VAT Exemptions – Place your bets…..!
In many cases when we have requested clarity from HMRC on a particular technical point, the response from them is that VAT is a self assessing tax and in HMRCs’ opinion there is more than sufficient guidance available to assist with whatever the query was.
Getting your VAT treatment correct can sometimes feel like quite a gamble, however the recent case of the Hippodrome Casino takes gambling to a whole new level.
This casino provides hospitality, entertaining and gambling. As gambling is exempt, the casino is a partially exempt business.
Being partially exempt requires a calculation to be worked though in order to identify accurately the amount of input VAT that may be recovered. VAT on costs incurred by a business in making exempt supplies is usually irrecoverable.
The regulations provide a “standard method” for this calculation which is based on turnover. It is possible to apply a special method, one which is more tailored to the business and which would provide a fairer outcome. However HMRC must agree the basis of that special calculation before it is applied.
The casino applied to HMRC to use a special method involving floor space. HMRC rejected the method so the casino took it to the First Tier Tribunal, who agreed with the casino.
HMRC then took it to Upper Tribunal, as their questions regarding overlapping floorspace between the taxable and exempt supply areas had not been responded to by the Casino. HMRC won.
HMRC then also queried the complimentary food and drink provided to gamblers as business entertaining and restricted the residual VAT pot further.
Whilst it is true that HMRC will review a special method very carefully, when prepared correctly it is possible to have a special method agreed and that will benefit the business cash flow.
Even where a special method would not be useful, there remain several winning pockets on the roulette wheel of partial exemption, such as:-
- Rounding your recovery percentages up and squeezing out that extra little recovery amount?
- Applying both deminimis criteria correctly to check if you avoid any VAT recovery restriction?
- Excluding any distortive values from turnover?
- Adopting the simplified method and reducing the required calculations to one each year?
- Checking that the supplies you are making on which you charge no VAT are actually exempt rather than zero rated or outside the scope?
The question is (forgive me Mr Eastwood) is, do you feel lucky?
You should!
We can help you with any queries you might have with VAT exemptions or partial exemption or any other area of VAT which has been lurking at the bottom of your in-box.
Please contact us and we will be happy to help.
