - paras.16.8.1 and 16.8.2
threshold details amended to refer to annual    switched and former para.16.8.1 (new
increases and voluntary registration -          para.16.8.2) amended for abolition of self-
paras.2.3.1 and 2.7 expanded to clarify         supply of printed matter.
valuation of non-monetary consideration -       Section 19: para.19.1; meaning of tour
new para.2.3.2 inserted on consideration not    package clarified - para.19.3; operation of
open market value - subsequent sub-paras        TOMS clarified.
re-numbered - former para.2.3.2 (new
                                                Section 19A: para.19A.1; definition of
para.2.3.3) and para 2.8 generally improved
                                                agent expanded.
for clarity.
                                                Section 21: para.21.2.2; requirements to
Section 3: paras.3.7, 3.8 and 3.9 amended
                                                support zero-rating amended (list of required
to clarify meaning of official use only and
                                                evidence now by way of example not
reference to hire cars deleted - also
                                                mandatory) - para.21.3; Council no longer
para.3.9 generally improved for clarity
                                                within scope of Intrastat.
Section 4: para.4.5 generally improved for
                                                Section 22: generally re-written.
clarity with examples deleted - para.4.8
expanded to cover the Council acting as         Section 23: para.23.2.1; implications of
buying or selling agent.                        treating sales as closely related to education
                                                clarified - para.23.2.5; sports equipment
Section 6: para.6.1; tax point determines
                                                (but not sports clothing) now eligible for
rate of, and liability to, VAT - paras.6.4
                                                treatment as sales closely related to
and 6.4.1; ‘connected parties’ rule clarified
                                                education - para.23.2.7 updated to include
- new para.6.5 inserted on deposits and
                                                reference to Arts in Education -
payments by instalments - subsequent paras

                                                        page 9: VATTax33 - March 2003
para.23.9.1; only secondment of teaching        - new para.30.8.3 inserted on ambulatory
staff can be exempt from VAT -                  concessions - paras.30.9 and 30.9.1;
para.23.9.2; list of non-Council educational    parking clarified (not just car parking); also
establishments updated.                         parking fines and penalties are non-business.
Section 24: new para.24.2 inserted on           Section 33: para.33.5.1 deleted
extension of VAT-exemption to residential       Appendix B: definitions of acquisition and
care and domiciliary care supplied by state-    acquisition tax clarified.
regulated institution or agency - subsequent
paras re-numbered - new para.24.3.1             Appendix BA: re-written for September
inserted on external provider engaged to        2002 version of Statement of Professional
deliver statutory care - new para.24.3.2        Practice.
inserted on client contributions - former       Appendix C1: treatment of car leasing to
para.24.3 (new para.24.4) updated to            employees clarified - cross-reference for
include reference to meals-on-wheels -          supplies of fuel and power corrected
former para.24.9 deleted - new para
                                                Appendix C2: treatment of LearnDirect fees
24.10 inserted on VAT-exemption for             inserted.
domiciliary care - new para.24.12 inserted
on Supporting People.                           Appendix C3: treatment of brick-lined
                                                graves amended - treatment of interment of
Section 25: para.25.1.4; new sub-para           cremated remains inserted - treatment of
inserted on ‘multi-gyms’.                       car parking expanded to cover all parking -
Section 26: para.26.1.1; VAT-registration       treatment of bus or coach station rights
threshold updated.                              inserted.
Section 28: paras.28.3 and 28.5.2; tax point    Appendix C4: treatment of stray dogs
rules on stage payments clarified -             clarified.
para.28.8; reference to tax deduction from      Appendix C6: treatment of road, bridge and
interest amended (deduction no longer           tunnel tolls clarified.
applies to interest paid to limited
companies).                                     Appendix C7: treatment of right to erect
                                                street furniture inserted.
Section 29: para.29.16.2; definition of
building (for an option to tax) expanded and    Appendix D: para.D.2; reference to sports
clarified - para.29.16.3 expanded on prior      equipment deleted - para.D.3; pre-school
permission to opt to tax - new para.29.16.4     education VAT-exempt if charged for;
inserted on Council procedures for opting to    reference to sports equipment deleted.
tax - para.29.17.4; ‘person funding             Appendix EA: new para.EA.3.3 inserted on
development’ blocking rule clarified and        catering supplied in connection with a care
reference added to implications for voluntary   package, including meals-on-wheels -
bodies providing funding - para.29.18.2         EA.12 amended to clarify jewellery and
amended to cover auctioneer acting as           investment gold not zero-rated.
stakeholder - para.29.18.10 deleted - new
para.29.18.10 inserted on payments by           Appendix EAa: para.EAa.2.4; reference to
instalments and ‘overage deals’ -               pre-2001 rules deleted - para.EAa.4
para.29.19.4 generally re-written -             deleted.
para.29.19.5 updated to refer to VAT-           Appendix EB: para.EB.3; parking clarified
registerability of assignee.                    (not just car parking) - para.EB.9 amended
Section 30: para.30.3; parking clarified        for extension of VAT-exemption to
(not just car parking) - para.30.8 amended      residential care and domiciliary care
to include reference to ambulatory              supplied by state-regulated institution or
concessions - new para.30.8.1 inserted on       agency - EB.17 amended to clarify
markets - subsequent sub-para re-numbered       jewellery not VAT-exempt

page 10: VATTax33 Addendum - March 2003
Appendix F: parking clarified (not just car
                                                     Appendix K11: para.K11.4 updated for
                                                     replacement of Pool Betting Duty by gross
Appendix I: updated for imminent
                                                     profits tax.
accession of new EU countries.
                                                     Appendix K12: para.K12.3 expanded to
Appendix K3: para.K3.3.1; new sub-para
                                                     include reference to utilities and
inserted on payments by instalments.
                                                     intermediaries - new para.K12.8 inserted
Appendix K6: paras.K6.18 and K6.25                   on intermediaries - subsequent para. re-
amended to clarify that a change of business         numbered.
name requires a new CIS Certificate or
                                                     Employed or Self-Employed Status:
Registration Card - para.K6.24 and K6.40
                                                     Notes for Guidance
updated for increase in NI rates -
para.K6.38; photocopies of CIS4 Cards and            Section 1: para.1.5 amended to make
CIS6 Certificates should be counter-signed           reference to Statutory Paternity Pay (SPP).
by the sub-contractor.                               Section 3: para.3.1 expanded for
Appendix K7: para.K7.7; interest payable             implications of payments falling within the
to limited companies no longer subject to            scope of PAYE - paras3.4 and 3.4.2
deduction of tax.                                    updated for new NI rates.

It is anticipated that paper circulation of the VAT Manual, etc updates will be discontinued with
effect from the new academic year starting in September 2003. Two possibilities are being
i. to replicate the LeicesterNet data on the Education intranet (‘LION’) - though a number of
technical problems remain to be resolved, this would have the advantage of ‘real-time’ updating
and comprehensive cross-referencing;
ii. to publish the schools copies of the updates on CD - though updating would then remain bi-
monthly, it would be less likely for an update to be missed, overlooked or misfiled, with the
result that the CD data could be better relied upon.
We need you views on these options - either contact the VAT and Taxation Advice Office
on 0116-252-7470 or e-mail or complete the attached tear-off slip
and return it to the VAT and Taxation Advice Office at Resources: Finance, Room B2.10,
New Walk Centre.

TO: VAT & Taxation Advice Office, Resources: Finance, Room B2.10, New Walk Centre

School: ………………………………………………………………………………………………
I/we would prefer to access the VAT Manual, etc ‘on-line’, etc via the ‘LION’ intranet:
I/we would prefer to have the VAT Manual, etc on CD:
Though the above is true, I/we would prefer to still have paper copies:
I/we would not support the discontinuance of paper copies under any circumstances:

                                                page 11: VATTax33 Addendum - March 2003

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