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Phone cards

Customs describe the action they will be taking to deal with avoidance schemes relating to sales of phone cards in Business Brief 18/04, as follows.

Customs set out in Business Brief 29/03 its view of both the VAT treatment of phone cards, specifically the treatment of supplies of phone cards received by a United Kingdom distributor from an issuer belonging in another Member State, and the VAT treatment of supplies made by that United Kingdom distributor. In particular, it drew attention to the treatment of phone cards issued as credit vouchers and emphasised that the consideration for such vouchers is only disregarded where VAT has been accounted for correctly by the person from whom goods or services are obtained by the use of the voucher.

Some businesses have adopted arrangements that do not follow this guidance. One consequence of such arrangements is that the incorrect tax treatment will be applied each time a phone card is sold, whether by an issuer, distributor or retailer.

To ensure that the correct tax treatment is applied, Customs need to be satisfied that the correct amount of VAT is accounted for in relation to each sale of the phone card. Businesses may therefore wish to check with their suppliers that VAT has been correctly accounted for on the vouchers supplied to them.

Customs are inviting businesses affected by avoidance arrangements to submit voluntary disclosures. To allow businesses time to prepare these disclosures, Customs will suspend enforcement of the guidance in Business Brief 29/03 for a period of 21 days from the date of Business Brief 18/04, i.e. 13 July 2004.

If the net value of the disclosure is £2,000 or less, a business may amend its VAT account and include the value of the adjustment on its current VAT return.

If the net value of the disclosure is more than £2,000, details should be submitted to the local business advice centre (a business cannot make this adjustment on its VAT return).

(Customs Business Brief 18/2004 dated 13 July 2004.)

Off-street parking

In a preliminary decision, the VAT tribunal has found in favour of the Isle of Wight Council (LON/00/653), ruling that the council is not in business when it provides off-street car parking spaces in return for payment. The tribunal was also of the opinion that Customs are unable to argue that to treat off-street car parking as non-business would distort competition. This is because, the tribunal said, the United Kingdom has failed to implement Article 4(5) of the European Community Sixth VAT Directive properly.

Customs accept that local authorities providing car parking spaces under the same circumstances as the Isle of Wight and under the Road Traffic Regulations Act 1984, do so under a special legal régime. Customs do not, however, accept that the United Kingdom has failed to implement Article 4(5) properly. This matter has been considered in the past by both the High Court and tribunal, and the conclusion has been that the provision is fully implemented in United Kingdom law.

As a result, Customs will continue to interpret the law as requiring them to consider the possibility of distortions of competition where a local service is provided both by local authorities and by the private or the voluntary sector. This is necessary to protect non-public bodies from distortions that might otherwise arise if local authorities could provide their service totally free of VAT, whereas other persons were obliged to apply VAT. Customs will, therefore, be appealing this part of the decision to the High Court. If Customs are successful, they will continue with their argument concerning distortion of competition.

Local authorities may continue to account for VAT on car parking charges and later submit claims for repayment with statutory interest, if the final decision goes against Customs. Alternatively, local authorities may choose not to account for VAT on car parking charges. In such cases, protective assessments will be issued for the VAT which Customs consider to be due. If the final decision is in Customs' favour, local authorities will be required to repay the VAT with interest.

(Customs Business Brief 13/2004 dated 14 July 2004.)

Issue: 3968 / Categories: