Archive July 2021

Building Upwards

My client is adding extra floors to an existing block of flats.  What is the liability of the construction services for carrying out this work?

This seems to be an increasingly common question of late, no doubt sparked by the recent change in planning rules allowing developers to add two extra floors to detached blocks of flats.  The new permitted development right came into force on the 1 August 2020 and is set out as Class A, Part 20, Schedule 2 of the General Permitted Development Order (the GPDO).

The VAT liability will very much depend on the nature of the development and whether the enlargement creates additional new residential dwellings.

For new residential dwellings VAT zero rating for the construction services is by virtue of Schedule 8, Group 5 of the VAT Act 1994.  The rules around zero rating the construction are all contained within VAT Notice 708 ( and in particular paragraph 3.2.5 deals with enlargements and extensions that create additional dwellings.  The Notice states you can zero rate the enlargement of, or extension to, an existing building to the extent that the extension or enlargement contains an additional dwelling provided both the following conditions are met:

the new dwelling is wholly within the enlargement or extension;

the dwelling is ‘designed as a dwelling’ – see definition in paragraph 14.2 of Notice 708.

However, if the new dwelling is partly or wholly contained within the existing building, you cannot zero rate the work under the rules in this section; although you may be able to reduced rate (5%) the charge as a ‘changed number of dwellings conversion’ (s.7 N.708).

This has a been a contentious area for VAT in the past and further guidance can be found in the HMRC VAT Construction Manual – specifically VCONST02300.

VATA 1994 Schedule 8 Group 5 Note 16(b) states that the enlargement or extension of an existing building is ‘the construction of a building’ to the extent that the enlargement or extension creates an additional dwelling. HMRC state “In the clearest case, this relief applies to the construction of a new storey of flats on top of an existing block of flats.”

HMRC’s view is that it is important that the new dwelling is contained entirely within the enlargement or extension. If any of the original building is incorporated into the new dwelling the works are not zero-rated. Tribunals have not always agreed.

In the case of Michael, Gillian and Norman Smith (VTD 17035), works that involved the creation of a second dwelling, appeared to form a semi-detached house next to an existing one but in fact included a part of the original building within the new one. The Tribunal decided that where an enlargement or extension contained part of a new dwelling (the remainder of the new dwelling being formed within the original building) the words ‘to the extent that’ in Note 16(b) allowed zero-rating for the enlargement or extension containing part of that dwelling but not the other works.

Similarly in Jahansouz (TC00637) which was a DIY case, a pitched roof was removed and a flat was constructed under a new roof. The new flat incorporated nothing of the pre-existing building but was partly in the previous roof space. HMRC saw only the additional roof space as an extension although the Tribunal disagreed.

HMRC consider both cases were wrongly decided. HMRC remain of the view that the zero-rating provision at Item 2 is limited to dwellings and not parts of dwellings. It does beg the question do HMRC only ever consider zero-rating can apply to new dwellings on top of flat roofs?

As ever with VAT and building projects, each case will turn on its own particular facts and appropriate advice should be sought.


As you may know, the easing of restrictions in England has led to thousands of people being notified by the NHS test and trace app to self-isolate for 10 days. This has had adverse effects on a client’s business due to staff shortages. The client would like to know what their options are for dealing with this issue.

Managing an unexpected period of self-isolation can be gruelling but your client may be able to get around this by allowing staff, even though government guidance in England has changed, to work from home during this period if possible. Another option is to consider hiring temporary workers or asking the remaining workforce to split their colleagues’ workload between them. They may also wish to consider whether their staff are eligible to be exempt from self-isolation under the Government’s new rules.

The new rules highlight that “…a limited number of named workers may be able to leave self-isolation under specific controls for the purpose of undertaking critical work only.”

This process is only intended to run until 16 August 2021, when fully vaccinated close contacts will be exempt from self-isolation. Where your client believes the self-isolation of certain key employees would result in serious disruption to critical services, they should contact the relevant government department.

The sectors to which the new rules apply are:

  • energy
  • civil nuclear
  • digital infrastructure
  • food production and supply
  • waste
  • water
  • veterinary medicines
  • essential chemicals
  • essential transport
  • medicines
  • medical devices
  • clinical consumable supplies
  • emergency services
  • border control
  • essential defence outputs; and
  • local government.

In some exceptional cases, there may be critical roles in sectors not listed above which meet the criteria. These will be agreed on a case-by-case basis. Where your client thinks this applies, they should contact the government department with responsibility for their sector.

The Government makes it clear that this policy applies to named workers in specifically approved workplaces who are fully vaccinated (defined as someone who is 14 days post-final dose) and who have been identified as close contacts.

Permission to attend work is, it emphasises, contingent on following certain controls, agreed by the Department of Health and Social Care (DHSC), to mitigate the risk of increased infection.

SDLT Additional Rate

My client owns several residential properties in her sole name.  Her spouse wishes to buy a buy-to-let property in their own name.  Will Stamp Duty Land Tax higher rates for additional dwellings apply? 

Yes, the additional 3% charge will apply here for the reasons outlined below.

In order to determine whether the SDLT higher rates will apply to the spouse purchasing alone, the conditions set out para 3(1) Sch. 4ZA FA 2003 will apply to both spouses, on the assumption that the other spouse was a purchaser, provided both spouses or civil partners are living together at the date of completion(Para 9 Sch. 4ZA FA 2003).

The transaction is to be treated as being subject to SDLT higher rates and para 9 of Sch. 4ZA effectively deems the purchaser’s spouse as party to the transaction provided the following:

  • the purchaser (or one of them) is married or in a civil partnership on the effective date,
  • the purchaser and the purchaser’s spouse or civil partner are living together on that date, and
  • the purchaser’s spouse or civil partner is not a purchaser in relation to the transaction.

Persons who are married to, or are civil partners of each other, are treated as living together for the purposes of Schedule 4ZA, if they are so treated for the purposes of section 1011 of the Income Tax Act 2007 – see SDLTM09820.

Para 9(2) requires the following conditions of Para 3 to be applied to each spouse and if either spouse meets all the conditions A to D, the purchase will be subject to the higher rates of SDLT.

A purchase of a major interest in a single dwelling by an individual will be a “higher rates transaction” and the higher rates of SDLT will apply to the purchase, if at the end of the day of purchase each of conditions A to D:

  • Condition A – the chargeable consideration is £40,000 or more
  • Condition B – the major interest purchased is not subject to a lease which has more than 21 years to run on the date of purchase
  • Condition C – the purchaser owns a major interest (with a market value of £40,000 or more) in another dwelling which is not subject to a lease which has more than 21 years to run at the date of purchase of the new dwelling, and
  • Condition D – the dwelling being purchased is not replacing the purchaser’s only or main residence.

In contrast, if the spouse with the property portfolio decided to transfer a residential property to the other spouse, and on the effective date of the transaction the two of them are married to, or civil partners, of each other, and living together, then the transaction is not a SDLT higher rates transaction (Para 9A Sch. 4ZA FA 2003).


My client runs a childcare centre.  During term-time it is largely pre-school children with some pre- and post-school care for primary school children.  During the school holidays she caters for all children up to the age of 12. She offers a wide range of creative, quiet and physical activities to cater for different children’s preferences, and these activities are generally led by students in the main holidays, or by the nursery staff for the rest of the time.

She is OFSTED regulated – does this mean it is exempt as education? 


In order to be exempt as education under VATA 1994, Schedule 9, Group 6, your client would need to be an eligible body; in other words (for this age group) a school as defined under the Education Acts.

Non-residential childcare falls under Group 7 which exempts Health and Welfare.  Item 9 exempts the supply by a state regulated private welfare institution of welfare services directly connected with the care or protection of children and young persons.

Where the body is required to be Ofsted regulated because it provides paid-for care to children under the age of 8 it will be a state regulated body.  In addition to exempting care for the under-8s, it can also choose to exempt an equivalent range of care to older children.  The conditions for this exemption are set out in VAT notice 701/2 para 2.2.2, and they are that the body:

  •  provides care on a commercial basis to children who are younger than 8 years old, as well as to older children;
  • operates identical hours of opening for all age groups, and
  • provides activities for children over 8 years old that are comparable with those provided for younger children.

Holiday clubs and after-school clubs can be problematic, particularly those which have a specific focus on a narrow range of activities rather than a wide range aimed at accommodating all children.  However, HMRC have in the past challenged even those offering a wide range, simply because in marketing material the body emphasised the range of activities offered. This problem has now been clarified to a large extent by the tribunal decision in RSR Sports limited. An HMRC brief was published following the decision which sets out the key features they would expect to find to support that the supply is one of childcare rather than the activities.

These are that:

  • The members of staff were merely supervising activities;
  • They did not hold coaching or teaching qualifications;
  • There was no external standard to which the services were being provided, and
  • The activities were merely an adjunct to the essential service which was childcare.

Workplace Meals

My client owns a pub/restaurant and provides his staff with a meal halfway through their shift, is this a taxable benefit?

If a free or subsidised meal is provided to employees by their employer there may be tax relief by exemption or by deduction.

  • If the meal is part of an employee or director travelling on qualifying business travel
  • If the employee’s or director’s meal is part of business entertaining and there is a matching deduction under S336 ITEPA 2003
  • Under the exemption in S317 ITEPA 2003

In the client’s case, by providing a meal to his staff during their working hours, there is no tax charge if the meal is provided in either a canteen or at the workplace and the following four conditions are met as detailed in S317 ITEPA 2003.

The conditions are

  • That the meal provided is on a reasonable scale. Further information on what is meant by ‘reasonable scale’ is detailed in EIM21671.
  • That all the employer’s employees or all employees at one location can obtain either a free or subsidised meal or a free or subsidised meal voucher or token
  • That if the meal is provided in a restaurant, dining room of a hotel or other similar business, that a part of that area is designated for staff use only and the meals ae taken in that part
  • That the meal is not part of a salary sacrifice or flexible remuneration arrangement. Further information can be found in EIM21676.

If all the above conditions are met, then tax relief can be obtained on a free or subsidised meal in the workplace.

If the conditions are not met then the benefit of the free or subsidised meal must be reported on a P11D or the benefit processed through the payroll and the employer will have a Class 1A National Insurance liability to pay on the benefit.

There is no requirement that all employees must have frequent meals at the workplace, just that they have the opportunity to have a free or subsidised meal if the employer offers such a benefit.

If meals are provided in a canteen, the exemption can apply to any canteen.  The canteen does not have to be on the employer’s premises or restricted to employees from one employer only.  For example, one canteen could provide meals to all employees working on one industrial estate if all the employees from a particular employer can access the meals at the canteen.

The exemption will also apply to a meal provided to an employee by a third party.  For example, if the employee is working at the premises of a third party on a temporary basis and that employer provides free or subsidised meals to all their employees.

Further information on this subject can also be found at EIM21672 and EIM21673.


A client has started a new business buying second hand commercial vans and converting them into campervans before selling. They also buy existing campervans and repair/refurbish these. A client understands they can use the VAT Margin Scheme for these sales – is this correct? 


Second-hand goods, including second-hand motor vehicles, can be sold on the margin scheme subject to the following conditions:

  • The vehicles must be ‘eligible’.
  • The vehicle must be acquired under eligible circumstances – that is where you have not incurred VAT on its purchase because it was bought from an individual, a non-VAT registered business or sold to you on the margin scheme.
  • You comply with the calculation rules and record keeping requirements.

An ‘eligible’ vehicle is defined in VAT Notice 718/1 section 2.3:

Only second-hand vehicles can be sold under the Margin Scheme. Under the legal definition of second-hand goods, a second-hand motor vehicle is one which:

  • has been driven on the road for business or pleasure purposes
  • is suitable for further use as it is or after repair

Based on the above definition, the obvious issue is with those commercial vans that have been converted into a campervan – this would not meet the second condition as ‘suitable for further use as it is or after repair’ – the conversion has created a different type of vehicle altogether, it is not simply a repair.

Therefore, the sale of these vehicles would not be eligible for sale on the margin scheme, and VAT should be charged on the full selling price as normal. Any VAT incurred on the cost of conversion would be recoverable as input tax.

The sales of existing campervans that have been repaired would meet the definition of second-hand goods, and so could be resold on the margin scheme, with VAT only being accounted for on the margin. Again, the VAT on the cost of repair can be recovered as input VAT but the cost of repair should not be added to the purchase price.

The margin scheme is optional, and so the client can choose to use it for the sale of the repaired campervans but not the conversions, or not use it at all and charge VAT on the full selling price of all of their vehicles.

EU Changes 1 July 2021

Many of my clients are asking me about “the changes in the EU” from 1st July 2021.  Here is the info on this:

1st July 2021 was the implementation date for the changes coming in under the EU’s scheme for Modernising VAT for Cross-Border E-Commerce. The changes, designed to simplify VAT obligations for businesses making cross-border supplies of goods and services, were due to take effect from 1st January, but the implementation was postponed because of the coronavirus pandemic to allow Member States and businesses additional time to prepare.   Comprehensive guidance can be found on the European Commission Website at: –

There are useful links within the guidance to detailed Explanatory notes, and summaries for each of the schemes mentioned below.

The measures being implemented affect supplies of goods and services to EU consumers and are summarised below.   The measure concerning goods affects supplies of goods from stocks held by businesses within Great Britain and stocks held within Norther Ireland differently, as supplies of goods (but not services) fall within the Northern Ireland Protocol.

From 1st July 2021: –

Low value consignment relief has ceased; the VAT exemption for goods in small consignments with a value of up to EUR 22 has been abolished.  Unless falling within import VAT relief schemes, such as temporary importation relief, VAT will be due at the applicable local rate on all imports into the EU. ** See IOSS below

The non-mandatory Import One Stop Shop scheme (IOSS) begins.  This is a simplification open to businesses not established in the EU, supplying goods to non-VAT registered EU consumers with a consignment value of €150 or less.   Businesses using the scheme VAT register in one Member State (MS), using a local intermediary, and submit a local VAT return for that MS and a one stop shop return for all other MSs, declaring and paying over VAT at the applicable local rate. Where the goods are supplied via an online marketplace, the marketplace is responsible for accounting for the local VAT via their own one stop shop registration.   Goods on which VAT is accounted for under IOSS benefit from a VAT exemption upon importation, allowing faster customs processing.   More detail on the IOSS can be found  in  our earlier VQOTW at

Please note that as mentioned above, the IOSS scheme is not mandatory, it is a simplification.  For sales outside the scheme, there are two options: –

  1. for the customer to be the importer of record – in which case the import VAT will be collected from the customer by the parcel courier, or
  2. for the supplier to be the importer of record, in which case the supplier will be treated as importing their own goods into the EU before the sale to the EU customer, and as a non-established taxable person making an onward supply of goods in the MS of importation, the supplier will be required to VAT register in that member state. They will be able to recover the import VAT but will then account for VAT at the local rate on the local VAT return.


The Union OSS Scheme, formerly MOSS and used to account for VAT on Intra EU supplies of TBE (telecoms, broadcasting and Electronically supplied) services, is extended to cover all B2C services AND intra EU Distance Sales of Goods. This measure will not impact all UK businesses, but supplies of goods from stock held in Northern Ireland, covered under the Northern Ireland Protocol.  are included within this simplification.  There is a pan European threshold of €10,000 (£8,818) applicable to EU and NI established businesses only, below which the supply is treated as subject to VAT in the MS of supply, however where the supplies exceed that threshold, local VAT is required to be accounted for.  Where a NI business registers for the OSS (and it can do so via its UK registration under the NI Protocol) sales above that threshold to other member states are declared via a One Stop Shop (OSS) return, without the former requirement to VAT register in each member state where the distance sales threshold had been reached. Guidance for NI Businesses from HMRC, with worked examples, can be found at  EU VAT e-commerce package – GOV.UK (

The Non-Union OSS Scheme, for Non-EU established businesses supplying TBE services to EU consumers is extended to cover all B2C services where the place of supply is the EU. This simplification allows a Non-Union OSS registration to be used to account for VAT on supplies such as those listed below without the need to VAT register in each member state.

  • Accommodation services carried out by non-established taxable persons,
  • Admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events, such as fairs and exhibitions,
  • Transport services,
  • Services of valuation and work on movable tangible property,
  • Ancillary transport activities such as loading, unloading, handling or similar activities, · Services connected to immovable property,
  • Hiring of means of transport,
  • Supply of restaurant and catering services for consumption on board ships, aircraft or trains etc.

Please give us a call on the advice line if you have any questions regarding any of the above points.

Employee Ownership Trusts

My client is a director and majority shareholder of a successful trading company (“the Company”), and as he is approaching retirement, we are discussing succession issues. The client has had many offers for his business, but he prefers not to sell to a competitor. He wants to realise a capital gain in recognition of his success but also wants to incentivise his loyal employees which also include some of his children. We are exploring an Employee Ownership Trust (“EOT”). My client wants to know if his children could also benefit from the EOT. 

An EOT is a form of indirect employee ownership which offers Capital Gains Tax (“CGT”) breaks for a vendor shareholder and income tax breaks for employees. A “classic” EOT is designed as a long-term shareholding structure where certain employees can benefit from the success of their employer company. There is also a growing number of “hybrid EOTs” which are being used to enable shares to be transferred to employees. For information on employee ownership generally, including EOT’s, see the Employee Ownership Association website.

The main reliefs from a qualifying EOT are as follows:

  • CGT relief for the client who has to dispose a controlling interest (51% or more) to an EOT (ss 236H- 236U TCGA 1992)- the share disposal disapplies the market value rule of s17 and treats the disposal as taking place on a no gain/no loss basis;
  • Relief from IHT in respect of certain transfers from and into an EOT (ss.13A, 28A and 75A IHTA 1984); and
  • Income-tax free bonuses of up to £3,600 per year to eligible employees (ss 312A- 312I ITEPA 2003).

An EOT is a complex structure and needs to be well thought through to ensure suitability before implementation. The client will need to get specialist tax advice to deal with the various conditions required to obtain the reliefs outlined above. They will also need to seek company law advice to ensure that the current constitution documents of the Company allow for shares to be sold to an EOT.

An EOT may not be suitable for the client as his children cannot benefit from the trust. This is because s.236J TCGA 1992 (the rules that permits the no gain/no loss treatment for the vendor shareholder) states that none of the settled property can be applied at any time other than for “eligible employees on the same terms”.

Eligible employees do not include “excluded participators” who are broadly anyone who has been a participator in the 10 years before property was first settled into the EOT, or a connected person of such a participator (defined in s.236J(5) TCGA 1992). Therefore, the children, as connected with the vendor shareholder, are excluded participators and so cannot benefit from the trust.

However, his children can benefit from the income tax free bonuses which are paid by the Company as employer, not the trustees. s312B ITEPA 2003 defines “qualifying bonus payments” and refers to the participation and equality requirements defined by s.312C(1) ITEPA 2003 which states:

a)the participation requirement is that all persons in relevant employment when the award is determined must be eligible to participate in that and any other award under the scheme, and

(b)the equality requirement is that every employee who participates in an award under the scheme must do so on the same terms.

 There then follows a list of exceptions from either of the above requirements being infringed. However, being a participator, or connected with one, is not an exclusion in itself- in respect of the income tax free bonuses.

If the client is still keen to proceed with an EOT he needs to accept that his children cannot benefit from the trust. Finally, the client should be aware that whilst the EOT provides various relief, it is still prone to attacks under Part 7A ITEPA 2003 and/or Transactions in Securities. As such, it is advisable, if the client is still keen on the idea of an EOT, to seek a formal clearance under s.701 ITA 2007 and a non- statutory clearance under Part 7A.


A client has been in touch about the care home update from the Government. Now that it has been confirmed that care home staff must have the COVID-19 vaccine, the client would like more information about how they can manage staff and any other important information they need to know.

The Department of Health and Social Care (DHSC) has indeed confirmed that people working in CQC-registered care homes will need to be fully Covid-19 vaccinated, with both doses, as a condition of deployment. This change only applies to England as Scotland and Wales have confirmed that they will not be mandating the Covid-19 vaccine for care home staff.

It is currently expected that the law will be made in October 2021. It will not come into force until 16 weeks later; at that point, affected employees must have had both doses of the vaccine unless they are medically exempt. Dependent on the exact date the regulations are made in October 2021, care home workers will have until early 2022 to have had the vaccine. For illustrative purposes, a 16-week grace period from the last day in October 2021 will expire on 20 February 2022.

The law will apply to all workers employed directly by the care home or care home provider, on a full-time or part-time basis, those employed by an agency and deployed by the care home, and volunteers deployed in the care home.

People coming into care homes to do other work, such as healthcare workers, CQC inspectors, tradespeople, hairdressers, and beauticians will also have to follow the new regulations unless they have a medical exemption.

There will also be exceptions for visiting family and friends, under 18s, emergency services, and people undertaking urgent maintenance work. However, there will be no exemption for those who hold a religious belief and refuse the vaccine on those grounds. The Government recognises that in some circumstances, vaccination may not be appropriate during pregnancy and this will be considered in guidance regarding granting exemptions.

Making the vaccine compulsory in care homes may cause significant resourcing problems for affected employers if staff choose not to have the vaccine despite the possibility that they will lose their job and possibly even their chosen career. One important consideration for the client is that, if it comes to terminating employment, a full and fair procedure will still be needed. A change in the law on vaccines in this way does not mean an exemption from normal rules on achieving a fair dismissal.

The client will need to become familiar with which individuals must have the vaccine because this goes further than just those who are directly employed. As it covers agency workers and also volunteers, along with anyone who comes to the home to provide services, it is clear that this will create an extra administrative burden on the client.

Unless employees are medically exempt, anyone working in a care home will be under a legal requirement to have had both doses of the vaccine. Continuing to employ someone who contravenes the requirement is likely to be unlawful. The client will need to redeploy an employee outside of the care home who would otherwise be working in breach of the vaccine requirement, including those who refuse to show proof. It is unlikely though that if employees have had the vaccine, they would be reluctant to show proof. If redeployment is not possible, the employee will need to be dismissed.

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