VAT on BW Licences

[Arnot]

Here’s a thought.

 

Whilst we are all pleased about the minute reduction in licence fees due to the reduction in V.A.T., I cannot see any reason why there should be V.A.T. on a BW licence at all!

 

I have tried to navigate the HMRC website on this vein briefly but need to have a sleep and it would take all night.

 

However, it seems in concept that V.A.T. should only be charged on the supply of goods and/or services and I’m not sure that the BW licence meets this.

 

As boaters we don’t appear to have a contract with BW and they don’t appear to specify what they will provide in return for the licence fee.

 

There doesn’t appear to be V.A.T. on a TV licence. (And you don’t have to pay more if you have a bigger screen )

 

There doesn’t appear to be V.A.T. on a road fund licence.

 

In fact I can’t offhand think of any other licence that has V.A.T. added to it.

 

So… can anyone tell me why there should be V.A.T. on my BW licence?

 

Regards

 

Arnot

[greywolf]

a valid question and i think that like a road fund licence there is only the right to journey from A-B give by buying the license.

[sueb]

Here’s a thought.

 

Whilst we are all pleased about the minute reduction in licence fees due to the reduction in V.A.T., I cannot see any reason why there should be V.A.T. on a BW licence at all!

 

I have tried to navigate the HMRC website on this vein briefly but need to have a sleep and it would take all night.

 

However, it seems in concept that V.A.T. should only be charged on the supply of goods and/or services and I’m not sure that the BW licence meets this.

 

As boaters we don’t appear to have a contract with BW and they don’t appear to specify what they will provide in return for the licence fee.

 

There doesn’t appear to be V.A.T. on a TV licence. (And you don’t have to pay more if you have a bigger screen )

 

There doesn’t appear to be V.A.T. on a road fund licence.

 

In fact I can’t offhand think of any other licence that has V.A.T. added to it.

 

So… can anyone tell me why there should be V.A.T. on my BW licence?

 

Regards

 

Arnot

Only because that is the way BW set it up. You don't pay vat on an EA licence. There have been arguments with BW over this since vat came in.

Sue

[WJM]

VAT ratings can be very 'vague' and subject to overturning - it is not at all impossible that a challenge could be successful. If it could be proved that BW licenses should be zero or exempt, in law, BW would have to refund three years of VAT to all of us! - Anyone fancy taking them on?

[sociable_hermit]

If such a challenge were succesful, I'd rather the Revenue gave the money back to BW and they then spent it on something useful that would be of direct benefit to those who paid it in the first place.

 

And because it would be boater's money, this would have to be things like dredging, towpath repairs, lock repairs etc.. rather than things for fishermen, twitchers and cyclists.

[Gibbo]

If such a challenge were succesful, I'd rather the Revenue gave the money back to BW and they then spent it on something useful that would be of direct benefit to those who paid it in the first place.

 

And because it would be boater's money, this would have to be things like dredging, towpath repairs, lock repairs etc.. rather than things for fishermen, twitchers and cyclists.

 

Or put it into the pot for the directors' bonus scheme?

 

Most likely where it would end up anyway.

 

Gibbo

[debbifiggy]

Here’s a thought.

 

Whilst we are all pleased about the minute reduction in licence fees due to the reduction in V.A.T., I cannot see any reason why there should be V.A.T. on a BW licence at all!

 

I have tried to navigate the HMRC website on this vein briefly but need to have a sleep and it would take all night.

 

However, it seems in concept that V.A.T. should only be charged on the supply of goods and/or services and I’m not sure that the BW licence meets this.

 

As boaters we don’t appear to have a contract with BW and they don’t appear to specify what they will provide in return for the licence fee.

 

There doesn’t appear to be V.A.T. on a TV licence. (And you don’t have to pay more if you have a bigger screen )

 

There doesn’t appear to be V.A.T. on a road fund licence.

 

In fact I can’t offhand think of any other licence that has V.A.T. added to it.

 

So… can anyone tell me why there should be V.A.T. on my BW licence?

 

Regards

 

Arnot

 

 

The answer according to Steve Pullinger, the BW Head of TAx and Accounting is

 

Why does British Waterways charge VAT on the Craft Licence

 

Firstly it is important to understand how VAT applies to a business. BW is required by legislation to be registered for VAT. If you are registered for VAT you must charge VAT on all of your supplies where the law requires it.

 

A VAT registered business regularly completes a VAT return in which it pays to HM Customs & Excise all of the VAT it has collected from customers and reclaims all of the VAT it has incurred on goods and services it has acquired.

 

However it is only possible to reclaim any VAT incurred if the VAT can be attributed to taxable business activities. The majority of all BW expenditure on the general maintenance and major repairs of the canal infrastructure includes VAT.

 

Prior to 1989 BW did not charge VAT on its craft licences and as a result was unable to recover VAT on its general repairs and maintenance of the canals.

 

In 1989 BW opted to charge VAT on its property including canals to enable it to generate taxable activities (including charging VAT on the craft licence) on the canals, which in turn enabled BW to recover the VAT incurred on general maintenance and refurbishment.

 

At the time BW did not increase the overall cost of the craft licence to the customer. If for example the licence at the time cost £300, after BW opted to charge VAT the licence still cost £300 (£255+ £45 VAT). In other words this cost was not passed on to BW’s customers.

 

Without this option to charge VAT on the craft licence, at today’s level of expenditure on the canal infrastructure, BW would be losing up to £20 million per annum in lost VAT on the general and major repairs, and the price of the craft licence and other income streams would need to be increased by a significant amount to offset this loss.

 

Why doesn’t the Environment Agency charge VAT on their Craft Licence

 

The EA has a special exemption in VAT legislation that allows them to reclaim the VAT suffered on work carried out on their waterways. This means it does not need to make the same election as BW. Our request to HM Treasury for BW to have the same special exemption as the EA was rejected. This is why the VAT position for the two licences is different between the two authorities.

 

 

Hope this helps.

D

[carlt]

Hope this helps.

D

No it doesn't.

 

Like VAT on the fuel tax, it is merely a tax on a tax.

 

Government bickering on how the public purse is shared out is no excuse for loading it on the public.

 

Just because you are VAT registered doesn't mean you can arbtrarily decide to suddenly start charging Vat on one of your services.

 

More BW spin.

[Sir Nibble]

Well I'm not so sure.

Steve Pullinger's explanation looks quite credible to me, though I'm certainly no expert on tax.

HMRC moves in mysterious ways.

[dor]

What he doesn't explain is why the license isn't zero-rated or exempt like other licenses. This wouldn't stop them reclaiming the vat on their inputs if they were registered for vat (which of course they would have to be). I believe zero-rated items still have to be treated as vat-able, just at 0%.

 

When I worked in the animal feed industry, 99.8% of our sales were zero-rated. The accounts software still had to show the vat on the invoice, at £0.00.

[carlt]

So, if I walk into a chandlers and buy a pump (subject to VAT) and a book (not subject to VAT) the owner can say "I've decided to charge you VAT for the book because I won't be able to claim the VAT, I'm paying that builder, fixing my wall, otherwise."

 

Doesn't happen...except on planet BW.

[Machpoint005]

I think the key to it may be that BW is regarded for taxation purposes as a business, and the EA as a government agency, for rather obscure historical reasons. BW clearly explain that when they first started charging VAT the customer did not have to pay any extra - in other words, some of the money paid in licences went straight to Customs & Excise (as they then were). This is still the case, although the rates have, of course, increased.

 

As a business, the VAT paid to BW goes straight through the system to their suppliers (provided that they are VAT registered). This is the way VAT works: the end-customer pays it and the top supplier pays it to HMRC. If we (the end users) stopped paying the VAT element, then BW would have to make up the shortfall by increasing the licence fees - the reverse of what happened in 1989. Either way, we pay (whether or not BW passes VAT monies on to their suppliers), so trying to change BW's method of dealing with their VAT affairs is completely pointless.

[carlt]

If we (the end users) stopped paying the VAT element, then BW would have to make up the shortfall by increasing the licence fees

Only if VAT is actually payable on the boat tax.

 

If it is found not to be then why would BW have to make up the shortfall.

[GUMPY]

Only because that is the way BW set it up. You don't pay vat on an EA licence. There have been arguments with BW over this since vat came in.

 

Thats because EA don't issue licences they have registrations a whole world of difference

 

J

[Machpoint005]

If it is found not to be then why would BW have to make up the shortfall.

Because they would still have to pay VAT to their suppliers and wouldn't be able to recover it in their VAT returns - just as they didn't, pre-1989.

[carlt]

Because they would still have to pay VAT to their suppliers and wouldn't be able to recover it in their VAT returns - just as they didn't, pre-1989.

Because one of their services isn't subject to VAT??

 

They do not have to charge VAT for exempt items, just because they are vat registered.

[WJM]

Although I am sure BW have checked this with tax experts it does not make sense to me.

 

If a business buys materials with VAT on them but it sells only finished products with no VAT then the VAT return says;

 

Tax Collected: = Nil;

Tax paid out and now to be reclaimed = £x

 

- and HMRC will send the company a cheque for £x

 

BW seem to be saying that unless that top line is greater than the bottom one then no reclaim can happen. This is not true - HMRC will send out a refund if your reclaim exceeds your collection.

[NB Alnwick]

VAT ratings can be very 'vague' and subject to overturning - it is not at all impossible that a challenge could be successful. If it could be proved that BW licenses should be zero or exempt, in law, BW would have to refund three years of VAT to all of us! - Anyone fancy taking them on?

 

Although, in effect, BW only collect the money on behalf of Revenue & Customs and if it was refunded as a result of a successful challenge, BW would claim the tax back from Revenue & Customs. In other words, it would not be BW's direct loss.

[WJM]

Correct: I am in the middle of this very process - I am refunding three years worth of VAT to a customer I had wrongly charged VAT to. It doesn't ultimately cost me anything. It comes off my next VAT return.

[dor]

- and HMRC will send the company a cheque for £x

-Exactly.

 

We used to receive a substantial cheque from the vatman every quarter representing all the vat we had paid, less the tiny amount we had to charge on non-zero-rated items.

[david and julie]

The VAT treatment in respect to land and buildings is somewhat different to most other areas of VAT in that its optional.

 

Generally speaking, if you decide to register the building for VAT you can reclaim, but this then means you must charge VAT on anything(such as on rent) relating to that building. It becomes like most VAT areas IE in one hand out the other.

 

By default building aren't registered for VAT and if you decide to leave the building in its default position, you can't charge VAT on any rents etc - it also means you can't reclaim the VAT you pay on anything relating to that building - even if your VAT registered.

 

This is what BW meant here in debbifiggy's link.

In 1989 BW opted to charge VAT on its property including canals to enable it to generate taxable activities (including charging VAT on the craft licence) on the canals, which in turn enabled BW to recover the VAT incurred on general maintenance and refurbishment.

 

I would imagine BW opted to tax so they could reclaim on their newbuild interests really.

 

Its a minefield this legislation.

http://customs.hmrc.gov.uk/channelsPortalW...=HMCE_CL_000158

[Dominic M]

The simple fact is that if BW was not registered for VAT it would not be able to reclaim the VAT on all its expenditure - which, as they state, amounts to millions - millions that would come out of its annual subsidy reducing further the amount available for maintenance, etc.

 

The EA work under an exemption in VAT legislation, which allows them to reclaim VAT but not charge it. The EA is a very different public body with a vast portfolio of responsibilities of which navigations are a small element. BW cannot get the same exemption. Therefore they have to charge VAT on their services, and a boat licence is deemed a service in law that is taxable at the full rate currently in force.

 

The point made by Carlt about going to a chandlery and buying an item subject to 15% VAT and a book (no VAT) doesn't work, because the book is subject to VAT at 0% (zero rate) and is therefore regarded as a taxable item in law. If books were exempt from VAT then a business registered for VAT that sold books would only be able to reclaim a proportion of their input tax, based on a formula decided by the amount of exempt output and the amount of taxable output.

 

I know BW bashing is a popular sport, but it has no choice in this matter. It could only be changed by government, and no government to date has shown any interest in doing so.

Edited December 19, 2008 by Dominic M

[carlt]

How does the Broads Authority go on, then?

 

I can find no reference to VAT in their licence fees (though I may not have searched hard enough).

[Dominic M]

How does the Broads Authority go on, then?

 

I can find no reference to VAT in their licence fees (though I may not have searched hard enough).

I don't know but they are a part of the National Parks body (which lies within I know not what government ministry) so I would not be surprised if they qualify for the same exemption as the EA given the breadth of their remit.

[Machpoint005]

The simple fact is that if BW was not registered for VAT it would not be able to reclaim the VAT on all its expenditure - which, as they state, amounts to millions - millions that would come out of its annual subsidy reducing further the amount available for maintenance, etc.

 

The EA work under an exemption in VAT legislation, which allows them to reclaim VAT but not charge it. The EA is a very different public body with a vast portfolio of responsibilities of which navigations are a small element. BW cannot get the same exemption. Therefore they have to charge VAT on their services, and a boat licence is deemed a service in law that is taxable at the full rate currently in force.

 

The point made by Carlt about going to a chandlery and buying an item subject to 15% VAT and a book (no VAT) doesn't work, because the book is subject to VAT at 0% (zero rate) and is therefore regarded as a taxable item in law. If books were exempt from VAT then a business registered for VAT that sold books would only be able to reclaim a proportion of their input tax, based on a formula decided by the amount of exempt output and the amount of taxable output.

 

I know BW bashing is a popular sport, but it has no choice in this matter. It could only be changed by government, and no government to date has shown any interest in doing so.

Thanks, Dominic, for explaining it more clearly than I could. If BW is a VAT-registered business (which it is) and provides services for which it charges (which it does) then given its turnover, it has no choice but to charge VAT. It is beyond their control and therefore a waste of effort our trying to change it. It won't wash.