The Government has announced changes to the scope and operation of the Listed Places of Worship Grant Scheme, which took effect on 1 October 2013. These changes will expand the number of organisations that may use the scheme. Read more in our newsletter.

Although the VAT Tribunal has been fairly quiet in recent weeks, HMRC has issued a run of Revenue and Customs Briefs (RCB) on various subjects. These are summarised below.

RCB 13/13 confirms the VAT treatment of loss adjusting services supplied in connection with marine and aviation insurance claims. HMRC are concerned that many businesses have been treating such services as zero-rated. HMRC consider that the zero-rate only applies to surveys necessary to establish the seaworthiness, airworthiness or classification of a qualifying ship or aircraft to enable it to be registered and to therefore meet the direct needs of the ship or aircraft. Such surveys require a physical inspection of the ship or aircraft. Although loss adjusting services may contain an element of inspection HMRC do not consider these qualifying surveys for the purpose of the zero-rate as they meet the needs of the insurer in assessing an insurance claim, rather than the direct needs of the ship. (Note – certain surveys carried out under statutory authority may be outside the scope of VAT).

Businesses that supply loss adjusting services in the UK should account for VAT at the standard rate, where insurers receive these services from abroad they should account for VAT at the standard rate under the reverse charge procedure.

RCB 15/13 has been issued following the High Court judgement in the Investment Trust Companies (ITC) case. The Brief sets out the options for customers affected by the ITC case to make claims in restitution against HMRC for output tax wrongly charged. Following the decision customers affected are entitled to bring claims to the High Court (claims for less than £30,000 must be bought in the County Court), claims made to HMRC will not be valid.

The time limits for these claims do not come under VAT legislation (four years) instead the time limits are provided by the statute of limitations; for England & Wales this is six years from the date the cause of action occurred or six years from the mistake giving rise to the cause of action was discovered.

Following the outsourcing of certain services as part of the streamlining of the NHS, RCB 16/13 clarifies HMRC’s policy on when laboratory pathology services are exempt from VAT. The Brief confirms that all state-regulated businesses which supply laboratory pathology testing services, directly relating to the provision of healthcare for individual patients, are exempt from VAT whether they supply their services to the NHS or to independent hospitals.  It makes no difference whether it occupies premises with or within a hospital or in a separate location. An institution is ‘state regulated’ if it is approved, licensed, registered or exempted from registration by any Minister or other authority pursuant to legislation. State-regulated pathology laboratories are ‘qualifying health institutions’ for the purpose of the health exemption. The Brief gives fully details of the reasons for exemption.

As a result of discussions with the insolvency profession following the Paymex Limited tribunal case HMRC has issued Brief 17/13. The Brief clarifies the VAT treatment of Insolvency Practitioners’ services in various common situations.

Following the recent ECJ decision in the Newey (t/a Ocean Finance) HMRC has issued 18/13.  Mr Newey was a UK loan broker, who arranged loans by UK lenders to UK borrowers. His services were exempt from VAT and he could not recover VAT on advertising services he received.  Mr Newey set up a Jersey Company (J), and granted it the right to use the business name Ocean Finance.  Broking contracts were concluded between the lenders and J, and the broking commissions were paid to J. J then entered into a contract for the supply of advertising services.

HMRC took the view that, notwithstanding the contractual terms, the advertising services concerned were supplied to Mr Newey in the United Kingdom and were therefore taxable in the United Kingdom. The CJEU decided that although contractual terms should be taken into consideration, they are not decisive. They may be disregarded where they do not reflect economic and commercial reality and are a wholly artificial arrangement set up with the sole aim of obtaining a tax advantage. It is now for the Upper Tribunal to decide the case in light of this.

HMRC have confirmed in this Brief that it will continue to investigate (what it considers to be) artificial contractual relationships established for tax avoidance purposes and look through to the underlying economic reality of transactions.

The case of Alexandra Countryside Investments (ACI) is of interest to the property development sector. HMRC’s current policy is that the sale of a dwelling created by converting a property, which contains an element of an existing dwelling, does not qualify for zero-rating if the new dwelling incorporates part of an existing dwelling (meaning VAT recovery on related costs is restricted). However, if a DIY house builder submits a claim for a similar conversion the VAT on the cost of converting the non-residential part of the building may be reclaimed.

ACI bought a pub and converted it into two semi-detached houses. Part of an existing flat for the pub manager had been incorporated into both houses which HMRC said meant that the subsequent sale of the houses could not be zero-rated.

The Tribunal looked at the Jacobs case in detail. An ex-school, containing a flat for the headmaster, was converted into a residence for Mr Jacobs. This resulted in a new residence with four additional flats. An element of the original flat was incorporated into the new residence. The Court of Appeal decided that as the resultant number of dwellings was greater than the number of dwellings prior to the works then it meant that the “additional dwelling or dwellings”  criteria in Note 9 was met and the DIY claim was valid. Whilst HMRC had accepted this decision they had taken the view that this only applied to DIY claims (under section 35 of the VAT Act 1994) and not the zero-rating provisions (Section 30 of the 1994 VAT Act). The current Tribunal saw no reason for the distinction of the interpretation of Note 9 between s30 and s35 claims and allowed the appeal, contrary to an earlier case (Calam Vale) where the Tribunal had not had the benefit of the Court of Appeal’s decision for Jacobs. The Tribunal also commented on the brevity, inaccuracy and attitude of HMRC’s formal review letter which the Tribunal thought effectively said “We” (HMRC) “are right and you are wrong” for which HMRC apologised to the Tribunal.

If the sale of a converted property is zero-rated then VAT may be reclaimed on all conversion costs, including the conversion of the previously residential part of the buildings. Thus developers may be able to recover more VAT than a DIY claimant, who is restricted to reclaiming VAT only on the conversion of the non-residential part of the building. This judgment still fails to deliver parity between developers and DIY claimants.

There may be grounds to revisit cases where repayments of VAT have been refused on a similar basis

New telephone numbers were introduced for VAT on 14 June 2013.

HMRC say that for most people the new numbers will reduce the cost of calling these helplines. You can check the exact cost by asking your telephone service provider.

You should only call the new numbers if you have questions about these specific subjects. 

Some recent VAT cases illustrate the potential complexities surrounding whether a supply should be treated as a single supply, with a single VAT liability, or a number of separate supplies each with potentially different VAT liabilities applying. In considering these recent cases the Tribunals referred to a number of historic VAT cases (sometimes the same ones) but came to different conclusions. Some of the cases referred to in seeking guidance are worth briefly re-visiting before the more recent cases are considered.

Past Cases
Card Protection Plan (CPP) is seen as a lead authority in this area. CPP supplied a package of services, including insurance services (exempt) and card registration services (taxable). The question was whether this was a single composite supply of VAT exempt insurance or a supply of several separate services both taxable and exempt. In reviewing the reason why customers bought the product. It was decided that the taxable services were ancillary to the main supply of insurance and as such there was one single supply of insurance.

At the time of this decision a number of commentators saw CPP as providing a clear, logical process which would enable any such issues to be determined with relative ease. However, more than 10 years later there is no shortage of litigation on the issue.
In the Talacre Beach Caravan Sales Ltd case, the taxpayer argued the principals of CPP enabled their supplies of caravans to be treated as zero-rated. UK VAT legislation zero-rated the supply of certain caravans, but specifically excluded from the zero-rating the contents of these caravans. The question was whether, using CPP principles, the supply of a zero-rated caravan and its standard rated contents be treated as a single zero-rated supply. As the UK legislation explicitly excluded the contents from the zero-rating, the Court ruled that CPP principles could not be applied.

In a European case generally referred to as the “French undertakers” French law allowed that a reduced VAT rate could be applied to the transportation of the body by vehicle. The European Commissioners argued that this was incorrect and that although EC law allowed a reduced rate to apply to supplies by undertakers it should apply to the whole supply. The European Court found EC law did not restrict the application of the reduced rates to the whole supply and found that the supply of transportation of the body was a “concrete and specific” element, qualifying for the reduced rate for undertakers’ services in France.

Recent cases
Morrisons contended that the sale of disposal barbecues was a mixed supply of standard rated packaging and reduced rated charcoal. The First Tier Tribunal agreed with HMRC and said that the supply was a single standard rated supply. The retailer appealed to the Upper Tier Tribunal. In setting out its appeal the retailer referred to the charcoal being a “concrete and specific” aspect of the supply. The UTT’s analysis pointed out that there was no specific identification in the UK legislation of the reduced-rate applying to charcoal as part of a disposable barbeque in UK legislation. As such the French Undertaker’s approach was not appropriate but CPP was. As such the disposable barbeque was seen as a single supply, taxable at the standard- rate of VAT.

The second case, The Honourable Society of Middle Temple, involved the supply of commercial property and cold water. The taxpayer contended there was a mixed supply of standard rated property (they had opted to tax) and zero-rated cold water. The First Tier Tribunal agreed with this view and HMRC appealed the matter to the Upper Tier Tribunal. The Upper Tier did not see the two supplies as being capable of separation (the historic background meant that the taxpayer had ownership of the water supply) as far as the tenants were concerned. As such it was a single supply at the standard rate (as the water could not be supplied without there first being a lease in place).
Even when the status of the supply is decided it is not necessarily the end of the matter. A recent Tribunal hearing was a follow up to a decision about a mixed supply of standard rated and zero-rated supplies. Eight potential methods of attribution were considered by the Tribunal in a dispute with HMRC regarding the most appropriate. In its decision the Tribunal said they “needed all the help we could get” in evaluating the merits of each method, as they found themselves “trying to navigate with a dim and flickering light across a dark and difficult terrain”.

Between 1 June and 31 December 2013 the UK is to participate in a pilot scheme to provide “private VAT rulings” in relation to cross-border transactions. The other Member States participating are Belgium, Estonia, Spain, France, Cyprus, Lithuania, Latvia, Malta, Hungary, Netherlands, Portugal and Slovenia. Businesses planning cross-border transactions with one or more of these Member States can request a ruling on the VAT issues; however, the official news release states: “This consultation does not guarantee that a cross-border ruling, agreed by the Member States concerned, can be delivered.”

The newsletter contains items on:
1. Nuffield Health
2. Market value
3. Penalties
4. Pilot scheme for ‘cross-border’ rulings

Read newsletter.

The newsletter contains items on:

1. WHA Supreme Court decision

2. Inter-company accounting and out of time assessment

3. CVC at the South East Business Show

Read in full.

The latest Newsletter contains items on:

1. VAT Groups and infraction proceedings.

2. Ruling on French Yacht Exemption

3. SDLT claims possible following VAT cases

4. Penalties not applicable on late registration

5. Appeal held to be not out of time

Read in full.