5th July 2024 – Hillmans Weekly Update

Welcome to our latest round-up of the latest business and tax news for our clients. Please contact us if you want to talk about how these updates affect you. We are here to support you!

Have a great weekend.

Kind regards,
 
Steve
 
Steven Hillman BSc (Hons) FCA
Chartered Accountant
Tel: 01934 444100
https://www.hillmans.co.uk

VAT ON PRIVATE SCHOOL FEES – ANY PLANNING?
The Institute of Fiscal Studies (IFS) indicates charging VAT on private schools would generate revenue of £1.6bn per year, which Labour claim would fund 6,500 extra teachers.

Many parents have been asking if there is any planning to avoid the 20% increase in private school fees. However, the actual increase may not technically be a full 20% for parents as schools would be able to reclaim some input tax on overheads and property maintenance, potentially off-setting a lower cost base against a slightly higher term fee.

One possible strategy involves pre-paying term fees in advance, often for multiple years rather than pay a term at a time.  This strategy relies on accelerating the “tax point” for the service (see below). There may be anti-forestalling legislation, effective from the day of the announcement, but although Labour have stated that any legislation will not be retrospective, the effectiveness of such strategies cannot be guaranteed.
 
“TAX POINT” FOR VAT
The time of supply is the earlier of:

• the date when the supply is ‘really’ made, referred to as the basic tax point;
• the date when a tax invoice is issued in respect of the supply; and
• the date when payment is received for the supply.

There are a number of refinements to be borne in mind in applying this basic rule, particularly the 14-day rule, and there are also special rules for certain kinds of supply.

If a VAT invoice is issued within 14 days of the basic tax point, the basic tax point can be ignored in fixing the time of supply and the date when the invoice is issued is used instead.

The invoice must be a proper VAT invoice and must be issued by the supplier to their customer.

It is possible to opt out of the 14-day rule, but this must be notified in writing to HMRC.

WHAT IS A POOL CAR?
The conditions for a company car to be treated as a pool car are set out in the employment income legislation:
(a)       the car was made available to, and actually used by, more than one employee,
(b)       the car was made available, in the case of each of those employees, by reason of the employee's employment,
(c)        the car was not ordinarily used by one of those employees to the exclusion of the others,
(d)       in the case of each of those employees, any private use of the car made by the employee was merely incidental to the employee's other use of the car in that year, and
(e)       the car was not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the car available to them.

CHILDCARE ACCOUNTS CAN SUBSIDISE SUMMER CHILDCARE COSTS
If you have children under 12 who attend a nursery, after school club, playscheme or childminder, or you are considering sending them to a summer camp, you should think about setting up a tax-free childcare account. The government adds 25% to the amounts that you save in the account - up to £2,000 for each child - so £8,000 is topped up to £10,000 (a higher amount applies for disabled children).

The account is then used to pay Ofsted registered childcare providers. Note that it doesn’t need to be the child’s parents paying into the account; uncles, aunts, grandparents and others can also make payments, The government have noticed that many families who are eligible for this scheme are yet to set up their accounts, so if you are an employer you could bring this to the attention of your staff to increase the take up.

Note that parents are not eligible if either of them have adjusted net income in excess of £100,000 for the current tax year.

VAT ON THE COSTS OF SELLING OF A SUBSIDIARY
When a holding company sells shares in a subsidiary, the VAT incurred on the professional fees involved would normally be irrecoverable, on the basis that a sale of shares is an exempt supply.

In a recent case a hotel group argued that a subsidiary was sold in order to finance the completion of construction of a new hotel and that there was a direct and immediate link between the raising of the funds and the group’s downstream activities of operating hotels. The Tax Tribunals were satisfied the VAT on the professional fees associated with the share sale was a general overhead of the group’s business and could be recovered as input tax. Based on the Upper Tribunal decision many other groups were advised to make protective claims for the recovery of input tax.

Unfortunately, the Court of Appeal have now rejected the taxpayers arguments and found in favour of HMRC, thus denying recovery of input tax on the associated professional fees in connection with the share disposal as that is an exempt supply.