The latest CVC VAT Focus is now available on our website.

This newsletter includes a summary of recent VAT cases including:

• Deemed supply of goods
• Whether overpayments are outside the scope of VAT
• Tripartite contracts and the right to recover input VAT
• Input tax recovery
• Retailer vouchers

The latest CVC VAT Focus is now available on our website.

This newsletter includes the latest VAT case updates regarding:

• Whether HMRC assessment made to best judgement.
• Input tax claim – invalid invoices.
• Whether the separate use or disposal of a dwelling was prohibited.
• Repayment supplement – whether HMRC exceeded 30 day time limit for reasonable inquiries.
• Zero-rate of an approved alteration of a protected building.
• Whether supplies of instruction in motocross riding are VAT exempt education.
• Single or multiple supply.

The latest CVC VAT Focus is now available on our website.

This newsletter includes:

• The latest Revenue & Customs Briefs from HMRC and revised Public Notices.
• A summary of recent VAT cases:
  1. Input VAT recovery – free use of capital item.
  2. Transactions to exchange ‘bitcoin’ virtual currency.
  3. Cancellation of VAT registration.
  4. EU VAT Refund Scheme.
  5. Distance learning course – single or multiple supply.
  6. Effect of companies leaving VAT group on entitlement to make a VAT claim.
  7. VAT margin scheme on second hand cars.
  8. EU VAT Refund Scheme.

The latest CVC VAT Focus is now available on our website.

This VAT newsletter includes HMRC News and a summary of a recent VAT case regarding the VAT exemption for insurance transactions.

The latest CVC VAT Focus is now available on our website.

This VAT newsletter includes HMRC news and a summary of recent VAT cases regarding:

1. Input tax
2. Option to tax – disapplication
3. Settlement agreement
4. Penalty for inaccuracy in a DIY house builders’ VAT refund claim

VAT legislation governing construction and conversion works is complex. Building services may be subject to the zero-rate, reduced-rate or standard-rate of VAT and it is important to ensure the correct VAT liabilities are determined at the outset of any development project. Additionally, special rules apply to VAT recoveries, in particular the DIY Housebuilders and Converters Scheme. Unlike most items of expenditure, VAT on property costs can be subject to adjustments for up to 10 years and penalties can arise where ineligible refund claims are submitted to HMRC.

As an introduction to our firm and the services we provide we will be holding a free VAT Seminar for Architects on Thursday 26 November 2015 from 8.00am to 10.00am. There will be time at the end if you wish to raise specific issues with any of the speakers. Numbers will be limited to allow the opportunity for questions and discussion and early booking is recommended.

The seminar will be held at the Holiday Inn Express Colchester, Birchwood Road, Off Ipswich Road A12 (Southbound), Colchester, CO7 6HS.

For further information or to secure your place please contact Laura Beckett on 01206 321029 or via email at laura.beckett@ukvatadvice.com.

The latest CVC VAT Focus is now available on our website.

This newsletter includes HMRC news and a summary of recent VAT cases regarding:

1. Default surcharge
2. Refusal of input tax claim – whether VAT invoices supporting claim were valid
3. Retailer vouchers and input tax
4. VAT group – retrospective inclusion of members

CASE UPDATE – Charitable buildings ‘Village hall or similar’ question heard (again) 

First Tier Tribunal 

Witney Town Bowls Club – village hall or similar 

The First Tier Tribunal (FTT) decision in the case of Witney Town Bowls Club (Witney) has recently been released. This decision follows the recent judgment in Caithness Rugby Football Club (Caithness) and covers similar points. Caithness was successful in its appeal, unfortunately, Witney were not.

Background

Both organisations constructed a clubhouse/pavilion and sought to benefit from zero-rating of the construction services received. In effect those services would not be subject to an additional 20% VAT charge which may represent an absolute cost, in full or in part.

Caithness is a registered charity recorded on the Charity Commission register. Witney is not a registered charity but is a Community Amateur Sports Club (CASC).

Both Caithness and Witney appealed against HMRC’s decision that zero-rating did not apply to construction services received.

The issue

Zero-rating of construction services applies when a building is intended to be used by a charity in either or both of the following ways:

1. otherwise than in the course or furtherance of a business; or
2. as a village hall or similarly in providing social or recreational facilities for a local community.

In Caithness the charity successfully argued its case before the FTT. The FTT agreed that the facility it constructed was similar to a village hall in providing social or recreational facilities for the local community.

Sadly, Witney has been unsuccessful in its appeal. The FTT decided that in Witney the definition of a ‘charity’ (as set out in paragraph 1, Schedule 6, Finance Act 2010) is not satisfied. The Club is a not for profit organisation; however, it is not registered under the Charities Act 2011. This being so, the construction of the building fails the first test set out above (i.e. the Club is not a charity) and construction services received do not qualify for zero-rating.

The FTT also considered whether Witney was in business for VAT purposes, (a) above refers.  The FTT ruled that the Club is carrying on a business. It provides facilities to its members in return for payment of a subscription.  Although the subscriptions are subsidised by the Town Council this does not alter the position.  The clubhouse is used for the purposes of Witney’s  business.

Turning to the ‘village hall or similarly’ point, the FTT also found in HMRC’s favour.  The reasons for this can be briefly summarised as follows:

1. The project for the construction of the clubhouse was driven by the Club.
2. The clubhouse is managed by the Club’s management committee on behalf of the Club and for the benefit of the Club.
3. There is no input into the management of the clubhouse from other representatives of local community groups.
4. The clubhouse is primarily used for the Club’s purposes although it is used by some local groups.
5. Any income derived from the hiring of the clubhouse benefits the Club.

The FTT accepted the clubhouse is intended for use in providing social or recreational facilities for a local community; however, it is not intended for use as “a village hall or similarly” within (b) above.

Important distinctions between the two cases

The two cases on the face of it, appear very similar on the facts. Witney was heard on 9 June 2015, Caithness on 25 June 2015. Decisions of the FTT in Witney was released on 27 August 2015 and Caithness on 5 August 2015.

There are some differences between the two cases. Caithness is a registered charity, Witney is a CASC. In Caithness the FTT did not consider it a decisive fact that the clubhouse was managed by only one of the groups that use it, or that only members of the Rugby Club are able to be elected to the executive committee responsible for the management of the clubhouse.  The FTT dismissed  HMRC’s assertion that a village hall must be “at the direction of the local community”.  The Court of Appeal has previously rejected the argument that a “village hall” must be “owned, organised and administered by a local community” (Jubilee Hall Recreation Centre Ltd). However, the FTT in Witney appear to place greater emphasis on this point. 

Where it is accepted that a sporting pavilion or clubhouse is not a village hall the key question or test appears to be the interpretation of the word ‘similarly’.  If a clubhouse or sports pavilion is used by a charity to provide social or recreational facilities for a local community, i.e. the building is used by various local groups and organisations to benefit local people, does this satisfy the ‘similarly’ requirement as set out in VAT law?

Should a building be used by a charity to provide social or recreational facilities to local groups, is it not the use of the building, rather than the governance of any management committee overseeing its use, that is the important point?

HMRC’s approach

We know that this area is one which HMRC has devoted considerable resources to, issuing a number of standard letters to local sports clubs in Spring 2014.  Following these decisions it is likely that those sporting bodies not registered with the Charity Commission, and who have constructed similar buildings to Caithness and Witney, will be pursued for payments of VAT if HMRC view that zero-rating certificates have been incorrectly issued to contractors.  CVC are aware that a number of organisations have been contacted by HMRC and VAT recovery action suspended where VAT penalty notices have been issued whilst the decisions in Caithness and Witney were progressing through the courts.

A concern is HMRC’s approach in dealing with not-for-profit sporting organisations which are not registered charities.  These organisations are usually established and supported entirely by volunteers putting a huge amount of unpaid time and effort into benefitting the wider community.

HMRC will, no doubt, state it has an obligation to enforce VAT law correctly; however, it seems that VAT legislation in this case is clearly intended to deliver a social relief which benefits a local community.  In the case of Witney the Club could face a VAT bill over £50K (the total cost of the project was £273K). The FTT decision notes that Witney has an annual income in the region of £25K. In practical terms it seems difficult for Witney to budget for a VAT payment double this amount.

Action required

If your club is concerned about the impact of the Witney decision or its wider implications on your organisation, please contact us.  If your sports club is considering constructing a clubhouse or pavilion and would like to discuss the VAT position we would be pleased to help.  These cases demonstrate the importance of taking advice in advance of a project commencing.  It is vital that the correct VAT treatment is established at the outset to give certainty and avoid unwelcome surprises. Finally, if your club has been contacted by HMRC, a penalty notice has been issued by HMRC or an unfavourable non-statutory clearance decision has been given by HMRC please do not hesitate to call or email CVC at any time if you would like to discuss this matter further.  We would be pleased to assist if possible.

We understand that charities wish to achieve their objectives whilst satisfying the legal requirements placed upon them. Charities may be liable to account for VAT on supplies made and VAT will be payable on certain expenditure. As irrecoverable VAT represents an absolute cost to most charities, regardless of their VAT registration status, there is a need to review the position regularly and carefully. We offer advice with planning initiatives, technical compliance issues, complex transactions, help with innovative ideas on VAT saving opportunities, and liaising with HMRC. 

If you would like to discuss how VAT impacts on your organisation please contact Stewart Henry,  Laura Beckett or Sophie Cox on 020 7830 9669, 01206 321029 or via email on stewart.henry@ukvatadvice.com, laura.beckett@ukvatadvice.com and  sophie.cox@ukvatadvice.com.  Alternatively, please visit our website at www.ukvatadvice.com where you can view some of the services we offer in more detail and subscribe to our free general and regular VAT alerts and updates. Visit our website for current news updates. You can also follow CVC on Twitter.

This newsletter is intended as a general guide to current VAT issues and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains or for any errors or omissions. CVC 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 newsletter. Specialist VAT advice should always be sought in relation to your particular circumstance.

A recent Court of Justice of the European Union (CJEU) case, Mapfre Warranty (MW), has raised some VAT issues that should be considered by all businesses involved in the supply of warranties.

Background

MW contracted with second hand car dealers to provide mechanical breakdown warranties on sales of cars. Car buyers could choose to take out the additional warranty at the time of sale. In the event of a breakdown, the car owner could choose any garage to undertake the repairs.  MW would then receive a breakdown report and authorise the repair.

MW recovered VAT on the basis that it made taxable supplies. It claimed that used car dealers subcontracted part of their after sales service to MW.

MW denied that there was any contractual relationship between MW and the car owner.  It stated that a contractual relationship only existed between MW and the dealer, who commissioned MW to perform its obligations (after sales servicing).  The dealer was the debtor who deducted the warranty cost from the profit margin to increase the attractiveness of the car.

The tax authorities claimed that this was a VAT exempt supply of insurance services.

The French Court of Appeal (CoA) held that there was a direct contractual link between the car owner and MW created at the point the warranty booklet was issued.  As such MW’s supplies could be viewed as made to the car owner not the car dealer.

The referring court asked the CJEU whether the supply of a warranty covering mechanical breakdowns, in return for payment, by an economic operator which was independent of a second hand car dealer, constituted a VAT exempt insurance transaction.

CJEU Judgment

The CJEU ruled that the concept of insurance transactions was broad enough to cover any of three situations:

1. Where the contract was between the car buyer and the warranty provider, with the car dealer merely facilitating the transaction as an intermediary.
2. Where the contract was concluded between the car dealer and the warranty provider on behalf of the car buyer.
3. Where the car dealer concluded the contract in its own name and on its own behalf with the warranty provider and subsequently, transferred the rights to the car buyer.

The CJEU paid regard to the fact that the car dealer did not implement the warranty agreement.  In the event of a breakdown, the car buyer was not obliged to have the car repaired in a garage belonging to that car dealer.  The chosen garage then contacted MW directly. Even though payment for the warranty was included in the price of the car from the car dealer, it was the car buyer who ultimately paid for it.

Furthermore, although every insurance transaction had a link with the item it covered, this link was not sufficient enough to form an ancillary service to the sale of the second hand car.  The car buyer could refuse to take out the warranty and either take up a warranty with another provider or choose not to take out a warranty at all. MW also reserved the right to terminate the warranty without affecting the sale of the car.

The CJEU ruled that the supply of the warranty constituted a VAT exempt insurance transaction and that it was distinct and independent of the supply of the second-hand car.

Implications of the Judgement 

HMRC’s current guidance says that extended warranties provided by third parties almost certainly constitute insurance. With this in mind it may be that this judgment by the CJEU has little impact in the UK. Although any third party warranty providers that currently charge VAT may come under challenge from HMRC.

On the other hand, current HMRC guidance provides that retailer and manufacturer warranties are unlikely to be seen as insurance. This is because the warranty is seen as an automatic (often statutory) consequence of the contract of sale. The CJEU’s analysis of single/multiple supplies (insurance transactions are linked to the items they cover, but this is not enough to determine that the sale of the item covered with insurance is a single transaction) may present uncertainty for retailer and manufacturer warranty providers. Depending on how HMRC interprets the scope of this judgment it may be that its current policy changes.

With a reliance on legitimate expectation, there is unlikely to be retrospective challenge for taxpayers who fall within HMRC’s current guidance.  However, we would recommend that warranty providers or retailers that incorporate warranty products into their product sales review their ongoing position in light of this judgment.

The latest CVC VAT Focus is now available on our website.

This newsletter includes HMRC news and a summary of recent VAT cases.

Zero-rating of construction services for use ‘as a village hall or similarly’ 

First Tier Tribunal decision in Caithness Rugby Football Club released.

Some of our subscribers may be aware that in early 2014 HM Revenue and Customs (HMRC) devoted considerable resources reviewing publically available records regarding funding received by not-for-profit sports clubs. This included (but was not limited to) football, rugby, and cricket clubs. Following this review HMRC sent standard letters to clubs which had constructed buildings and annexes. This letter instructed the sports club to provide information and a sample of invoices relating to the building project. The purpose of this exercise was to check whether zero-rated ‘relevant charitable purpose’ certificates had, in HMRC’s opinion, been issued correctly.

Following this exercise HMRC issued a number of VAT assessments and penalties to sports clubs which had, in HMRC’s view, incorrectly issued zero-rated ‘relevant charitable purpose’ (RCP) certificates.

It was disappointing to learn of this initiative targeting not for profit organisations ; especially in light of the widely publicised alleged tax avoidance by corporate multinationals.

An appeal against a decision of HMRC, that the construction of a clubhouse did not qualify for zero-rating, has recently been heard by the First Tier Tribunal (FTT).

Caithness Rugby Football Club (CRFC) is a registered charity. It constructed a new clubhouse on land which it leased from the Highland Council. CRFC appealed HMRC’s decision that the construction services did not qualify for VAT zero-rating. CRFC argued that the clubhouse was intended to be used for a relevant charitable purpose ‘as a village hall or similarly in providing social or recreational facilities for a local community’ and therefore the construction services were zero-rated.

HMRC argued that the clubhouse was not used as ‘a village hall or similarly’. To be used as ‘a village hall or similarly’, in HMRC’s view, the question is whether the clubhouse is owned, organised and administered by the local community in the sense of providing equitable access and participation. HMRC argued that in this case equitable access and participation is missing. Only full members of CRFC can be elected to the executive committee that is responsible for managing the clubhouse, CRFC owns the lease and can deny access as it chooses.

The Tribunal considered the following points relevant to whether the use of the clubhouse was as ‘a village hall or similarly’:

1. CRFC is a charity recorded on the Charity Commission register.
2. Even if the clubhouse was used solely for rugby playing it would still satisfy the ‘social or recreational facilities’ requirement (a sporting facility is a recreational facility). On the evidence submitted, the clubhouse is in fact used for a variety of other sporting, recreational and social activities.
3. Minor usage of facilities by persons outside the local community will not prevent the ‘local community’ requirement from being satisfied.
4. The Tribunal did not consider it decisive that the clubhouse is managed by one of the groups that use it. In the case of Jubilee Hall Recreation Centre Ltd the Court of Appeal rejected the suggestion that a village hall must be ‘owned, organised and administered by the local community’. The Tribunal took into account that the needs of all users were accommodated. In practice, bookings once made by others are honoured, even where they conflict with subsequent needs of CRFC. 90% of the usage of the clubhouse is by clubs or groups other than CRFC; therefore, the Tribunal’s view was that it could not be said the majority of activities at the clubhouse are organised by CRFC or use by other groups is secondary or ancillary.

On the basis of its considerations (including, but not limited to, those outlined above), the Tribunal found that the facilities are used, and were at the time of construction intended to be used, as a ‘village hall or similarly’. Therefore, the zero-rate did apply to the construction services supplied in the course of construction of the clubhouse. The appeal was allowed.

It will be interesting to see whether HMRC decide to appeal this decision of the First Tier Tribunal. In our opinion this is appears a well-thought-out and analysed judgment. The Tribunal considered each requirement of the legislation: 

1. Is the building used by a charity?
2. Is the building used to provide social or recreational facilities?
3. Are the facilities provided to a ‘local community’?
4. Are the facilities used as a ‘village hall or similarly’?

This decision by the First Tier Tribunal is only binding on the parties involved and does not necessarily set a wider precedent; however, we hope this is an indication of the direction the Courts will take going forward. Each case will depend on its own particular combination of circumstances. We understand that HMRC has other cases it is seeking to have heard at Tribunal as further ‘test’ cases. It will be interesting to see if HMRC pursue these cases through the Courts particularly where the organisations involved are registered charities. Some organisations which are not recorded on the charity register, Community Amateur Sports Clubs (CASCs), Community Interest Companies (CICs) may not have charitable status agreed with HMRC. 

This case also illustrates the pressures (time, financial and other resources) placed on voluntary organisations by HMRC. This appeal arose out of decisions dated 17 December 2013 and April 2014 given by HMRC in response to a letter dated July 2013. This case was heard on 25 June 2015 and the decision released to the parties on 5 August 2015. 

CVC would be happy to speak to or advise any sports club which is planning to undertake a project or has received a decision from HMRC that construction services received do not qualify for zero-rating. Any sports clubs intending to appeal VAT assessments and/or penalties should remember that strict time limits apply when appealing an HMRC decision; we would be happy to advise on this.

Constable VAT Consultancy LLP (CVC) is a specialist independent VAT practice with offices in London and East Anglia. We work together with many charities and not-for-profit bodies ranging from national charities to regionally based organisations. CVC has a nationwide client base. 

We understand that charities wish to achieve their objectives whilst satisfying the legal requirements placed upon them. Charities may be liable to account for VAT on supplies made and VAT will be payable on certain expenditure. As irrecoverable VAT represents an absolute cost to most charities, regardless of their VAT registration status, there is a need to review the position regularly and carefully. We offer advice with planning initiatives, technical compliance issues, complex transactions, help with innovative ideas on VAT saving opportunities, and liaising with HMRC. 

If you would like to discuss how VAT impacts on your organisation please contact Stewart Henry,  Laura Beckett or Sophie Cox on 020 7830 9669, 01206 321029 or via email on stewart.henry@ukvatadvice.com, laura.beckett@ukvatadvice.com and  sophie.cox@ukvatadvice.com.  Alternatively, please visit our website at www.ukvatadvice.com where you can view some of the services we offer in more detail and subscribe to our free general and regular VAT alerts and updates. Visit our website for current news updates. You can also follow CVC on Twitter. 

This newsletter is intended as a general guide to current VAT issues and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains or for any errors or omissions. CVC 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 newsletter. Specialist VAT advice should always be sought in relation to your particular circumstance.

The latest CVC VAT newsletter for charities and not for profit organisations is now available on our website.

This newsletter comments on:

1. Recent VAT cases:
   • Welfare exemption
   • Input tax recovery
2. VAT Appeal Updates

3. Summer Budget

4. HMRC News
   • Revenue and Customs Brief 13/15: reduced rate of VAT for the installation of energy saving materials.
   • VAT Notice 700/45: How to correct VAT errors and make adjustments or claims.
   • VAT Notice 700/21: Keeping VAT records.
   • VAT Mini One Stop Shop (MOSS).