Market traders’ dismay at threat to charge VAT on their rents

Wigan indoor market
Wigan indoor market

Borough market traders find themselves at the heart of a national tax row that could decide whether some of them stand or fall.

Only days ago they learnt that Wigan Council is considering lifting a 10-year freeze on rents in order to make ends meet.

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And now they have received a town hall letter saying that HM Revenue and Customs has advised it to ensure stall-holders also start paying VAT on their rents for the first time.

It has led to a chorus of protests, with some traders saying the 20 per cent tax could finish them off.

And they are being given conflicting advice on what to do next: one is to hold fire with the payment while a test case is resolved; the other is that they should pay up, like it or not, or risk breaching the terms of their licence.

This is part of a much larger issue which is causing both divisions and alliances at a national level.

Talks were due to take place this week at Portcullis House in London involving HMRC, the Treasury, the Orrell-based National Association of British Market Authorities (representing the likes of Wigan Council) and the National Market Traders’ Federation to discuss VAT on market rents.

The issue is a new one although HMRC says there is no policy change.

But Nabma has accused it of “picking off individual councils” by getting them to enforce VAT on rents until there are enough to claim everyone should be doing it, instead of making a new policy announcement. Both Nabma and the NMTF also want clarity on what the criteria for the VAT are and feel that in many cases it wouldn’t be warranted.

HMRC says that if the market rent is for the supply of a pitch only, then this will normally be exempt from VAT. If “other services or goods” are included, then they should pay the tax.

The national bodies want to know what constitutes “other services and goods.”

Nabma chief executive Graham Wilson said it seems that HMRC now wants to tax stallholders if councils help them with anything from security, cleaning, electricity or publicity - and perhaps only a little of one of them.

The root of the issue is a tribunal from 2016 which backed the HMRC’s attempt to charge VAT on the operator of a Dorset antiques fair because its licence included additional services.

Perhaps emboldened by the verdict, HMRC then turned its focus on Shrewsbury Council, telling it that five market lettings were subject to VAT and that payments should be backdated four years. The authority is challenging the advice and this matter too may go to a tribunal.

Mr Wilson said: “HMRC will say that they are now empowered by the Craft Carnival case, but what concerns us is that they have not announced a policy change. They are picking off individual markets until eventually they have enough to say there is precedent.

“This is divide and rule and it may spell the death knell for markets all over the country.

“The Shrewsbury market bill is £120,000, another area has a potential bill of £350,000. This is a big ask from businesses, some of which are not making much money as it is.

“We are advising members not to pay at present while the Shrewsbury matter is resolved. This is an issue that needs to be determined on a national basis.” He said markets should be protected from VAT liability but, if charges are brought in, they should not be back-dated, and traders given time to prepare for their introduction.

NMFT chief executive Joe Harrison agreed about a national resolution but cautioned against rebellion.

“Our advice is to tell market traders to have a contingency in the event that our position is unsustainable,” he said. “It is all very well advising not to pay, especially as the industry has its troubles already; but most of our members will be tied into a licence and not to pay VAT would breach the licence arrangements.

“We want to encourage HMRC and the Treasury to back off.”

It was Wigan Council deputy chief executive Paul McKevitt who sent out the letter to traders. It read: “Following a recent visit from HM Revenues and Customs, the council were advised to review market rentals and to charge VAT in line with their policies.

“To comply with HMRC requirements, the council will be implementing VAT of 20 per cent on rentals from billing periods commencing June 1, 2018. The cost of the VAT will be met by the council initially for three months to allow a period of grace for traders to consider VAT registration if not already in place.

“Subsequently any bills issued from September 20, 2018 will include VAT charged at the standard rate.”

When told of what the two national organisations’ chiefs said, Mr McKevitt said: “This is a HM Revenue and Customs requirement which we have been told we need to comply with.

“If traders are VAT registered this won’t increase their rent.

“If they’re not already VAT registered the three months allows them the opportunity to consider whether they wish to register. The council won’t benefit from this VAT.”

And HMRC spokesman said: “There has been no change to the rules on VAT in this area.

“If the market rent is for the supply of a market pitch only, then this will normally be exempt from VAT.

“If other services or goods are included in the market pitch rental then the whole supply is taxable at the standard 20 per cent rate.”

Opposition councillor Paul Maiden said: “Some of these lads are nowhere near the VAT threshold and it would cripple them even more in these hard times when the market is on its knees.

“VAT registration will cripple traders and finish off their stalls.

“It’s just not practical for them. One trader I’ve spoken to has already handed his notice in and another who has three stalls said he is looking at £4,500 a year.”

A local authority review of current rent levels and payments is continuing after an internal audit revealed gaps in the records, the fact that there had been no increase since 2007 and there was a risk of rents not being paid.