Festive Closure

We will be closing on the afternoon of Friday 24 December and will reopen on Tuesday 4 January 2022 at 9am. If you have any urgent queries during this time, please contact your usual CVC partner by email and they will respond to you as soon as possible.

We have not sent Christmas cards this year and instead made a donation to a local food bank to support families struggling in these difficult times. However, we would like to take this opportunity to thank all our clients and regular readers for your support in 2021 despite the continuing challenges the year brought. We hope that you and your families have a safe and peaceful break and that 2022 is a good year for all.

HMRC NEWS

Changes to VAT and CT phone lines for December
In December, HMRC will be running a trial of reducing the hours on some of their telephone services so that they can dedicate the time to work on post that has built up over the past year. To test the approach, they closed their VAT and CT phone lines (with the exception of the bereavement line) on 3 December, and they will also be closing on 10 and 17 December.

VAT Group Registration Delays
HMRC is experiencing significant delays in many areas including processing applications for and changes to VAT group registrations. HMRC Policy team has given the following advice to businesses awaiting HMRC action in relation to delays in respect of VAT group applications where a prospective group member is either registered or unregistered for VAT and a return becomes due prior to the application being granted. That advice is as follows:

• If the business being added to a VAT group is already VAT registered then, until the application has been processed, customers must behave as if the business is not yet part of the VAT group.
• If VAT returns are completed incorrectly, on the basis that a proposed group change has taken place, then missing off supplies that are taxable even if they could be disregarded if the grouping request was agreed, is a deliberate error.
• A company/group cannot claim input VAT for an entity that has not yet been included as part of the VAT group registration, as it would not be that VAT group’s input VAT.
• If an entity is not VAT registered, then the grouping request is an application to register that entity and no other registration request is needed while it is being processed.
• HMRC should always backdate to the date the form was received (unless there is a valid reason that the change cannot be allowed) and corrective action can then be taken to restore the VAT position to give the outcome that would have occurred had the application been processed in advance of any transactions affected.

Refunds of UK VAT for non-UK businesses or EU VAT for UK businesses (VAT Notice 723A)
HMRC has recently updated its guidance on how to claim a VAT refund in the UK if a business is established outside the UK or how to claim back EU VAT if a business is established in the UK or Isle of Man. The Secure Data Exchange Service System (SDES) trial ended on 30^th November 2021 and, the information on electronic submission of VAT refund claims using SDES has been removed from the guidance.

Call for Evidence: Simplifying the VAT Land Exemption
In May, the government launched a call for evidence to assess potential options for simplifying the land and property VAT exemption. Respondents were invited to give an opinion on the current VAT rules related to land and property and share their views on the potential options for simplification that were presented, as well as providing any other ideas that were not included. HMRC received over 70 responses from a range of stakeholders.

HMRC has recently updated its guidance and published a summary of responses to the call for evidence. The summary document also sets out next steps and how HMRC will further engage with the sector.

Authorise an agent to form or amend a VAT group
HMRC have recently updated the VAT53 form to include a new email address to which completed, scanned copies of the form should be sent.

CASE REVIEW

Upper Tribunal

1. Gray & Farrar International LLP v HMRC

Gray & Farrar International LLP (G&F), the Appellant in this case, provides exclusive matchmaking services in several jurisdictions.

This case addresses the place of supply (POS) of the services provided by G&F to clients all over the world. G&F argued that its supplies to non-taxable (individuals) persons who reside outside the EU where outside the scope of UK VAT because the POS for consultancy services was where the supply was received. HMRC argued that G&F’s services did not fall within the required definition of “consultancy” and as a result the POS was where the business belonged. As G&F belonged in the UK, the relevant services were subject to VAT. The main issue was whether matchmaking could be regarded as a consultancy service or Data processing services and the provision of information, both of which would be treated as supplied where the individual customer belonged.

This case was heard initially heard by the FTT in 2019 and found in HMRC’s favour. It was held that G&F’s matchmaking services were not consultancy services as they included a level of support and advice from its liaison team which went beyond consultancy, and were liable to VAT in the country where the supplier belonged even when provided to a non-EU recipient It was a close decision, with the Judge having the casting vote when the other two Tribunal members did not agree. G&F appealed to the UTT.

The UTT disagreed and found that the FTT had failed to identify the “predominant element” of G&F’s services. The predominant element of G&F’s supply was making the introductions, which involved the provision of expert advice (interviewing clients and establishing who might be their ideal match) and information (putting clients in touch with prospective dates). This service, judged from the point of view of the “typical” consumer by reference to objective factors, should be categorised as consultancy for VAT purposes. G&F’s appeal was allowed. The Upper Tribunal (UT) found that matchmaking services were ‘services of consultants’ and/or ‘the provision of information’ and therefore outside the scope of UK VAT (where the place of supply rules allowed this) and its appeal was allowed.

Constable Comment: This case is important as the decision that the services supplied were of ‘consultancy’ has an impact of the VAT payable in the UK as a result of the place of supply rules applicable to VAT. It considers the types of services that can be identified as ‘consultancy’ and takes the definition for VAT purpose beyond services provided by the so called ‘liberal professions’, such as legal services. The case also shows the importance of identifying the ‘predominant element’ of a supply of services when determining the VAT treatment.

2. Mandarin Consulting Limited V HMRC

Mandarin Consulting Limited (Mandarin) supplies career coaching and support services to students of Chinese origin. It was held in an earlier hearing in the FTT that Mandarin’s services were of ‘consultancy’. VAT rules applicable to supplies of such services mean that Mandarin’s supplies would be outside the scope of VAT if supplied to private individuals whose usual residence was outside the EU. The usual residence being where the recipients of those supplies had their permanent address, or usually resided.

From 2016 onwards, Mandarin contracted with students’ parents rather than with the students themselves. It was common ground that students’ parents had their usual residence in China. So from July 2016 onwards Mandarin’s supplies were outside the scope of VAT.

However, the FTT’S conclusion was that until 2016 Mandarin supplied its services to the students who were undertaking their studies at UK universities and Mandarin could not evidence that these students were not ‘resident’ in the UK for the purposes of receiving these supplies.

The First Tier Tribunal held that these failings precluded Mandarin from establishing that its supplies prior to July 2016 were outside the scope of VAT.

Although the Upper Tribunal did not agree with the reasoning behind the FTT decision regarding the pre July 2016 supplies it was not satisfied that Mandarin could demonstrate that supplies to all of its students were made outside the EU and as a result held that. Mandarin’s appeal would be dismissed on the basis that it could not demonstrate, on the evidence that was placed before the FTT, that supplies to all of its students were made outside the EU.

Constable Comment:This is an important case, again involving place of supply and consultancy services. In this case the point at issue was the place of belonging of the recipient of a service. The decision emphasises the multi-factorial nature of the test of residence, which in this case would have required consideration of factors other than parental residence, such as romantic commitments.

3. Greenspace Limited V HMRC

Greenspace Limited’ business is to address the problem of conservatories being too hot in the summer and too cold in the winter by supplying a fitting insulated roof panels to its customers conservatories. The question raised in this appeal is whether the supply of these insulating panels is subject to a reduced rate of VAT on the basis that it is the installation of energy saving materials or if it is standard rated as a supply of a conservatory roof itself. The First Tier Tribunal held that Greenspace’s supplies were of roofs and so were standard rated. Greenspace appealed against that decision.

Greenspace’s principal business is the supply and installation of insulated roof panels to residential customers which are fitted onto customers’ pre-existing conservatory roofs. Before supplying or fitting the panels, Greenspace visits its customer, works out what the customer requires and takes detailed measurements. The panels are then made to measure.

The panels are not self-supporting and can be used only if the customer already has an existing conservatory roof structure. It was common ground that it was important that the installation of the panels disturbed as little as possible of a customer’s pre-existing roof structure after the removal of the existing panels in order to prevent leaks.

The FTT considered whether Greenspace was supplying a “new roof” or an “improved roof”. It concluded that Greenspace was supplying a “new roof” for the reason below:

Greenspace’s work involves the removal of existing glass or polycarbonate panels. No reasonable person looking at the structure remaining once those panels had been removed would consider that the conservatory in question had a roof. Also, the panels which Greenspace then fitted fulfilled the essential functions of a roof.

Greenspace appealed on the grounds that the FTT wrongly approached matters on the basis that, because the panels consisted, in part, of a roof covering, Greenspace was necessarily supplying a roof rather than ‘insulation for … roofs’.

The Upper Tribunal agreed with Greenspace that neither of the decisions in previous cases, which had looked at similar issues, established any rule of law to the effect that something which is or forms ‘part of’ a roof is incapable of being insulation for a roof because it also performs that function. However, it did not consider that the FTT made an error of law when the decision is read as a whole, although it is somewhat inaccurate. The FTT was doing no more than restating the proposition derived from a previous case, that if the panels together formed a roof rather than insulation ‘for’ a roof, they could not fall within the scope of reduced rate.

In most cases, when fitted, the panels would comprise the entirety of the roof covering for the conservatory in question and therefore the appeal was dismissed.

Constable comment: This case is useful in distinguishing when works can be considered to be fitting insulation to the building compared to forming part of the building’s structure beyond simply insulating it.

Please note that this newsletter is intended to provide a general overview of the subject. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this blog post. Specialist VAT advice should always be sought in relation to your particular circumstance.

HMRC NEWS

Goods and services that can be claimed for under the VAT DIY scheme

HMRC has updated its guidance on claiming a VAT refund under the DIY housebuilders’ scheme to add that manual window blinds and shutters are allowable building materials with effect from 5^th October 2020.

Agent Update

HMRC has published an agent update providing a round-up of recent developments. It can be found here. This includes information on the appeals process detailed below.

Updates to HMRC appeals processes

As part of the COVID-19 support package for customers, HMRC introduced a 3 month extended window to appeal against tax decisions and penalties from February 2020, if the delay was due to COVID-19. This extension ended on 30^th September 2021. For tax decisions and penalties dated up to and including 30^th September 2021, the extended window to appeal continues to be available. However, taxpayers should follow the normal process and times for appealing decisions dated on or after 1^st October 2021.

HM Revenue and Customs Brief 13 (2021)

HMRC has published a new VAT Brief which explains HMRC’s revised policy on the meaning of ‘entire interest’ in the context of the VAT treatment of the construction self-supply charge. This follows the decision of the Supreme Court on 31 March 2021 in Balhousie Holdings Limited 2021 UKSC 11.

The guidance applies to:

• organisations within the care home, NHS or charities sector
• businesses engaged in property transactions carried out for a relevant residential or relevant charitable purpose.

If you are concerned that this may affect your organisation please reach out to your usual Constable VAT contact.

CASE REVIEW

First Tier Tribunal

1. Silver Sea Properties

This case concerned Silver Sea Properties (Leamington Spa) Sarl (“PropCo”) which supplied certain items of furniture, fixtures and equipment (FFE) with a new care home known as Priors House. The care home was leased by PropCo to Care UK Community Partnerships Ltd (“OpCo”). The VAT in dispute in this appeal is £96,291. The matters in dispute were primarily:

• The extent to which PropCo is prevented from claiming credit for input tax on FFE because of the operation of the ‘Builders Block’
• Whether the FFE were supplied by PropCo to OpCo as an element of a single supply, the principal element of which was zero rated grant of a major interest in the Priors House building?

The builder’s block is in place to block claims for input tax on incorporated FFE unless they are building materials. This case is of interest as the Tribunal was required to consider whether the FFE were “building materials”? Building materials are goods of a description ‘ordinarily incorporated’ by builders. Certain items such as furniture, electrical and gas appliances and carpets are specifically excluded. The Tribunal stated, after considering relevant case law, that an item would be ‘ordinarily incorporated’ if it is commonplace or not out of the ordinary to include in the building, or the item is of a kind that you would expect a builder to incorporate without any special instruction.  Annexe 2 of the case is particularly useful as it provides a break-down of each FFE item and whether recovery of VAT on the item is blocked.

The Tribunal also considered the argument that the FFE qualified for zero rating as was part of a single supply of zero rated lease as a “turnkey” care home supplied under a single contract, the lease for the care home and noted that the fit out of the FFE only occurred after OpCo’s occupation and after issue of the Certificate of Practical Completion. After applying the tests used in the “Card Protection Plan” case to distinguish between a multiple and single supply, the Tribunal found that the Priors House building and the FFE do not form a single indivisible economic supply. The appeal was therefore dismissed.

Please note that this newsletter is intended to provide a general overview of the subject. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this blog post. Specialist VAT advice should always be sought in relation to your particular circumstance.

HMRC NEWS

Pay the VAT due on your One Stop Shop VAT Return
HMRC has released new guidance on how to pay the VAT due on your One Stop Shop (OSS) VAT Return including details on when to pay, different methods of payments available, how to pay later and what to expect after you have paid. For more information view the guidance in full.

Tell HMRC you’re registered for the VAT Import One Stop Shop in the EU
HMRC has also updated guidance on how to tell HMRC you’re registered for the VAT Import One Stop Shop (IOSS) in the EU, specifically including more information about intermediaries, who can now enter details for multiple businesses on the same form.

CONSTABLE NEWS

Update on the option to tax (OTT) unit

We recently shared that we had been advised by HMRC’s OTT unit that they were working to a ‘target’ of 120 working days to process OTT notifications. Following this we have now been advised by HMRC staff that the delay is 6 months to process OTT notifications.

HMRC has advised that it aims to improve this situation by the end of the financial year (31 March 2022) and also stated that they will be prioritising applications where evidence of commercial need is also provided.

We continue to recommend that any option to tax is notified by email as this will result in a receipt of that email, which may be accepted as evidence by a party who requires this.  However, if other evidence is available to show a sale or rental is imminent and that formal acknowledgement is required to complete the transaction this should also be forwarded to HMRC and emphasis should be given to this in the covering email.

Website Update

We have updated our website this week with pages covering the New Penalty Regime being introduced on 1 April 2022 and the introduction of rules in 2022 regarding notification of Uncertain Tax Treatments. We hope you find these informative.

CASE REVIEW

Since the end of the transitional period on 31 December 2020 European Court judgments are not binding on the UK in most cases. However, it is expected that UK courts will still take these judgements into consideration when reaching their own conclusions and there may be occasions where they have a more binding effect. If you are concerned about the impact of any matters raised in the following cases please contact us.

CJEU

1. Supply of services for consideration and input tax deduction

Bulgarian National Television (BNT) is a national public provider of audiovisual media services. BNT does not receive any remuneration from its viewers and its activities are financed by a subsidy from the state budget. BNT’s activity is also financed by self-generated income from advertising and sponsorship, income from additional activities linked to the broadcasting activity, donations and legacies, interest, and other income linked to the broadcasting activity.

Since 2015, BNT has been applying a direct allocation method by examining, in isolation, for each purchase that it made, whether it was used or was capable of being used for an activity of a ‘commercial’ nature, such as entertainment programmes. It reclaimed all of the input tax directly attributable to activities of a commercial nature and made partial input tax deductions in respect of purchases used for both commercial and non-commercial purposes.

The Bulgarian tax authorities refused to recognise a right to a full deduction in respect of purchases made by BNT and found that it owed VAT amounting to EUR 801,455 together with interest. The authorities claimed that BNT’s programme broadcasting activity was an exempt transaction. The case was referred to the CJEU.

The first question the CJEU considered was whether the VAT Directive must be interpreted as meaning that the activity of a public national television provider, consisting in the supply of audiovisual media services to viewers, which is financed by the State in the form of subsidies and for which no fees for the broadcasting are payable by the viewers, constitutes a supply of services for consideration within the meaning of that provision.

The CJEU stated that the above does not constitute a service supplied for a consideration. Where audiovisual media services are supplied by a national public provider to viewers for free and it is financed by the state in the form of subsidiaries, there is no legal relationship between the supply of the service and the payment and therefore it is not a supply for consideration.

The CJEU then went on to consider whether the public national television provider is entitled to deduct, in whole or in part, input tax paid for purchases of goods and services used for the purposes of its activities which give rise to the right of deduction and its activities which do not fall within the scope of VAT.

It was stated that it is the use of the goods and services acquired that determines the input tax deduction and the way in which such purchases are financed, either by state budget or sponsorship income, is irrelevant for the purpose of determining the right of deduction. Therefore input VAT that is directly attributable to expenditure incurred in relation to non-economic activities cannot give rise to a right of deduction.

The CJEU stated that it is the Member States discretion to determine the apportionment of input VAT between economic and non-economic activities but they must provide for a method of calculation which objectively reflects the part of the input expenditure actually to be attributed, respectively, to those two types of activities.

Constable Comment: This decision clarifies the European Court’s view that a public entity whose services are offered to the general public and which are financed essentially through public subsidies cannot constitute an economic activity for VAT purposes. However, it offers less clarity on attributing VAT on costs incurred in providing that service.

First Tier Tribunal

2. DIY New build claim for repayment of VAT on goods

Mr Ellis and Ms Bromley appealed against a refusal by HMRC to allow a second claim for repayment of VAT under the DIY housebuilder scheme.

Mr Ellis and Ms Bromley bought a property in 2002. An application for planning permission was made and permission was granted for demolition of the property and construction of a replacement dwelling. Mr Ellis is a builder and carried out much of the work himself over a 5 year period.

The valuation office agency issued a notice of alteration of the valuation list on 27^th December 2015, following a complaint from a local resident.  The valuation for council tax purposes does not refer to completion of the works and there was no suggestion that the works were completed but council tax was paid from 2015 onwards. The planning permission required more external works, including the erection of retaining garden walls, a balcony and appropriate access to the front door as well as substantial internal works. Mr Ellis and Ms Bromley made an interim claim for repayment of VAT under the DIY builder scheme in respect of £5,182.87 in April 2017 using the valuation notice to support the claim and the VAT was repaid in June 2017. In the 2017 claim, no claims were made for the construction of the garden walls, accessway to the property or kitchen and bathrooms. The second claim made on 2^nd May 2019 was rejected on the grounds that only one claim can be made for a particular building under the DIY builder scheme and it must be made within 3 months of completion of the construction work.

Mr Ellis and Ms Bromley’s argued that it is not unreasonable to expect that more than one claim can be made when the period of construction is likely to be years. They pointed out that there is no mention of the fact that only one claim can be made on HMRC website or in the section concerning eligibility or in the VAT form VAT 341NB. Additionally, HMRC made an error in processing the first claim because the valuation was made at least 15 months earlier and the valuation could not have been taken to provide evidence of completion. The 2015 notice from the valuation agency dated 27^th December 2015 is not evidence of completion. Furthermore, the works were not complete.

HMRC took the position that the claim for repayment of input tax must be disallowed because:

(a) s35 VATA 1994 provides that only a single claim for repayment of VAT by a DIY builder may be made under the VAT DIY builder scheme.

(b) s35(2) enables HMRC to prescribe by regulations the timing and evidence to support a claim.

Mr Ellis and Ms Bromley admit they made 2 claims and that they used the same evidence of being entitled to make the claim, a notice of council tax banding, dated December 2015 which was effective 1^st September 2015. HMRC assert that even if a second claim may be made the second claim was made later than 3 months after the evidence of completion.

Discussion and Decision

The Tribunal considered the wording of Section 35 VATA 1994 and the Regulations relating to claims. It concluded that section 35 does permit more than one claim in respect of a building, the Regulations which aim to prevent this are ultra vires as a matter of UK law.  Although section 35 is drafted in the singular this is an established technique to assist in clarity. As there is no express indication to the contrary in section 35, section 6 of the Interpretation Act 1978 applies to confirm that the reference to “a claim” in section 35 must be read as including “claims”.  The Tribunal also found that Regulation 201 is ultra vires to the extent that it limits a self-builder to make a single claim following completion of the dwelling, since neither section 35 nor any of the other provisions of the VAT Act 1994 give authority to introduce regulations that alter the scope of section 35(1) and restrict a self-builder to make a single claim upon completion of the dwelling. Finally, it found that the 2015 council tax valuation notice was not evidence of completion in this case, it is merely evidence that some building works had been undertaken and that the dwelling was capable of being inhabited. As the regulations are ultra vires in restricting the number of claims, the 2017 claim was a valid claim. The Tribunal also considered the position if HMRC were correct in their view of the meaning and application of section 35 and the regulations, which would be as follows:

(1) The re-banding of ‘Fox Way’ for council tax purposes in 2015 was not evidence of completion in this case. It is merely evidence that the building was capable of being inhabited. The 2017 claim was not a ‘valid’ claim within the meaning of section 35 and the regulations, and so would not prevent a subsequent claim.

(2) As the property was still not complete at the date of the hearing, and as the 2015 notice regarding council tax banding cannot be accepted as evidence of completion, the 2019 claim would be an invalid claim also.

(3) A further claim would be possible once the building is complete.

The tribunal allowed the appeal.

Constable Comment: This is a helpful case as it appears to offer scope for DIY housebuilders to make multiple claims during the course of a build. It will be interesting to see if HMRC appeal this decision or make any comment on it. If there is no appeal the case is only binding on the parties involved, so HMRC may be inclined to let it lie.

3. Rada In Business Limited (RIBL)

This is an appeal against a 5% VAT default surcharge, amounting to £2,281.13, imposed on 12^th March 2021 in relation to the late payment of VAT for the period 01/21. We have included this case as it considers the impact of a Covid-19 related factor on VAT return submission and payment.

RIBL has been in the VAT default surcharge regime since the period 07/20 following late filing of the 07/20 VAT return and the late payment of the VAT due.  No penalty arose on this first default.

There was a further default in the next period, 10/20, attracting a surcharge at the rate of 2% but charged at £0 because of HMRC policy relating to the collection of small sums.

The due date for filing of the VAT return and payment of any VAT due for the period 01/21 was 7^th March 2021. The return was received by HMRC on 1^st March 2021 but the payment wasn’t received by HMRC until 8^th March 2021 and, as a result, a 5% surcharge of £2,281.13 was added.

RIBL argued that the return was submitted on time and the payment was processed on 5^th March 2021, due to a staff member being away on furlough and only returning that day. The payment cleared RIBL’s bank account on 8^th March. RIBL stated that it always aimed to submit and pay its tax on time but due to the current pandemic had to adjust the way employees work.

The Tribunal dismissed that appeal noting that the penalty was lawfully imposed. The taxpayer was in the surcharge regime and there had been two previous defaults. The payment was not received until 8^th March 2021, which is a day late. The tribunal was not satisfied that the taxpayer did in fact dispatch a payment by faster payment on Friday 5^th March and the fact that the employee tasked to pay the VAT was on furlough and did not return to work until Friday 5^th March was not a reasonable excuse.

Constable Comment: This case indicates that the Tribunal will not accept staff shortages due to furlough as a reasonable excuse for late payment of VAT returns.

Please note that this newsletter is intended to provide a general overview of the subject. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this blog post. Specialist VAT advice should always be sought in relation to your particular circumstance.