With effect from 1 August 2004, legislation has been introduced to require VAT registered traders to notify Customs if they use schemes that Customs deem to be ‘VAT Avoidance’.
The legislation is intended to dissuade the creation and use of ‘contrived’ and elaborate schemes, whose main purpose is to avoid tax. The requirement to notify Customs will provide them with information in order to take counter action where appropriate.
There are two types of areas that Customs are targeting, these are ‘Designated avoidance schemes’ and ‘Hallmark schemes’. Customs have published a list of 8 designated schemes the use of which must be disclosed to Customs. A hallmark scheme is basically a transaction or number of transactions entered into which has, as one of its main purposes the intention to achieve a tax advantage.
Customs have also published the hallmarks of such schemes.
There are heavy penalties for traders who fail to notify Customs when they use such schemes, however as with other VAT penalties, these cannot currently be directly levied on NHS bodies. Trusts should however still be aware that certain transactions with non-NHS third parties may still come under scrutiny. It should also be pointed out that NHS bodies have in the past been specifically warned against using avoidance schemes by the DoH and HM Treasury.
Finally, the legislation is NOT intended to dissuade traders or NHS bodies from reviewing bona-fide transactions in order to ensure that you gain the correct tax advantage, (e.g. PFI arrangements, property transactions, business reviews, COS reviews, etc).
If you would like more detailed information on the legislation or are in any doubt about arrangements entered into or being suggested for your NHS organisation, please let us know at the earliest opportunity.