Author Archives: Sophie Cox

CVC VAT Focus 27 September 2018

27th September 2018

HMRC NEWS

Trading Goods Regulated Under the “New Approach” if There Is No Brexit

How trading in harmonised goods regulated under the New Approach would be affected if the UK leaves the EU with no deal.

Software Suppliers Supporting Making Tax Digital for VAT

Find out which software suppliers HMRC is working with to produce suitable Making Tax Digital for VAT software for businesses and their agents.

Customs Declaration Service

The Customs Handling of Import and Export Freight (CHIEF) process is being replaced by CDS, a modern and flexible system that can handle anticipated future import and export growth.

 

CHANGE OF WEBSITE AND EMAIL ADDRESSES

Constable VAT Consultancy is in the process of updating its website to make it easier to access information about our services and to keep you up to date all the upcoming changes in VAT. The first step in this process is a change in our website and email addresses from ukvatadvice.com to constablevat.com. You don’t need to do anything to continue to access our website or your usual contacts, all mail and website traffic will automatically be rerouted. However, you will notice that emails coming to you will show our new email addresses. If you are in any doubt at any time as to whether an email you receive from us is genuine please call our office on 01206 321029.

 

CASE REVIEW

 

Upper Tier Tribunal

 

1. Splitting Single Supplies

This appeal concerns whether the VAT legislation allows application of a reduced rate of VAT to a component of what is, for VAT purposes, otherwise regarded as a single, standard rated supply. The Appellant had received assessments from HMRC for underpaid output VAT owing to the fact that single supplies were being split between standard and reduced rates of VAT.

A N Checker supplied and installed boilers along with energy-saving materials in domestic properties. The question before the Tribunal was whether the supplies were single supplies subject to either one or two rates of VAT. A N Checker did not argue that the whole supply should benefit from the reduced rate because of the reduced-rated component of the supply but that the reduced-rated component should benefit from the reduced rate despite being part of a single, standard rated supply of the installation of boilers.

The Tribunal found that, in the absence of a legislative provision for apportionment, a component of a single supply does not benefit from a reduced rate when forming part of a single, standard rated supply. It was asserted that, despite ambiguity in the construction of the legislation, there is no presumption in favour of a more liberal application or interpretation of the reduced rating provisions. The appeal was dismissed.

Constable Comment: Whilst certain supplies may be clearly defined and their treatment definitively described in VAT legislation, there are businesses which may make complex supplies of combined goods and services. In light of this decision, these businesses may wish to refresh existing practices and seek professional advice around the VAT treatment of their supplies.

 

First Tier Tribunal

 

2. Alteration or Annexe

This decision concerned the VAT liability of construction works undertaken at a church building, the Roman Catholic Diocese of Westminster sought to argue that the construction of a new hall attached to the old building after the remodelling of the church constituted an annexe to an existing building and should qualify for zero-rating. HMRC argued that the new hall constituted an alteration, enlargement or extension and was excluded from the zero-rate.

Prior to the construction, the Church had been separated into two areas, a worship area and a hall. The two were distinct from each other. The new hall had its own doors and was kept separate from the Churches area of worship; the hall being used for social events such as whist drives. The Tribunal considered that the construction work had been carried out in order to expand worship space for the Church and therefore, that the hall was a supplementary structure and an annexe to an already existing building.

The FTT also considered that the annexe could operate separately from the main Church with its own doors, toilet facilities, kitchen and radiators. It is held that the costs incurred were correctly treated as zero-rated by the Diocese.

Constable Comment: This case will be of interest to anyone carrying out construction works. It is prudent to seek professional advice before works begin as if the incorrect rate of VAT is applied throughout a lengthy and expensive project, it is possible that HMRC will seek to recover any input VAT incorrectly claimed or issue VAT penalty assessments if a certificate is issued to a contractor claiming zero-rating in error.

 

3. DIY Housebuilder’s Scheme

This appeal is against a decision by HMRC to refuse a refund of VAT incurred on the construction of a building as a DIY Housebuilder.

The Appellant received planning permission in 2011 for a proposed building to be used for tourism purposes only. This was an explicit term in the permission and it was specifically stated that the property “…shall not be occupied on a permanent basis.” Following completion of the construction, the DIY VAT refund claim was submitted to HMRC seeking to recover the VAT incurred on the costs of the build.

The VAT repayment was denied on the grounds that the property was only for business purposes; one of the covenants attached to the planning permission being that the property be used for tourism purposes only. HMRC contended that this meant that the property had been constructed in the course of business and so the DIY housebuilders scheme was inapplicable.

Giving a reasonable amount of time to the Appellant’s submissions, the Tribunal found in favour of HMRC and upheld its refusal to repay VAT incurred on the grounds that the intention and planning permission for the development was specifically for business purposes and prohibited domestic use.

Constable Comment: The DIY Housebuilder’s scheme enables people wishing to build their own homes to put themselves on a level playing field with property developers who can recover their input tax provided that they intend to make taxable supplies. It can be a complex process and standards of proof can be very high. If you are considering submitting a DIY Housebuilder’s claim or beginning a project then please do not hesitate to contact Constable VAT. In this case the appellant could have VAT registered voluntarily, supplies of holiday accommodation being standard rated, and reclaimed VAT incurred. VAT would have to have been accounted for on supplies of holiday accommodation moving forward.

 

4. Personal Export Scheme

This is an appeal against a decision by HMRC to refuse to allow the personal export scheme to apply to the Appellant’s export of a vehicle.

Hofmanns Henley Limited (HHL) is a car dealership which agreed the sale of a car to a customer resident in Jersey. It was intended that the Personal Export Scheme be applied to export the car at the zero-rate of VAT. Having agreed the sale and sent the appropriate paperwork to HMRC, the car was supplied to the customer.

HMRC refused the application to use the scheme claiming that HHL did not have the necessary pre-approval to zero-rate the car’s export; whilst the forms had been sent off, they had not been approved prior to the car’s removal from the UK.

HHL conceded that it had made a mistake but asserted that it was, at least in part, the fault of HMRC’s misdirection given over the telephone. HMRC also concede that the incorrect information was given to the Appellant over the ‘phone but state that the complaints in relation to this had been handled separately through the formal grievance procedure.

The Tribunal held in favour of HMRC as the criteria for the application of the Personal Export Scheme had not been met.

Constable Comment: Whilst this case revealed mistakes by both sides it serves to prove an important point. HMRC telephone conversations and Public Notices are not to be relied on as the law. For any high value purchase or acquisition with a potentially complex cross-border transaction and application of a special scheme it is vital to seek professional advice to ensure the highest degree of compliance. In circumstances such as these, HMRC often state “the law is the law” even in cases of official error. Where doubt or ambiguity exists, submitting a non-statutory clearance application to HMRC is the safest approach because HMRC will be bound by this, provided full facts have been presented.

CVC VAT Focus 13 September 2018

13th September 2018

HMRC NEWS

HMRC and online marketplaces agreement to promote VAT compliance

The list of signatories has been updated with a new addition.

Claim a VAT refund as an organisation not registered for VAT

Use this online service (VAT126) to claim back VAT if you are exempt from it as a local authority, academy, public body or eligible charity.

Software suppliers supporting Making Tax Digital

The list of software suppliers supporting Making Tax Digital has been updated.

Cash accounting scheme (VAT Notice 731)

Information on how to account for VAT if you leave the scheme voluntarily or because your turnover exceeds the threshold has been updated.

CVC MAKING TAX DIGITAL UPDATE

 

Paragraph 2.1 of HMRC Notice 700/22 (Making Tax Digital for VAT) states, “With effect from 1 April 2019, if your taxable turnover is above the VAT registration threshold you must follow the rules set out in this notice. If your taxable turnover subsequently falls below the threshold you will need to continue to follow the Making Tax Digital rules, unless you deregister from VAT or meet other exemption criteria (see paragraph 2.2 of this notice).

Only businesses with taxable turnover that has never exceeded the VAT registration threshold (currently £85,000) will be exempt from Making Tax Digital.”

This paragraph appears to suggest that if a business has ever exceeded the VAT registration threshold (including prior to 1 April 2019) the business will be impacted by the new MTD rules. However, the Chartered Institute of Taxation (CIOT) has reported this month that HMRC has confirmed that MTD will only apply where the business’ turnover has exceeded the VAT registration threshold at any time after 1 April 2019. The CIOT are anticipating that HMRC will update the Notice to make this clearer.

Similarly, businesses registered for VAT under the ‘intending trader’ rules will only be subject to the MTD rules when their taxable supplies breach the VAT registration threshold, irrespective of the value of input tax claimed in the interim period.

 

CASE REVIEW

First Tier Tribunal

1. Colchester Institute (Lead Case) – Whether funded education is a business or non-business activity

This appeal by Colchester Institute Corporation (CIC) is against a decision of HMRC to reject an application for repayment of overpaid VAT. CIC receives government funding to provide education and vocational training.

Before the rules on this issue were changed in 2010, CIC wrote to HMRC requesting to use the Lennartz mechanism for input VAT recovery in relation to some construction work. Under this arrangement input VAT was reclaimed in respect of both the taxable business and outside the scope non-business activities. Private or non-business use of the building then gave rise to deemed supplies, chargeable to VAT as such use occurred. HMRC agreed to CIC’s proposal and until 2014 CIC paid over output VAT on non-business use of the building as it arose.

In 2014 CIC submitted a claim for repayment of output VAT on the grounds that the provision of education and vocational training should be regarded as a business activity, regardless of how it is funded, and no output VAT should have been due. Whilst this view would also point to CIC’s original refund claim of VAT on the construction costs being incorrect, the time limits that apply meant that HMRC’s ability to seek a refund of the input VAT was constrained. [HMRC did have an alternative arrangement to deal with this point but this was not considered by the Tribunal.] Effectively, CIC sought a windfall benefit because the output VAT refund it sought was sufficiently recent to allow a recovery from HMRC, whereas the input VAT over claim occurred too long ago for HMRC to seek a rebate.

Giving lengthy consideration to the relevant EU law and UK legislation and, in particular, the potential dissonance between the terms “economic activity” and “business activity, the Tribunal found in favour of HMRC, asserting that the provision of education and vocational training, to the extent that it is funded by the funding agencies, is not an “economic activity.” Therefore, the Lennartz mechanism as it then stood gave CIC a right to deduct VAT and an ongoing liability for the output VAT which CIC sought to reclaim. As a result the appeal was dismissed.

CVC Comment: This case was designated as a lead case and a number of other institutions had their cases stood behind it. It addressed a historical issue but on the underlying points concerning “business” and “economic activities” it highlighted once again how nebulous the legal position can be. It is increasingly difficult to see a clear logic and, as one case follows the other, it seems to us that often there is a great deal of subjectivity and often the position is being construed to deliver a “sensible” outcome rather than the application of clear law to facts. For example, HMRC guidance states quite clearly that an activity cannot simultaneously be both a business and non-business activity which, in some respects, is what HMRC argues with its proportional non-business approach. It is also interesting that more was not made in the case of the acceptability of the UK law leading to ongoing output VAT declarations, bearing in mind that this was a sticking plaster applied when the previous UK law was recognised to be defective following a decision of the CJEU.

 

2. Golden Cube – Whether output tax was understated

In this instance, the appellant trades as a franchisee of Subway. In 2016 it received a VAT assessment when HMRC took the view that certain supplies of food had been incorrectly treated as zero-rated cold take-away food. The Appellant appealed the assessment, stating that the zero-rated supplies were correctly classified.

Three HMRC invigilations took place at the franchise. These revealed a higher percentage of standard rated-sales than Golden Cube declared. The appellant sought to appeal against these invigilations as they took place during weekdays, so did not account for evening and weekend trade. It was also argued that the inspections were carried out at a cold time of year so more people would have been purchasing hot food and eating their food in the premises, leading to a higher degree of standard rated sales. It was also asserted that the till system used at the Franchise was automatic and linked to Subway itself, leaving no room for human error in terms of VAT calculation.

Hearing witness statements from employees and examining the till system used by the Appellant, the Tribunal concluded that there were no systematic issues with staff training and that the till had not been tampered with to display more zero-rated sales than it should. On this basis, it was held that the assessment issued to the Appellant was excessive. Deciding that the Appellant had accounted correctly for all sales and associated VAT, the appeal against the assessment was allowed.

CVC Comment: This case goes to show that the Tribunal will take more into consideration than just the content of an HMRC invigilation. It also highlights the benefits of an electronic till system which automatically records the VAT liability for each transaction individually as it can be used as effective evidence when defending or appealing against HMRC. HMRC is often inclined to collect detailed information for a limited period and extrapolate large under declarations. In our experience, HMRC is more likely to use this as a tool to seek more VAT than is actually due from businesses that have some level of suppression. However, hard evidence of sales is the best defence, bearing in mind that at the stage that HMRC carries out physical observations on sales, it is likely to already have reached the conclusion that the tax is being underpaid and will see everything through this prism. If you have any issues similar to the ones at hand, do not hesitate to make contact with Constable VAT.

 

3. Rowhildon Limited – Belated notification of an option to tax

This appeal is against a decision by HMRC to refuse a belated notification of an option to tax land and property.

The Chief Finance Officer for the appellant provided a witness statement in which she stated that the property was purchased after agreement by the board of the company and she had been asked to deal with the paperwork.

Having completed the form (VAT 1614A) on 1 July 2016 the notification was given to the company’s management accountant who missed the post that day and so posted it the next working day, 4 July. HMRC claim to have never received this notification and requested proof of postage for the form. The appellant conceded that the notification had not been sent recorded delivery. However, it submitted to HMRC the minutes of the board meeting in which there was a decision to opt to tax as well as computer records to evidence that the decision to opt to tax had been made and to show that the form had been completed on 1 July 2016 and their own retained copy of the form. HMRC were unsatisfied with this and refused to accept the notification.

At Tribunal, the appellant demonstrated that the form could not have been back-dated as HMRC’s website does not allow a past date to be inserted when completing the form. The fact that the retained copy showed 1 July 2016 as the date proved that the decision to opt had been made on that date.

The Tribunal found in favour of the appellant, holding that HMRC’s refusal to accept all of the evidence presented to it without proof of postage was remiss. It is concluded that HMRC had no good reason to not accept the notification and that its decision was not made reasonably.

CVC Comment: HMRC should seek to achieve a fair, just and reasonable result in all dealings with businesses and should act in good faith. There may be circumstances in which the law does not give any latitude to HMRC but this was not such a case. This case seems to us to have been unnecessary. As far as we can judge, there is absolutely no suggestion that refusing the taxpayer application was necessary to guard against an unfair tax loss. HMRC seemed to have no reason to question the veracity of the taxpayer’s explanations. Even more importantly, the taxpayer proved that HMRC’s own systems not only supported its assertion but proved them unambiguously. It is difficult to understand why, in supposedly straitened times, HMRC would waste taxpayers’ money and force the appellant to incur costs itself on a case of this kind. We would like to say this is unusual but unfortunately it is not.

 

CVC VAT Focus 23 August 2018

23rd August 2018

HMRC NEWS

Local authorities and similar bodies

Decide which activities are business or non-business for VAT purposes if you’re a local authority or other public body.

Apply for the Fulfilment House Due Diligence Scheme (Notice FH1)

Find out if you need to be registered to store goods in the UK for sellers established outside the EU.

Administrative agreements with trade bodies (VAT Notice 700/57)

Details of administrative agreements relating to VAT on certain specific transactions between members of trade bodies and HMRC.

Software suppliers supporting Making Tax Digital

Find out which software suppliers HMRC is working with to produce suitable Making Tax Digital for VAT software for businesses and their agents.

 

CASE REVIEW

CJEU

1. Estonian Sales Tax Illegal?

The issue before the court in this instance was whether Article 401 of the VAT Directive must be interpreted as barring the maintenance or introduction of a local sales tax. The City of Tallinn introduced a 1% local sales tax which affected Viking Motors and other appellants, Viking Motors challenged the legality of this tax on the basis that the EU law on VAT only allows one turnover tax: VAT.

Giving consideration to the nature of VAT and how it is applied, it was concluded that there were sufficient differences between EU VAT and local sales tax for the two to run in tandem. It was held that Article 401 does prevent the introduction of another turnover tax but in this instance, as the cost could be absorbed by the business rather than being passed on to the consumer, the two taxes are sufficiently different to not breach EU law.

CVC Comment: There is a very high degree of scrutiny offered by the Courts when it comes to challenging the legality of domestic laws and taxes under EU law. In this case it was held that the nature of how the tax is applied, despite being materially the same, made the two taxes sufficiently different.

 

2. VAT on Joint Venture Costs

 

TGE Gas Engineering GmbH (TGE) is a company established in Germany which entered into a joint venture with a company called Somague Engenharia SA in Portugal in order to expand a gas terminal in Portugal on behalf of a utility company. TGE obtained a Portuguese tax ID number as a non-established person in that country in order to create an economic interest group to carry out the joint venture.

After this TGE set up a branch in Portugal and obtained another tax ID from the Portuguese authorities. This branch provided services to the joint venture which were charged on to the utility company and it was also invoiced for the costs to TGE in Germany.

The Portuguese tax authorities had previously denied recovery of the input VAT incurred on these costs based on special domestic rules applying to joint ventures. The Court held that Articles 167 and 168 of the VAT Directive and the EU principle of neutrality must be interpreted as preventing domestic tax authorities from regarding a company which has its headquarters in another Member State and the branch which it has in the first of those States as constituting two separate taxable persons. For that reason, they are also prevented from refusing that branch the right to deduct the VAT on the expenses incurred on behalf of the joint venture/parent company.

CVC Comment: The UK tax authorities may view joint ventures as a taxable person in its own right for VAT purposes. In that scenario, it is the joint venture that has the right to recover any VAT incurred, rather than the parties to the joint venture. This serves as a useful reminder that purchase invoices should be addressed to the correct taxable person. The business activities of a joint venture should be considered in its own right, and an obligation for a joint venture to VAT register may arise if the parties arrangements are considered to form a partnership. A joint venture may choose to VAT register voluntarily in order to recover VAT incurred (subject to the usual VAT recovery rules).

 

3. Municipalities: Entitled to deduct?

 

The Polish municipality of Ryjewo constructed a building in Poland and the made a “cultural centre” responsible for the management of the property, allowing them to use the building free of charge. This was allocated as a non-taxable activity for the taxation authorities, despite The Municipalities’ VAT registration, as there was no charge made.

Four years later a part of the building was rented out commercially, The Municipality sought to adjust the deduction of input VAT paid for the building, now attributing this part of the building to a taxable supply. The relevant Polish Minister had reached a decision that VAT was not deductible for The Municipality as the building was not used for an economic activity. This is appealed against.

The Court find in favour of The Municipality, concluding that at the time the building was constructed it was acting in its capacity as a taxable entity and not as a non-taxable Government body. VAT is deductible despite the building having initially been put to 100% non-taxable use by a public body.

CVC Comment: Even though no intention to later use the building to make taxable supplies was declared and there was an argument for no economic activity having previously taken place, the deduction was allowed by the CJEU. This is because the right to deduct input VAT is a fundamental aspect of the VAT system. Ultimately, the first use of the building did not matter as this only determines the initial reclaim, adjustments are to be made in line with changes in taxable/non-taxable use. This case may be of interest to organisations that have made an initial non-business use of capital expenditure on property.

 

First Tier Tribunal

 

4. Gaming Machines and Fixed Odds Betting Terminals

 

The issue before the Tribunal in this instance concerned revisiting the EU principle of fiscal neutrality. The Rank Group (Rank) made supplies of gambling through gaming machines including fixed odds betting terminals (FOBTS) and “casino jackpot machines”. The casino jackpot machines were specifically excluded from the exemption to VAT but FOBTS were exempt from VAT before 6 December 2005 when the definition of “gaming machine” was extended.

Rank made a claim for repayment of VAT which it had charged and accounted for in relation to the jackpot machines on the grounds that the two machines were similar and treating their supplies differently for VAT purposes was contrary to the principle of fiscal neutrality.

After a detailed consideration of relevant case-law and analysing the different types of machines to draw similarities and differences between the two, the Tribunal concluded that, despite certain differences, these differences did not have a significant influence on the average consumer’s decision to use one or the other. The Tribunal found in favour of Rank and allowed the appeal against a decision to deny VAT recovery.

CVC Comment: This case shows that the Tribunal will have regard to how the consumer interprets what he/she is purchasing and the material aspect of the supply. It was observed in the judgment itself that to try to draw distinctions within individual gaming machines and games could lead to absurdities of different rates of tax being applicable to one machine. HMRC will often apply similar tests to that of the Tribunal although when analysing transactions.

 

 

CVC VAT Focus 9 August 2018

9th August 2018

HMRC News 

VAT Notices

HMRC has updated the following VAT Notices:

Health professionals and pharmaceutical products (VAT Notice 701/57)
Physiotherapist and podiatrist independent prescribers have been added to the list of relevant practitioners.

Postage stamps and philatelic supplies (VAT Notice 701/8)
The VAT calculation for imported collector’s items has been updated in order to maintain the effective rate of 5%.

The single market (VAT Notice 725)
Improved guidance on amending VAT return periods to coincide with EC Sales List submission. 

Joint and several liability for unpaid VAT (VAT Notice 726)
Updated with information on how to spot missing trader VAT fraud.

Cost Sharing Exemption

HMRC has published Revenue and Customs Brief 10 (2018): VAT – cost share exemption. HMRC has changed its policy following CJEU judgments and amended the test for “directly necessary” services which enables cost sharing groups to ignore certain non-qualifying supplies for the cost sharing exemption. 

Overseas business selling goods in the UK

HMRC guidance has been updated to include information about online marketplaces.

Businesses selling goods in the UK using online marketplaces

HMRC guidance concerning VAT registration has been updated.                                                      

Case Review 

Court of Justice of the European Union 

  1. VAT exemption for transactions concerning payments and transfers

DPAS Limited designs, implements and manages dental plans in the UK. These plans are provided to dentists. Patients make monthly payments to DPAS’s bank account in return for dental care provided by their dentist and insurance cover. The monthly payment includes the amount due from the patient to the dentist, the amount due from the patient to the insurer and the amount due from the patient to DPAS. Each month, DPAS pays to the dentists the aggregate amount payable to them in respect of all of their patients who have paid the agreed monthly amount less an amount retained by DPAS as a charge for its services.

Until 2012 HMRC took the view that the services DPAS provided to the dentists was exempt from VAT. Following the decision of the CJEU in AXA UK which concerned the VAT liability of Denplan Limited’s services (a competitor of DPAS) that found that Denplan provided debt collection services which are subject to VAT at the standard rate, DPAS restructured its contracts so that it contracted with patients as well as dentists.

HMRC contend that the services DPAS supply to dentists and patients are subject to VAT at the standard rate. DPAS appealed this decision before the FTT. The FTT found that DPAS supplied its services to patients and those services were exempt from VAT. HMRC appealed the FTT’s decision before the UT. The UT referred questions to the CJEU.

The CJEU found that VAT exemption for transactions concerning payments and transfers does not apply to the services provided by DPAS. DPAS’ services consist of requesting from the relevant financial institutions money to be transferred from the patient’s bank account to DPAS’ bank account and, following a deduction for DPAS’ services, the remaining balance to be transferred to the patient’s dentist and insurer.

CVC comment: this judgement is the latest in a long line of cases concerning the extent of the VAT exemption for transactions concerning payments and transfers. Other notable cases include Bookit Limited and National Exhibition Centre (NEC). In those cases the CJEU found that booking fees are subject to VAT at the standard rate. 

Supreme Court 

  1. Requirement to pay VAT assessments in advance of appeal

Businesses wishing to appeal a VAT assessment must pay the VAT assessment in advance of the appeal, unless the business can demonstrate that paying the VAT assessment would cause hardship. Totel Limited seeks to appeal a number of VAT assessments. Totel has been unable to demonstrate it would suffer hardship if it were to pay the VAT assessments in advance its appeals. Totel has argued that the requirement to pay the disputed VAT as a pre-condition for an appeal infringes the EU law principle of equivalence, which requires that the rules regulating the right to recover taxes levied in breach of EU law must be no less favourable than those governing similar domestic actions.

The Supreme Court commented in its Press Release that none of the domestic taxes are comparable with VAT. A business seeking to appeal a VAT assessment is in a different position from a taxpayer seeking to appeal an assessment to any other domestic tax. The economic burden of VAT falls to the consumer, not the business. The business collects VAT and passes this onto HMRC. In respect of other domestic taxes the economic burden is on the business.

The Supreme Court dismissed Totel’s appeal.

CVC comment: if a taxpayer can evidence that payment of a VAT assessment would cause financial hardship the appeal may proceed without the disputed VAT being paid to HMRC. In some instances it may be possible to persuade HMRC that the economic burden is in the business, for example when the business has treated a supply as VAT exempt and has not collected VAT from the consumer. 

Court of Appeal 

  1. The value of supplies for VAT purposes – employment bureaux supplying temporary staff

Adecco UK Limited supplies its clients with temporary staff (temps). The First Tier Tribunal (FTT) and Upper Tribunal (UT) have previously found that the full fees received by Adecco from its clients are subject to VAT. Adecco argues that VAT is not payable on the full fee received from its clients. VAT is only payable on the element attributable to the introduction and ancillary services supplied by Adecco (the majority of the fee relates to payment of the temps’ services).

The Court of Appeal agreed with the FTT and UT. The full fees received by Adecco from its clients are subject to VAT. Important points to note: the temps did not have a contract with the Adecco’s clients, the contract between Adecco and the temps referred to the temps providing services to the client “through Adecco”, Adecco paid the temps on its own behalf (not as an agent of the client), and Adecco charged a single sum for each hour a temp worked (it did not split the fee between remuneration for the temps’ service and commission for itself).

CVC comment: this case highlights the importance of contractual terms in determining correct VAT liabilities particularly where an ‘agent’ is involved. 

Upper Tribunal

  1. Whether certain supplies of emergency ambulance services qualify for zero-rating

Jigsaw Medical Services Limited supplies ambulance services. The supply of transport services for sick or injured persons in vehicles specially designed for that purpose is exempt from VAT. It is common ground that the ambulance services provided by Jigsaw are exempt. The issue before the Upper Tribunal was whether “emergency ambulance services” by Jigsaw qualified for zero-rating. If a supply can qualify for both exemption and zero-rating, zero-rating takes precedence. The benefit of zero-rating is that such supplies generate a right to VAT recovery. It was accepted that “patient transport ambulance services” provided by Jigsaw are both exempt and zero-rated (with zero-rating taking precedence).

Zero-rating applies to the transport of passengers in a vehicle designed or adapted to carry not less than 10 persons. Zero-rating also applies to a vehicle designed or adapted to carry a person(s) in a wheelchair that, if it had not be so designed or adapted, would be capable of carrying 10 persons or more. Jigsaw’s emergency transport vehicles were capable of carrying 7 or 8 persons. No seats were taken out of Jigsaw’s emergency transport vehicles in order to adapt the vehicle for wheelchair use. The First Tier Tribunal (FTT) considered that because additional seats could be added so that the vehicle could carry 10 persons meant that Jigsaw’s supplies of emergency transport were zero-rated; however, the Upper Tribunal disagreed and adopted a narrow interpretation of the law. HMRC’s appeal against the FTT decision was allowed. Jigsaw’s supplies of emergency transport ambulance services are exempt.

CVC comment: this decision demonstrates that VAT reliefs (such as exemption or zero-rating) are only available subject to strict conditions. Businesses and charities applying VAT reliefs to their supplies should ensure all conditions are met. We recommend reviewing activities frequently to ensure VAT treatments remain correct.

  1. Application to admit new evidence

Kyriakos Karoulla, trading as Brockley’s Rock, appealed against the decision of the FTT to uphold a ‘best judgement’ assessment by HMRC for under-declared VAT in respect of takings from its fish and chip shop. Karoulla’s application for permission to appeal the FTT’s decision was twice refused by the UT. Upon applying for permission to appeal for a third time, the judge granted permission to appeal in one respect only. This appeal relates to the extent credit card transactions were reflected in HMRC’s best judgement assessment.

Following a VAT inspection and several test purchases by HMRC in 2015 HMRC concluded that card sales after 8pm were not being entered on the till. The business used daily till records to prepare its VAT return. HMRC issued a VAT assessment in the sum £28,323.00 and an associated penalty of £26,913.18.

Karoulla sought to admit new evidence, originals of tills rolls and records relating to card purchases. These documents were only returned by HMRC to Karoulla shortly before the hearing of Karoulla’s application for permission to appeal.

The UT reviewed correspondence between Karoulla’s representatives and HMRC. Karoulla requested the return of the original documents numerous times in advance of the FTT hearing. HMRC either ignored or refused such requests. The UT commented that the only attempted justification given at any stage by HMRC for their refusal was that HMRC was under no obligation to assist Karoulla with its case. The UT said in its decision:

“That was a totally inappropriate response to a proper request from the taxpayer for the return of documents which he himself had provided to HMRC during the course of its enquiries and which the taxpayer plainly required in order to answer HMRC’s case. To this day, HMRC have provided no explanation as to why they believe that such a response was appropriate. The observation of the FTT at [27] of the Decision, as set out at [14] above that the failure to produce the till rolls was “unfortunate” was a gross understatement.

HMRC cannot hide behind the absence of any tribunal order for disclosure to argue that the evidence “could have been obtained with reasonable due diligence”. The many repeated requests by Karoulla for HMRC to return the documents are due diligence enough without the needless expense and use of resource generated by requiring an order for disclosure.” 

Karoulla accepts that some suppression of card purchases did occur. The UT considered the new evidence which covered around a dozen days. For reasons unknown, HMRC chose only to take account of three days when calculating the VAT assessments. The new evidence showed that the suppression of card sales was inconsistent, it was not the case that card payments were being omitted from the till every day after 8pm.

The UT found that the decision of the FTT should be set aside and a fresh hearing should take place.

CVC comment: HMRC’s refusal to provide original documents to the taxpayer was clearly unacceptable. In another example the recent decision in Sandpiper Car Hire Limited saw the Tribunal criticise HMRC’s approach to dealing with disabled people, see CVC’s commentary here. Taxpayers have several options they can pursue if they have difficulties with HMRC such as the complaints procedure or dispute resolution.

CVC VAT Focus 26 July 2018

26th July 2018

HMRC NEWS

HMRC publishes more information on Making Tax Digital

HMRC has published further information on Making Tax Digital to support businesses and agents in the run up to the start of the mandatory Making Tax Digital VAT service from April 2019.

Revenue and Customs Brief 7 (2018): VAT – motor dealer deposit contributions

This brief explains HMRC’s policy on the VAT accounting treatment of promotions where payments are made to finance companies by motor dealers for the customer.

Draft legislation: Amendment of the VAT (Input Tax) (Specified Supplies) Order 1999

This is the consultation on draft amendments to the Specified Supplies Order to address the issue of VAT off-shore looping in the financial services sector.

Registration scheme for racehorse owners (VAT Notice 700/67)

Find out if you can register for VAT under the VAT registration scheme for racehorse owners

Help and support for VAT

Get help with VAT by using videos, webinars, online courses and email updates from HMRC.

 

CASE REVIEW

CJEU

1.Acquisition and holding of shares: An economic activity?

This French referral concerned the letting of a building by a holding company to a subsidiary and whether this would constitute involvement in the management of that subsidiary, giving rise to a right to deduct input VAT incurred on the acquisitions of holdings in the subsidiary. If found to constitute management, the acquisition and holding of shares in the subsidiary would be an economic activity.

Marle Participations (Marle) is the holding company of the Marle Group. It let a building to some of the subsidiaries whose shareholdings it also managed. It conducted a restructuring operation which led to purchases and sales of securities, it sought to recover input VAT incurred in the course of the restructure. During a VAT audit, the tax authorities issued assessments to recover VAT claimed. This was on the basis that the expenditure by Marle was capital in nature and so a right to deduct VAT incurred did not arise. Marle appealed this decision.

The referral from the French court asks whether the VAT Directive must be interpreted as meaning that the letting of a building by a holding company to its subsidiary constitutes involvement in the management of that subsidiary, which must be considered an economic activity.

The CJEU considered case law and the VAT Directive. It was held that the involvement of a holding company in the management of subsidiaries constituted an economic activity where the holding company carries out a taxable transaction. The Court decided that the letting of a building to the subsidiary did constitute an economic activity so there was a right to deduct VAT incurred on expenses relating to the restructuring giving rise to the acquisition of shares in the subsidiary.

However, it was also held that where the holding company is only involved in the management of some subsidiaries but not all, then a fair apportionment method must be used to calculate the amount of input VAT to be recovered.

CVC Comment: This decision is relevant to the recovery of VAT incurred by holding companies. If holding companies make taxable supplies (in this case taxable lettings of buildings to subsidiaries) then, subject to the usual rules, input VAT recovery rights are likely to arise. Restructuring a company and transferring securities can lead to very complex supplies and processes which can be hard to classify. What can, on the face of it, take place as an accounting entry can give rise to a real-life tax liability. Before taking on any restructuring projects professional advice should be sought to provide certainty of compliance.

 

2. Right to deduct: Transactions did not take place

The Court heard two requests for a preliminary ruling concerning the interpretation of the EU law concerning the right to deduct input tax.

The two companies, SGI and Veleriane, are established and operate in France purchasing equipment intended to be leased to operators in France. Following a VAT audit, the tax authorities challenged the right to deduct VAT on various purchases as the invoices did not relate to any particular delivery and issued assessments of VAT to this effect. Both companies claim to have acted in good faith with regard to these transactions but the referring court highlights that the companies could not have been unaware of the fictitious nature of some of the transactions and the associated overcharging.

SGI claims that, in the absence of any serious indication of fraud, it is not obliged to prove to the authorities that the transactions took place and Valeriane claim the referring court did not consider whether the tax authorities had adduced the necessary proof that it knew or ought to have known that the transactions were connected with VAT fraud.

The domestic Court referred the question of whether the EU law must be interpreted as meaning that, in order to deny a taxable person in receipt of an invoice the right to deduct VAT appearing on that invoice, it is sufficient that the authorities establish that the transactions covered by that invoice have not actually been carried out or whether those authorities must also establish that taxable person’s lack of good faith.

Giving consideration to the principles of legal certainty and fiscal neutrality, the Court held that under the EU law it is sufficient for the tax authorities to establish that the transactions have not taken place and there is no requirement to show a lack of good faith when denying the right to recover input VAT on transactions which have not taken place.

CVC Comment: The right to recover input VAT arises when VAT becomes properly chargeable. If no supply can be evidenced to have been made in relation to the invoice giving rise to a claim to deduct VAT then the VAT incurred is not deductible. It is important to be aware of supply chains and to ensure that each transaction actually takes place before submitting a VAT reclaim to avoid unexpected tax assessments.

 

Supreme Court

3. Relying on claims made by a former member of a group VAT registration

This appeal by HMRC concerns the validity and timing of claims for the repayment of incorrectly paid VAT by Carlton Clubs Limited and whether those claims could be relied on by the representative member of a group VAT registration.

HMRC had refused a number of claims for repayment of incorrectly paid VAT made on behalf of Taylor Clark Limited (TCL) by a subsidiary. TCL was the representative member of a VAT group registration which contained Carlton Clubs Ltd (CCL) by whom the claims were made as it carried on the activity of Bingo to which the claims related. TCL contended that these claims should be recoverable by itself as the representative member of the VAT group, highlighting that CCL was no longer in the group.

The FTT held that the subsidiary would have been entitled to the repayment of VAT and TCL could not rely on the claims as they were not made by TCL. The UT found that whilst TCL may have been able to reclaim VAT it did not make a claim for repayment within the time limits allowed, therefore there could be no repayment. The Court of Session, however, ruled in favour of TCL, stating that a claim may be made on behalf of the representative member of a VAT group by a former member and subsidiary.

The Supreme Court has ruled that the Court of Session erred in finding this to be the case. It was held that HMRC’s liability for overpaid output tax is owed to the person who accounted for the VAT (CCL). Unless CCL was acting as an agent to TCL at the time the claims were submitted, the claims cannot be relied upon by TCL now. After extensive consideration of the relationship between TCL and CCL, the conclusion was that CCL was not acting in the capacity of an agent by submitting the claims. The Supreme Court held in favour of HMRC and allowed their appeal.

CVC Comment: This case serves as a reminder of the importance of considering who is entitled to benefit from claims for overpaid VAT in the context of a group VAT registration. A consequence of VAT grouping is that any business activity carried out by a group member is treated as if it is done by the representative member.

 

UTT

4. Direct and immediate link with main economic activity

This appeal concerns whether a company established outside the EU is entitled to recover input VAT on the cost of tools leased to an EU company for no consideration. JDI is incorporated in the Cayman Islands and is part of a group of companies (The Baker Hughes Group). The FTT had previously agreed with HMRC that there was not a sufficient link between the acquisition of the tools by JDI and an economic activity to allow repayment of the VAT incurred.

JDI acquired the tools as part of a company restructure along with the intellectual property rights for the tools, VAT was charged on this supply which JDI sought to recover. The intellectual property gave JDI the right to manufacture further tools and spare parts. Rather than producing the tools itself, it gave out contracts to manufacturing companies to fabricate them. JDI paid the manufacturing companies for this but made no charge to the Baker Hughes Group in the Netherlands when leasing the tools to them. It contended that its main economic activity is the supply of spare parts to companies using the tools and therefore that there is a direct and immediate link between the acquisition of the tools and its main economic activity.

The Upper Tribunal agreed with the FTT and HMRC that the required direct and immediate link had not been established. There was no charge for the leasing of the tools. They were not connected with a taxable supply, VAT incurred was irrecoverable. It was also confirmed that JDI was not, in this capacity, acting as a taxable person.

CVC Comment: This case serves as a reminder of the importance of considering all aspects of arrangements entered into with connected parties. VAT incurred is recoverable to the extent that it relates to taxable business supplies. In this case as there is no charge for the lease of the tools there was no connection with the original purchase of those tools to a taxable supply so input VAT was wholly irrecoverable.

5. Place of supply rules

This appeal concerns the place of supply for the supply made by IC Wholesale Limited (ICW), a UK company, to customers in the Republic of Ireland of cars acquired in Cyprus and Malta. ICW  contended that as it had invoiced the customers in Ireland before the cars left Malta and Cyprus, despite the fact that the cars entered the UK, the supplies took place outside of the UK and therefore should not bear UK VAT.

The FTT found against ICW, concluding that the supplies had taken place in the UK as the cars physically arrived in the UK before being sold. It was also noted that ICW held insufficient evidence to demonstrate that the cars had been removed from the UK.

The UT agreed with the FTT, asserting that ICW used its UK VAT registration number when ordering the cars and the cars physically entered the UK. The suppliers were not informed that the vehicles would be re-sold and, in the absence of sufficient evidence of export, ICW must be treated as acquiring the goods in the UK and therefore the appeal must be dismissed.

CVC Comment: When exporting goods it is essential to retain evidence in order to support zero-rating of the supply. The place of supply rules are also important and should be borne in mind for each transaction involving the movement of goods into and out of the UK. For advice with any place of supply issues please contact CVC as there could be significant financial implications if VAT accounting errors are made.

6. Business/non-business apportionment

The Tribunal considered a claim for repayment of VAT relating to services supplied by NHS Lothian Health Board (LHB) to non-NHS, private customers such as local authorities. It was an agreed fact that VAT had been incurred and paid but not recovered by LHB in the period from 1974-1997.

The FTT originally rejected the claim for repayment on the basis that a business/non-business apportionment had not been calculated to an adequate extent. The FTT gave some consideration to partial exemption and direct attribution. This appeal focussed on whether this was incorrect. The appellants asserted that it was an error to consider direct attribution and partial exemption when all that was required was a business/non-business apportionment.

The UT found that it would have been an error of law for the FTT to rely on partial exemption principles when apportioning business/non-business activities for the purpose of input tax recovery. However, whilst the FTT did discuss partial exemption, the UT was content that the FTT had not relied on it and that they instead relied on the reasonableness of the proposed apportionment.

It was held that the FTT was entitled to find the proposed business/non-business apportionment unreasonable and its decision to reject the claim for input VAT recovery from 1974-1997 stands.

CVC Comment: In this case LHB sought to retrospectively extrapolate a partial exemption recovery percentage from a specific period from 2006 to 1997. Before making a retrospective claim for input VAT recovery it is important to be clear on the appropriate methodology. In cases where the business is not fully taxable an apportionment is required to reflect non-business or VAT exempt business activities. If you think your business or charity may be entitled to a retrospective repayment of VAT incurred on costs that cannot be directly attributed to taxable supplies please do not hesitate to contact CVC to discuss the best strategy for your individual case. Please remember that, if VAT registered, retrospective claims are capped at four years.

 

Making Tax Digital: VAT Notice 700/22

13th July 2018

HMRC have today issued VAT Notice 700/22: Making Tax Digital which offers explanations to some of the questions surrounding the initiative. Making Tax Digital requires charities and businesses with a taxable turnover above the VAT registration threshold to keep specific digital records and submit VAT returns using “functional compatible software”.

The Notice explains which records must be kept by charities and businesses as well as ways to digitally record transactions when required.  It also sheds some light on what constitutes “functional compatible software” and some of the issues which may arise where a combination of programs is used and where these may or may not require to be digitally linked with one another.

This Notice is particularly important because of the amount of organisations that will be affected. We would recommend that it be read thoroughly to ensure compliance when the initiative takes full effect next year.

Alongside the VAT Notice, HMRC released some supporting documents to offer more assistance to both charities and businesses. We recommend that these be read as well to ensure the highest degree of compliance is achieved.

If any doubt arises around the way in which your charity may be affected by Making Tax Digital then please do not hesitate to contact CVC at any time.

CVC VAT Focus 12 July 2018

12th July 2018

HMRC NEWS

VAT grouping eligibility criteria changes

This latest measure will allow certain non-corporate bodies to join VAT groups. For example a charitable trust which is VAT registered as a partnership may now be able to form a group VAT registration with its wholly owned trading subsidiary.

VAT treatment of vouchers

Draft legislation about the implementation of an EU Directive of the VAT treatment of vouchers.

VAT Notes 2018 Issue 2

This note explains how to receive payments by Bankers Automated Clearing System (BACS) and applications to the Fulfilment House Due Diligence Scheme.

Revenue and Customs Brief 4 (2018)

This brief sets out HMRC’s policy on the changes to the time limits for VAT refund schemes if you are a local authority, police or similar body.

HMRC and online marketplaces agreement to promote VAT compliance

Find out more about the agreement and how it will help build collaborative relationships. The list of signatories has been updated.

OTHER NEWS

CVC advises many charities. Our clients include a number who offer support to vulnerable people and those with disabilities.  The recent decision in Sandpiper Car Hire Limited saw the Tribunal criticise HMRC’s approach to dealing with disabled people.

This article by one of our partners, Stewart Henry, gives an engaging analysis of the Court’s criticisms of HMRC and how it struggles to handle some of the challenges presented when dealing with more vulnerable members of the public.

CASE REVIEW

CJEU

1. Transfer of immovable property from a Municipality to the Treasury

 

This referral from the Polish Court asked whether the transfer of ownership of immovable property owned by the Municipality for compensation constitutes a taxable transaction for VAT purposes where the property continues to be owned by the Municipality as a representative of The Treasury.

 

In this case the State acquired, by compulsory purchase, immoveable property in order to develop a new national road from the Municipality. Concluding that the Municipality is a taxable person, the Court went on to outline three criteria necessary for a taxable supply to have arisen; a transfer of a right of ownership, made in the name of or by order by a public authority and there must have been payment.

 

On analysis of the circumstances in the case, it was concluded that there was a transfer of legal title of the property. With regard to the compensation received, as this was a State purchase of a Municipality piece of land, the purchase was handled as an internal accounting entry which it was argued prevented it being seen as payment for a taxable supply. The Court held that it was irrelevant as there had been consideration for a taxable supply of immoveable property; internal accounting or not.

 

In summary, the CJEU held that in circumstances where there is compensation given in exchange for immoveable property between taxable persons there is a taxable supply for VAT purposes even where the compensation is by way of an internal accounting entry.

 

CVC Comment: A supply of immovable property in exchange for consideration will constitute a taxable supply, even where the consideration is made purely by way of an internal accounting entry. A transfer is a transfer and the Court will be reluctant to read into supplies that they are not taxable transactions in the absence of any substantive evidence to the contrary. Before making any transfer of a significant value, or where operating in a grey-area, then it is always prudent to seek professional advice.

 

2. Buying back shares by transferring immovable property: A taxable supply?

 

The CJEU has responded to a Polish referral asking if the transfer by Polfarmex, a limited company, to one of its shareholders of immovable property as consideration for shares in that limited company by way of a share buy-back constitutes a taxable supply. Polfarmex  argued that the plan was to restructure the share capital of the company by buying shares back and it was therefore not subject to VAT as the transaction did not form part of its business activities.

 

The Court stated as common ground that the transaction proposed by Polfarmex and the shareholder would lead to the transfer of the right of ownership of immovable property and that Polfarmex is a taxable person in Poland. In the absence of any place of supply issues, the main question looked at by the Court is when a supply of goods is made for “consideration”.  It was held that a supply is made for consideration only where there is a legal relationship between both parties which requires reciprocal performance.

 

It was concluded that if the transfer of the immovable property to buy-back shares in Polfarmex would be subject to VAT if the actions by Polfarmex are ruled by the referring Court to constitute a part of its economic activity. The Court did not give direction on this topic.

 

CVC Comment: When restructuring companies and acquiring shares, complex VAT issues arise, as is demonstrated by this case. Before taking on the challenge of restructuring a company it is vital that professional advice is sought in order to ensure the highest degree of compliance is maintained.

 

3. Exemption on imported goods subsequently despatched to a taxable person different to that named on the invoice for the supply.

 

This decision relates to Enteco Baltic (EB), a Lithuanian wholesaler of fuel who imported fuel from Belarus free of VAT as it was to be sold onto third parties in other European Union member states.

 

Complying with relevant EU and domestic rules, EB provided the tax authorities with their own, the supplier’s and the purchaser’s VAT registration numbers and certificates of origin within the relevant time limits prior to import. However, EB’s intended supplies did not go ahead and the fuel was subsequently sold to businesses in other EU Member States. In order to remain compliant and to continue to benefit from the exemption for import VAT when an onward supply to a taxable person in another member state, EB declared this to the tax authorities with the VAT registration numbers of the new intended recipients. Whilst initially the tax authorities accepted this, an inspection in 2014/15 led to a discovery that the recipients’ VAT registration numbers declared on the initial import document did not correspond with those of the actual recipients.

 

In reaching a conclusion, the CJEU held that the exemption from VAT applying in the present circumstances is available where three core criteria are met;

 

  • The supplier has the right to dispose of the goods,
  • The supplier establishes that those goods are shipped to another Member State
  • As a result of the despatch the goods physically move out of the territory.

 

The inclusion of the purchasers VAT registration number on the invoice for the supply is not, therefore, essential, especially in situations such as those in these proceedings where the tax authorities were informed of the situation. It was held that application of the relevant exemption cannot be prohibited unless the supplier intentionally is participating in tax evasion.

CVC Comment: This complicated set of circumstances came down to a three-point test by the Court in order to reach a conclusion. The judgment reached shows that the Court will have regard to the economic reality of the transactions taking place where rigorous application of the law results in an unfair result.

 

Court of Appeal

4. VAT is not recoverable on supplies incorrectly treated as exempt by UK law

 

Here The Court of Appeal considered a question of whether the appellant, Zipvit, was entitled to deduct input tax on services received from Royal Mail which were treated as exempt by UK law at the time of supply but which should have been treated as standard rated according to EU law.

 

Royal Mail believed its supplies to be VAT exempt and it did not issue VAT invoices to Zipvit, nor pay over VAT to HMRC. The contract between the two parties made no comment with regard to VAT. Zipvit contended that it had a right to deduct VAT that should have been charged and should be deemed to be included in the invoices it had already received.

 

Two main issues fell before The Court; was VAT due or paid on the supplies by Royal Mail and whether the lack of VAT invoices barred any input VAT recovery by Zipvit anyway. Ultimately, the decisions of the FTT and UT were upheld by the Court; no VAT was paid over by Royal Mail and no right to deduct had arisen for Zipvit. The judgment focussed particularly on the importance of the lack of VAT invoices issued to Zipvit which ultimately ensured that no right to deduct had arisen.

 

CVC Comment: Zipvit has been a lead case and it will be interesting to see if it is appealed further as there have been many cases “stood behind” this judgment. Whilst this is a disappointing result for the appellants and others, it serves as an important reminder to always give consideration to VAT when drafting contracts in order to avoid complex and potentially costly situations such as the one at hand arising. The decision also emphasises the importance of obtaining correct evidence to support a right to deduct VAT incurred.

 

First Tier Tribunal

5. Failed zero-rating of a disposal of a renovated property

 

This case concerned an appeal against a decision reducing the input tax claim of a property development company.

 

Fireguard Developments Limited (Fireguard) renovated and subsequently sold a property (the property), believing the house had been vacant for ten years making the onward supply zero-rated. To reflect this Fireguard sought to reclaim the VAT incurred on the renovation in respect of the VAT accounting period ending 31 December 2016 on its VAT return. HMRC contended that the property had not been vacant for ten years prior to disposal and therefore that the supply was exempt meaning recovery of input VAT should be restricted.

 

The FTT found in favour of HMRC who submitted PAYE records and electoral role entries to support its position that the property had not been vacant for ten years prior to the refurbishment and disposal. As the property was found not to have been empty for ten years immediately prior to its sale the disposal was exempt and directly attributable input VAT was therefore irrecoverable.

 

CVC Comment: In cases where a business is seeking to benefit from a reduced or zero-rate of VAT it is essential to ensure that all material facts are known. The rules around when the reduced and zero-rates of VAT apply are complex and before taking on any significant or high value land or property related projects it is safest to seek professional advice.

 

 

First-Tier Tribunal comments on HMRC’s treatment of disabled people

3rd July 2018

 

CVC advises many charities. Our clients include a number who offer support to vulnerable people and those with disabilities.  The recent decision in Sandpiper Car Hire Limited saw the Tribunal criticise HMRC’s approach to dealing with disabled people.

 

The facts can be summarised as follows:

  • Sandpiper appealed the decision of HMRC to issue VAT default surcharge liability notices in respect of VAT accounting periods 01/11 to 10/15. The surcharges totalled £9,643.81.
  • Sandpiper believed it had a reasonable excuse for its defaults and failure to pay VAT owed to HMRC by due dates.
  • Sandpiper evidenced the following facts in support of its position.
  • The 70 year old sole director of the business has suffered with Meniere’s disease for 20 years and finds it extremely difficult to hear.
  • The director was diagnosed with cancer. When removing a tumour the surgeon damaged a major nerve to the director’s spine which required a number of further operations.
  • Due to a combination of significant pain and severe mobility issues the director was prone to lengthy, frequent and unpredictable absences from the business. Further surgery nearly resulted in the director’s death.
  • Managers employed to run the business were unreliable. One set up a competitor business whilst employed by Sandpiper.  Another defrauded the business out of thousands of pounds.  The offence was reported to the Fraud Squad.
  • VAT payments made by the business to HMRC had been credited to the company’s PAYE account by HMRC in error.
  • The director wrote to HMRC numerous times advising he was deaf and unable to communicate via the phone. HMRC responded each time with a letter giving a contact telephone number to call to discuss the matter.
  • The director’s wife called the number given by HMRC; however, this was unobtainable. She traced another telephone number but HMRC refused to discuss the matter with her because she was not an officer of the company.
  • A letter to HMRC from the director dated 20 April 2017 was treated as a complaint by HMRC. On 12 May 2017 HMRC’s Complaints Team wrote to the director giving a telephone number to call.  HMRC also denied that it “had not considered your illness and constant hospital appointments” when pursuing default surcharges.
  • Incredibly, HMRC’s litigator commented in Tribunal that the taxpayer “has not provided anything to the Commissioners to the effect that the health of the director prevented the company from making payment of VAT by the due date”. When pushed on this point by the Tribunal HMRC’s litigator responded that the director should have “made alternative arrangements”.

 

The Tribunal considered whether the director’s actions were reasonable.  He suffered with a debilitating illness, was diagnosed with life-threatening cancer and an operation to remove a tumour resulted in unexpected and significant spinal damage.  The director put in place arrangements he believed would ensure the company met its VAT obligations.  Unfortunately, the company was subject to an £80k fraud (reported to the police) which resulted in the company defaulting on its VAT obligations.

 

The Tribunal referred to the Court of Appeal decision in Steptoe.  Lack of funds does not give taxpayers a reasonable excuse for non-payment of VAT; however, the cause of insufficiency of funds could provide a reasonable excuse.  The Tribunal commented “we have no hesitation in finding that the company has a reasonable excuse for its VAT defaults”.

 

The Tribunal gave its decision orally at the end of the hearing.  The Tribunal suggested a short decision might be sensible.   This is common in dealing with default surcharge appeals in respect of which a full written decision is unusual.  The director of Sandpiper agreed; however, HMRC refused and requested a full decision in case HMRC wishes to apply to lodge an appeal with the Upper-Tier Tribunal.

 

Given the position, the fact that HMRC even took the case let alone considered that it might then lodge an appeal might be viewed as surprising.  In issuing a full decision the Tribunal took the opportunity to comment on HMRC’s approach to dealing with taxpayers suffering serious medical conditions.

 

Although the director of Sandpiper advised HMRC in writing on numerous occasions that he had severe difficulty hearing and could not hold a telephone conversation, HMRC continually told him to call them.  It seems clear that the director has a number of long-term health conditions defined by the Equality Act.  HMRC Debt Management and Banking Manual guidance at DMBM585185 instructs HMRC officers to take account “in all cases” the “possible detrimental effect on the debtor” of taking recovery action.  Officers should also consider “the possibility of unreasonable distress” and “the likelihood of adverse publicity” if unsuitable action is taken.  The Tribunal also commented that, in this case, the director could (or should) have been referred to a HMRC Needs Extra Support (NES) Team.  The Tribunal decision concludes as follows.  “The Tribunal has no jurisdiction over how HMRC treats its disabled customers, and no jurisdiction over the collection of VAT debts or the allocation of tax payments.  Nevertheless, we hope that HMRC will take into account our comments”.

 

This case and HMRC’s behaviour, would probably not have been widely circulated and be in the public domain had HMRC’s litigator accepted a short decision.  HMRC’s insistence on a full decision gave the Tribunal an opportunity to lay out what, in our opinion, should be viewed as an embarrassing sequence of HMRC actions.  Nevertheless, this illustrates how HMRC behaves in certain cases.  It is hard to imagine the stress and anxiety caused to the taxpayer in this case by HMRC.  In his letter of 8 June 2017 to HMRC the director of the business concluded “…firstly, you discriminate against me because of my disability and secondly you hound me with daily texts/letters from Debt Management and I am the person who has had to fight to sort out your errors going back 2 years”.

 

It will be interesting to see if HMRC applies to the Upper-Tier to appeal this decision.  What is surprising is that at no point does HMRC express any sympathy for its treatment of the taxpayer or offer an apology for its actions.  HMRC has a difficult job to do and, in our view, it undermines the public support it needs to do that job when it shows such a total lack of empathy.  It would be interesting to know just how much taxpayer money HMRC invested in pursuing the £9,643.81 of surcharge assessments; however the reality that anyone dealing with this fact pattern thought that this was in the public interest and a good use of taxpayer’s money is mystifying to us.

 

 

CVC VAT Focus 31 May 2018

31st May 2018

HMRC NEWS

Imports and VAT (Notice 702)

One must now report imports that are over £873 in value on a Single Administrative Document.

 

OTHER VAT NEWS

We understand that HMRC has begun to contact firms directly regarding the VAT treatment of electronic searches following the Brabners LLP VAT case summarised on our website. The Law Society has issued guidance which can be viewed here.

 

CVC BLOG

VAT recovery, supplying insurance and the benefits of customer location

VAT exempt supplies do not normally provide a right to reclaim VAT on costs incurred in making such supplies. However, certain supplies that would ordinarily give no right to input VAT recovery may be ‘specified’ to do so when the customer is located outside the EU. Follow the link to read our most recent blog, by Robert Thorpe, which explains this further.

 

CASE REVIEW

CJEU

1. Retrospective application of VAT exemption schemes

In this matter, the domestic Courts of Hungary ask whether EU law precludes national legislation prohibiting retroactive application of a special VAT exemption scheme for small traders to an eligible, taxable person but who did not declare the commencement of his taxable activities and did not, therefore, opt for the application of that scheme.

 

In the main proceedings, Mr. Dávid Vámos had made taxable supplies from 2007 until January 2014 seeking to support his usual income. However, he failed to register this activity with the tax authorities, also failing to raise invoices and keep receipts. Following an investigation into his tax affairs, Mr Vámos registered for VAT on 22 January 2014 and opted for application of the exemption. A secondary investigation by the domestic tax authorities revealed a VAT debt. The tax authority took the view that national law did not allow retrospective application of the option to be exempt from VAT and so imposed the relevant penalties.

 

The question before the Court is whether national legislation preventing the retrospective application of a VAT exemption scheme is contrary to EU law. Mr Vámos contended that he should have been asked if he wished to retrospectively exercise the option when he registered as he was eligible for the scheme.

 

The Opinion of the Court in this instance is that, given exemption can lead to mixed results for businesses, it cannot be assumed that all taxable persons entitled to an exemption intend to opt for it. Taking into account the effect retrospective application of the exemption would have on previous transactions and other businesses, the Court held it reasonable that the domestic tax authorities require taxable persons to make an express choice of the VAT regime they wish to have applied if it is different to the default regime.

 

The Court also agreed with Hungarian tax authorities that allowing taxable persons who failed to declare the commencement of their activities to retrospectively exercise that option would give an unfair advantage, distorting competition in their favour, breaking the principle of fiscal neutrality. Concluding, it is asserted that EU law does not preclude national legislation prohibiting retrospective application of special exemption schemes, even in cases where the taxable person fulfils all the material conditions for using the scheme.

 

CVC Comment: This case should serve as a reminder of the importance of considering tax and legal obligations before, as opposed to after, beginning to carry on what is or could be considered to be a trade.

2. Divergent criminal thresholds for taxation

Mauro Scialdone

This request for a preliminary ruling concerned interpretation of the EU law relating to criminal penalties for failing to pay VAT within the time limit prescribed by domestic (Italian) law. The General Provisions of the PFI Convention provide that in cases of serious fraud involving more than €50,000, penalties including imprisonment must be available to Member States.

 

Italian law provided for the penalty of imprisonment in cases where the taxpayer failed to pay, within the relevant time limits, any VAT owed over €50,000. The same penalties applied to other taxes such as income tax. Subsequent updates to Italian law saw the threshold for imprisonment increase for failure to pay VAT to €250,000.00 and for income tax to €150,000.00.

 

Whilst much consideration was given to other issues, the questions relating to VAT before the CJEU concerned whether EU law precludes domestic legislation from prescribing different thresholds for criminalising failure to pay VAT and income tax. Consideration was given to the principles of effectiveness and equivalence. The Italian authorities contended that as the two taxes have different collection and administrative regimes and differing degrees of identifiability of fraud, the distinction in penalties was justified.

 

It was held that neither principle precludes domestic legislation such as that in the main proceedings which provides that failure to pay, within the given time limit, the VAT resulting from the annual tax return constitutes a criminal offence only when the amount of unpaid VAT exceeds €250,000.00 whereas a threshold of €150,000.00 applies to failure to pay income tax.

 

CVC Comment: This case makes clear that seriously non-compliant taxpayers can face custodial sentences as well as fines. It highlights some of the differences between direct and indirect tax regimes and the judgment reflects an understanding of this.

Upper Tribunal

 

3.Student Accommodation: Zero-rating Certificate

This appeal concerned the liability of supplies made by Summit Electrical Installations Limited (Summit) as a sub-contractor to a development of student accommodation. Create Construction (Create) had appointed Summit after receiving a zero-rating certificate from the developer stating that the development was for a relevant residential purpose (RRP). As the certificate stated RRP, HMRC contended that only supplies by Create to the developer could be zero-rated and Summit’s supplies should be standard rated as they were sub-contractors. Summit refuted this stating that they could rely on zero-rating provisions as the supplies were made in the course of the construction of a building designed as a number of dwellings.

 

The FTT agreed with Summit, also considering an issue of planning conditions which HMRC contended prohibited zero-rating; as the buildings must be let to students of certain Universities, there was a prohibition of separate use or disposal of the flats. The FTT dismissed this as the flats could be sold separately so long as students lived in them.

 

HMRC appealed to the Upper Tribunal (UT) against the decision in relation to the prohibition of separate use or disposal, asserting that the development failed to qualify as “dwellings” due to the alleged prohibition on separate use or disposal. The UT found that, in accordance with case law, for there to be a prohibition on separate use for the purposes at hand there must be a prohibition on the use of the premises separate from the use of some other specific land, a connection to the Universities mentioned in the planning consent was not sufficient. The UT upheld the decision of the FTT and dismissed HMRC’s appeal, allowing Summit’s supplies to be zero-rated as in the course of construction of a building to be used as a number of dwellings.

 

CVC Comment: This is a positive result for Summit as well as, potentially, for other sub-contractors appointed by Create. This judgment shows the importance of planning before taking on any development projects. Had the Tribunal found differently, Summit and other contractors may have been burdened with a VAT debt.

 

First Tier Tribunal

 

4. Adjustments, agreements and time limits

HMRC sought here to strike out an appeal by Buckingham Bingo Limited (BBL) on the grounds that BBL were appealing against a letter from HMRC which did not contain any appealable decision. In 2012, BBL submitted a VAT return which included a reclaim for £1,616,384.44 overpaid output VAT. HMRC promptly issued a decision denying this reclaim and BBL did not appeal on the basis of costs.

 

Following developments in case law (KE Entertainments Ltd) BBL wrote to HMRC seeking to recover the original amount. HMRC replied on 5 January 2017 stating that they had already ruled on this matter and that BBL had decided not to appeal. It was also noted that there are time limits on adjustments to VAT returns, out of which BBL found itself.

 

The FTT agreed with HMRC that the time limits relating to adjustments applied and that the letter dated 5 January 2017 did not contain an appealable decision but more reaffirmed an earlier one. BBL argued that it would be unfair if it were not allowed to make an adjustment in the same way as Carlton Clubs and KE Entertainment Limited and so should be granted an extension to make an appeal. The Tribunal dismissed this, placing great weight on the need for finality in decisions and stressing that BBL had already stated in 2012 that it would not appeal the original decision based on costs.

 

The Tribunal agreed with HMRC, on all grounds, and BBL’s appeal was struck out. It is not granted any extension to amend its notice of appeal.

 

CVC Comment: It is essential to be aware of all relevant time limits when it comes to making adjustments to VAT returns. This case shows that the Tribunal takes due process seriously and will not agree with the taxpayer because their position might seem unfair. It is also a useful reminder to make sure all communications should be carefully and appropriately worded to prevent interpretive issues arising.

 

5. Appeal by post: letter not received by Tribunal

This decision relates to an appeal made by Porter & Co (Porter) challenging VAT surcharge liability for VAT periods 05/13 and 11/13, of which it was informed on 4 March 2014. Porter was originally given the right to appeal the surcharge notices within 30 days of receipt.

 

Porter apparently responded with a notice of appeal on 2 April 2014, however the Tribunal has no record of having received this letter. Indeed, a notice was received but on 31 July 2017. As well as relevant case law, legislation dictates that when “serving” something by post, the service takes place at the time of postage so long as the postage is done correctly. Whilst the appeal was not sent tracked or special delivery, this is not a legal requirement. On the balance of probabilities, the Tribunal found in favour of Porter but in determining when this would have been received, it was concluded that the appeal, had it arrived, would have arrived a day out of time anyway.

 

The Tribunal needed to consider, therefore, whether permission should be given for the notice of appeal to be given late. As it was only one day out of time and in the interest of not offering prejudice to HMRC, the Tribunal were inclined to give permission for the late notice and held in favour of Porter.

 

CVC Comment: The Tribunal gave this ruling a caveat that, had they not found the original notice for appeal was only one day out of time, it would not have been inclined to give permission. Had the Tribunal ruled it received the notice on 31 July 2017 then it would have been three years late and this would have been too long. This is a demonstration that the Tribunal will take timing and intention into account when dealing with taxpayers.

 

CVC VAT Newsletter for Charities – May 2018

29th May 2018

Thank you for ‘opting in’ to receive our VAT & Charities newsletter. Following the recent changes surrounding personal data we are grateful for your continued interest in our circulation. We will continue to report on interesting cases, changes in HMRC policy and other topics that we hope are informative.

Please do not hesitate to contact us at any time should you wish to discuss any VAT matters. 

This VAT & Charities newsletter comments on the following:

  1. Input VAT recovery: VAT incurred in relation to investment activity
  2. Zero-rating the construction of a relevant charitable purpose building
  3. Printed matter: zero-rated goods or standard rated service?
  4. Whether local authority received services from its wholly owned not-for-profit company
  5. Application of penalties by HMRC
  6. Permission to appeal out of time 

Court of Appeal 

1. Input VAT recovery: VAT incurred in relation to investment activity 

The Court of Appeal has referred matters raised in The Chancellor, Master and Scholars of the University of Cambridge case to the CJEU for guidance. The Court of Appeal proposes to ask the CJEU for guidance on the following:

  • Where management fees are incurred in relation to a non-taxable investment activity is it possible to make the necessary link between those costs and the economic activities which are subsidised with the investment income?
  • The Court of Appeal also seeks confirmation that its reading of the Sveda decision is correct and that no distinction is to be made between exempt and non-taxable transactions for deciding whether input tax is deductible.

CVC comment: the First Tier and Upper Tribunal previously ruled that VAT incurred in relation to investment management fees could be treated as residual input tax and recoverable to the extent that income derived supports taxable business activities. This is consistent with HMRC’s previously adopted policy and CVC’s experience. If you would like to discuss the recovery if VAT incurred by your organisation please do not hesitate to contact CVC. 

2. Zero-rating the construction of a relevant charitable purpose building

Wakefield College, a charity, appealed against the Upper Tribunal’s decision that construction services provided to it in the course of constructing a new building were not zero-rated for VAT purposes. The supply in the course of construction of a building intended for use for a relevant charitable purpose may be zero-rated. HMRC accept that up to 5% use of the building may be used for purposes other than relevant charitable (i.e. for business activities).

The issue in this case was whether subsidised fees charged to students prevents the zero-rate from applying because the subsidised income represents a business activity.

The Court of Appeal found that the supply of courses by Wakefield College to students paying subsidised fees is a business activity. The Court of Appeal provided the following reasons for its decisions:

  • The sole activity of the College is the provision of educational courses, this is not an ancillary activity.
  • The provision of courses to students paying subsidised fees is significant.
  • The fees paid by subsidised students are significant in amount.
  • The subsidised fees made a significant contribution to the cost of providing courses.
  • The level of course fees was fixed by reference to the cost of the courses.
  • The fees were not fixed by reference to the means of the student.

The College’s appeal was dismissed. 

CVC comment: Wakefield College previously won its case before the First Tier Tribunal; however, HMRC succeeded in appealing the FTT’s decision before the Upper Tribunal. This decision provides further clarification and indicators of ‘non-business’ activities for VAT purposes. The Court of Appeal considered the CJEU decisions in Borsele and Finland, as well as the decision in Longridge on the Thames.

First Tier Tribunal

3. Printed matter: Zero-rated goods or standard rated service?

The Tribunal had to decide if supplies by Paragon Customer Communications Limited (Paragon) to Direct Line Insurance Services (DLIS) amounted to, as Paragon contended, a single supply of booklets comprising of predominantly zero-rated matter or, as HMRC contended, a supply of services of which booklets were not a predominant element. It is also asserted by HMRC that some of the booklets supplied as zero-rated were in fact not supplies of printed matter and so should have been standard-rated.

Paragon supplied various items of printed matter in relation to insurance documents for DLIS including advertising, standard Terms and Conditions, appraisals and reminders. The question came before the Tribunal as a result of a VAT assessment on Paragon who HMRC contended was making a single, standard-rated supply of services based on the preparation and packaging involved in the process of supplying the products, the envelopes used and separate documents which were not part of the main supply i.e. the appraisals and terms and conditions documents. Paragon appealed this assessment by HMRC on the grounds that the supplies made were one composite supply of zero-rated booklets. This was, in essence, a question of single or multiple supply.

Whilst the Tribunal considered various cases, including the single supply criteria in Card Protection Plan and issues of divisibility considered in Levob Verzekeringen BV, the conclusion of the Tribunal was relatively clear; Paragon is successful in its appeal against the assessment. It is held that packaging and delivery of the disputed documents is, in this instance, considered to be a single, zero-rated supply of booklets.  

CVC Comment: this decision may have a wider implication, in particular for charities. Many charities cannot recover VAT incurred because of their non-business and/or VAT exempt activities. HMRC changed its policy some years ago with respect to the VAT liability of direct mailing services (standard rated). This decision may call into questions HMRC’s policy. It will be interesting to see if this decision is appealed by HMRC to the Upper Tribunal.

Court of Justice of European Union (CJEU) 

4. Whether local authority received services from its wholly owned not-for-profit company

A recent Hungarian case (Nagyszénás Településszolgáltatási Nonprofit Kft., C-182/17) before the CJEU concerned supplies between a local government (municipality) and its wholly owned non-profit making organisation (NFP). The NFP, under contract with the municipality, undertook to carry out certain public tasks such as management of housing and other property, management of local public roads etc. The NFP did not issue invoices to the municipality for the services nor did it charge VAT. The NFP argued that the contract did not constitute a contract for the provision of services. The NFP also argued it was a “body governed by public law” and, as such, if it is supplying services those services are VAT exempt.

The CJEU found that where a company performs public tasks under a contract with a municipality this constitutes a taxable supply of services subject to VAT. In addition, the NFP did not meet the conditions to be classified as a “body governed by public law”, it has none of the rights and powers of a local authority. The services supplied do not fall within the VAT exemption for bodies governed by public law. 

CVC comment: many local authorities sub-contract various responsibilities to charities and not-for profit organisations. Increasingly, charities enter into service agreements as opposed to receiving grant funding. It is important to consider the VAT implications of such contracts and agreements. If your organisation is entering into similar arrangements and the VAT treatment is not clear please do not hesitate to contact CVC.

First Tier Tribunal 

5. Application of penalties by HMRC 

Over recent years we have seen a growing trend by HMRC to apply penalties to VAT errors made by taxpayers. In the case of Curtises Limited we saw the interaction of the rarely used annual accounting scheme and the leveraging of a penalty by HMRC.

Curtises Limited was required to submit its VAT return covering the period 1 January to 31 December 2016 no later than 28 February 2017. It failed to do so and, as is usual practice for payment traders (those usually paying VAT to HMRC in each VAT accounting period) HMRC raised a central assessment on 17 March 2017. The central assessment issued was in the sum £35,578. The taxpayer’s payments on account during the year totaled £32,499. However, on 5 April 2017 Curtises Limited made a payment of £46,131.

HMRC contacted the company in May 2017 requesting submission of the VAT return. This was duly submitted (and paid) the following month with a net liability of £215,233.43 owing to HMRC.

HMRC treated the receipt of the VAT return as prompted disclosure i.e. the taxpayer did not submit its VAT return by the due date. It only did so following receipt of a centrally generated assessment by HMRC. HMRC issued a penalty calculated at 15% of the potential lost revenue. This was calculated as follows:

  • Actual net VAT liability owing to HMRC: £215,233
  • HMRC central assessment: £35,578
  • Difference £179,655 x 15% = £26,948.25

The taxpayer lost its appeal. It explained that the business had expanded rapidly and it had found the growth difficult to deal with. It had a good tax compliance record generally; however, the judge found in favour of HMRC. The judge did comment that the quantum of the penalty for “a fairly minor mistake” did appear “harsh” but the law had been correctly applied.

CVC comment: this case deals not just with penalties but annual accounting and HMRC’s issuing of central assessments. Our recommendation is where a charity has a problem in submitting accurate VAT returns that the matter is pro-actively managed and dialogue entered into as soon as possible. In this case, the penalty may have been mitigated in full, or in part, if the taxpayer had contacted HMRC sooner.

First Tier Tribunal 

6. Permission to appeal out of time

Newcastle Under Lyme College (NULC) applied to the Tribunal for permission to bring a late appeal against a decision of HMRC to deny that construction supplies received during 2009 and 2010 should be treated as zero-rated.

NULC seeks to appeal HMRC’s decision dated 23 September 2014. NULC’s notice of appeal was filed on 6 February 2017, over two years out of time. NULC contends that a portion of the construction services supplied and received should be zero-rated on the basis that a portion of the building was intended for use solely for a relevant charitable purpose (RCP), namely, use by a charity otherwise than in the course or furtherance of business. This is on the basis that income received from ‘part-funded’ students is a non-business activity. There is litigation pending in this area in a number of cases, including Wakefield College which is the subject of an appeal to the Court of Appeal. Both NULC and HMRC agree that the case will be unarguable if the Court of Appeal upholds the Upper Tribunal’s decision in Wakefield College.

The Tribunal took into account the amount of VAT at stake in this appeal, why the delay in appealing occurred, as well as the fact that NULC has not presented a consistent case. The Tribunal made the point that permission to appeal out of time should only be granted exceptionally and it should not be granted routinely. Nevertheless, the Tribunal granted permission to NULC to bring a late appeal. The Tribunal considered this appropriate in order to deal justly with this case.

CVC comment: as the Tribunal has granted permission to bring a late appeal, NULC’s appeal will be stood behind the Court of Appeal’s judgment in Wakefield College. Wakefield College has lost its appeal before the Court of Appeal. Therefore, it seems likely NULC’s appeal will also fail. Nevertheless, this case presents an interesting insight into the matters the Tribunal consider in granting permission to appeal out of time. Any appeal lodged must be done so within strict time limits.

 

 

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, those working overseas, and regionally based local 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.

CVC VAT Focus 17 May 2018

17th May 2018

 

HMRC NEWS

VAT on antiques or art from historic houses (Notice 701/12)

This explains which disposals of assets from historic houses are within the scope of VAT.

HMRC and online marketplaces agreement to promote VAT compliance

HMRC has committed to working with online marketplaces to set out a cooperation agreement to promote VAT compliance.

VAT: missing trader fraud

Find out how to spot VAT missing trader fraud and how to protect yourself or your business from organised criminals.

Revoke an option to tax after 20 years have passed

Form VAT1614J has been updated.

 

OTHER VAT NEWS

We understand that HMRC has begun to contact firms directly regarding the VAT treatment of electronic searches following the Brabners LLP VAT case summarised on our website. The Law Society has issued guidance which can be viewed here.

CVC BLOG

VAT recovery, supplying insurance and the benefits of customer location

Exempt supplies do not normally provide a right to reclaim VAT on costs incurred in making such supplies. However, certain supplies that would ordinarily give no right to VAT recovery may be ‘specified’ to do so when the customer is located outside the EU. Follow the link to read our most recent blog, by Robert Thorpe, which explains this further.

CASE REVIEW

CJEU

 

1. Right of deduction after a tax inspection

This request for a preliminary ruling concerns the interpretation of EU law and the principles of fiscal neutrality, effectiveness and proportionality. In the main proceedings, Zabrus Siret filed VAT returns following tax inspections requesting repayment of VAT. The national tax authorities refused to reimburse this tax as the amounts being claimed related to a tax period which had already been subject to an inspection by the domestic tax authority. Zabrus Siret appealed this decision.

There were two questions before the court in this instance, amounting to one main question, being whether EU law precluded national legislation which the right to reclaim VAT in respect of a tax period which had previously been subject to a tax inspection.

As the Court has held previously, the right of deduction is an integral part of the VAT system and may not, in general, be limited. The right to deduct VAT in Romania is subject to a five year limitation period which is shortened in the event of a tax inspection. The effect of this is that the taxpayer cannot correct VAT returns for tax periods which have been subject to an inspection. Whilst the Romanian authorities argued that this was a legitimate practice, the Court held that the EU law principles does preclude national legislation which prevent, in circumstances such as those in the main proceedings, a taxable person from claiming his right of deduction following a tax inspection.

 

CVC Comment: The right of deduction is fundamental and can only be limited in very specific circumstances. This ruling demonstrates that even where domestic laws seem to preclude this right in line with EU law, the CJEU are prepared to rule in favour of the taxpayer in matters such as those at hand. In practice this decision will have no impact on UK taxpayers as the UK rule preventing recovery of VAT once a VAT period is more than four years old is considered proportionate to the needs of the State to have certainty on its fiscal position.

 

2. Deductibility of VAT in a failed takeover

This case concerns Ryanair’s bid to take over Aer Lingus. Despite failing with its bid, Ryanair incurred significant VAT costs. Ryanair claimed a deduction of this VAT, which was denied by the Irish tax authorities on the grounds that acquisition and holding of shares does not constitute an economic activity within EU law.

Two questions are before the CJEU in this instance; whether an intention to provide management services to a takeover target is sufficient to establish that the acquirer is involved in an economic activity and if there can be a direct and immediate link between professional services rendered in the context of such a potential takeover and the potential provision of management services.

The Court has yet to issue a judgment but the Advocate General has issued a preliminary opinion, that input tax recovery was justified by Ryanair, not as a holding company, but because it was seeking to take over Aer Lingus in order to extend an operating business.

CVC Comment: We await a CJEU decision but if this follows the AG’s opinion then this would suggest that HMRC’s policies on input tax recovery are, in some cases, too restrictive.

 Court of Appeal

 

3. VAT recovery: VAT incurred in relation to investment activity

The Court of Appeal has referred matters raised in The Chancellor, Master and Scholars of the University of Cambridge case to the CJEU for guidance. The Court of Appeal proposes to ask the CJEU for guidance on the following:

  • Where management fees are incurred in relation to a non-taxable investment activity is it possible to make the necessary link between those costs and the economic activities which are subsidised with the investment income.
  • The Court of Appeal also seeks confirmation that its reading of the Sveda decision is correct and that no distinction is to be made between exempt and non-taxable transactions for deciding whether input tax is deductible.

CVC comment: the First Tier and Upper Tribunal previously ruled that the input tax incurred in relation to investment management fees could be treated as residual input tax and is recoverable to the extent that income derived supports taxable business activities. Taxpayers must hope that the CJEU agree.

 

4. Zero-rating the construction of a relevant charitable purpose building

Wakefield College, a charity, appealed against the Upper Tribunal’s decision that construction services provided to it in the course of constructing a new building were not zero-rated for VAT purposes. The supply in the course of construction of a building intended for use for a relevant charitable purpose i.e. a non-business activity, may be zero-rated.

The issue in this case was whether subsidised fees charged to students prevents the zero-rate from applying because it renders the education a business activity.

The Court of Appeal found that the supply of courses by Wakefield College to students paying subsidised fees is a business activity. The Court of Appeal provided the following reasons for its decisions:

  • The sole activity of the College is the provision of educational courses, this is not an ancillary activity.
  • The provision of courses to students paying subsidised fees is significant.
  • The fees paid by subsidised students are significant in amount.
  • The subsidised fees made a significant contribution to the cost of providing courses.
  • The level of course fees was fixed by reference to the cost of the courses.
  • The fees were not fixed by reference to the means of the student.

The College’s appeal was dismissed.

CVC comment: Wakefield College previously won its case before the First Tier Tribunal; however, HMRC succeeded in appealing the FTT’s decision to the Upper Tribunal. This decision provides further clarification of ‘non-business’ for VAT purposes. The Court of Appeal considered the CJEU decisions in Borsele and Finland, as well as the decision in Longridge on the Thames.

Upper Tribunal

 

5. Third party consideration in a points reward scheme

This appeal by Marriot Rewards LLC & Whitbread Group PLC concerned whether payments made by Marriot Rewards (MR) to hotels participating in the loyalty scheme were consideration as a supply to MR or, alternatively, represented third party consideration paid by MR for supplies to customers redeeming points earned on the scheme, the reward being a “free” stay in a hotel. MR had submitted a reclaim of input VAT on the basis that payments made to participating hotels were consideration for services supplied.

A further issue arose; if payments were not third party consideration then were they payments for services relating to immovable property or advertising. This was relevant to the issue of where the supplies arose under VAT place of supply rules.

Upholding the decision of the FTT, the UT held that payments made by MR to hotels participating in the scheme were for supplies of services to MR. As regards the question of whether the supplies were related to land (immovable property) or advertising, the UT held that the supplies fell into neither description. This was relevant because for periods prior to 2010 Whitbread had sought to recover overpaid output VAT on the basis that it was, as a participating hotel operator, supplying services that fell outside the scope of VAT. Conversely, for periods after 2010, HMRC argued that the supplies should not have attracted VAT under the general place of supply rule, such that MR was ineligible to reclaim that VAT under the 13th Directive (MR wanted the services to be land related such that UK VAT charged could be reclaimed.

CVC Comment: This was a complex case involving three parties with different interests in the outcome. However, as far as the fundamental question of who redeems supplied services to it further undermines HMRC’s attempts to view the beneficiary of business promotion schemes as the recipient of supplies, a preferred analysis if HMRC in seeking to block VAT refunds. Whilst there are aspects of this case and appeal which are unique, those operating points rewards schemes should consider and clarify the VAT position in relation to any supplies made between parent groups and “redeeming” participating parties. It is also important to consider carefully exactly what supplies are being made and where they are being made for tax purposes.

First Tier Tribunal

 

6. Requirement to provide security for VAT

This appeal concerns a requirement to provide security to HMRC in respect of, amongst other taxes, VAT. Owing to historic non-compliance by the appellant and on-going non-compliance following entering into a “Time to Pay” arrangement with HMRC for substantial arrears, HMRC served a Notice to Derby Access Scaffolding (DAS), the appellant, requiring security for future VAT.

It was submitted by the appellant that the Notices requiring security to be provided were flawed and unreasonable. HMRC had failed to enter into dialogue with the appellant and had therefore made unreasonable projections of profit for DAS. It was also submitted that HMRC’s internal reviews could not be fair as they were internal and that the principle that decisions be made in a fair and reasonable manner had not been followed in this case. HMRC contended that it was reasonable to require security in the given circumstances, especially when considering historic non-compliance.

The Tribunal gave very little consideration to the notion that HMRC’s internal reviews were not partial. It also held that there is no obligation on HMRC to enter into dialogue with those to whom it serves notices of requirement of security and that for the purposes of protection of the revenue the amounts required in security were not unreasonable. Ultimately DAS failed to satisfy the Tribunal on any aspect of its appeal and the appeal was therefore dismissed.

CVC Comment: In cases of serious non-compliance, HMRC will seek security against not only VAT but all other taxes. This case illustrates that when the obstacles to challenging such a judgment are exceedingly high and the Tribunal has shown no enthusiasm for involving itself in matters of detail and respects HMRC’s discretion.

 

CVC VAT Focus 26 April 2018

26th April 2018

 

HMRC NEWS

HMRC has updated guidance on its website as follows:

Register for VAT if you own land with another person

Find out if you need to register for VAT jointly or as an individual when you buy, let or develop land with another taxable person.

VAT registration for groups, divisions and joint ventures

Link to VAT registration for people who own land with another person added to ‘Joint ventures and VAT’ section.

Tell HMRC about an option to tax land and buildings

Notification of an option to tax land and or buildings (VAT1614A) form has been updated.

VAT MOSS exchange rates for 2018

Find currency exchange rates for VAT Mini One Stop Shop (VAT MOSS) businesses registered in the UK to complete declarations.

 

OTHER VAT NEWS

We understand that HMRC has begun to contact firms directly regarding the VAT treatment of electronic searches following the Brabners LLP VAT case summarised on our website. The Law Society has issued guidance which can be viewed here.

 

 

CVC BLOG

VAT recovery, supplying insurance and the benefits of customer location

Exempt supplies do not normally provide a right to reclaim VAT on costs incurred in making such supplies. However, certain supplies that would ordinarily give no right to VAT recovery may be ‘specified’ to do so when the customer is located outside the EU. Follow the link to read our most recent blog, by Robert Thorpe, which explains this further.

 

CASE REVIEW

 

CJEU

 

1. Time limits on right of deduction of input tax: Portugal

In Biosafe, there were taxable supplies made in 2011 from one VAT registered trader to another (Flexipiso), in the course of business, with appropriate supporting documentation. Under EU VAT law, this gives rise to a right of deduction of the input tax incurred by the purchaser in the relevant VAT period on purchases which relate to those taxable supplies. Flexipiso recovered the relevant input VAT, charged at the reduced rate of 5%, incurred on purchases from Biosafe. Several years later, Biosafe were subject to a tax inspection which revealed that the reduced rate of 5% had been incorrectly charged. The Portugese authorities assessed that the supplies were subject to the standard rate of VAT of 21% (Portugal) and Biosafe paid over the monies assessed.

Biosafe sought reimbursement from Flexipiso who refused to pay on the grounds that, under domestic law, their right to deduction of input VAT expired four years after the original supply was made. This brought two questions before the CJEU. The first being, does EU law preclude domestic legislation which prevents the four year period during which a right to deduction arises beginning again on the date assessment documents are issued to the supplier. The second being, if the answer to the first question is no, does the EU law preclude domestic legislation which, in the current situation, makes it legitimate for the purchaser to refuse to pay VAT when it is impossible to deduct that additional tax?

In response to the first question, it was held that the Directive does preclude domestic legislation where the right to deduct input tax is refused on the ground that the time limit for that right started to run from the date of the initial invoice. In the light of this response, the Court held that the second question did not require an answer as it follows logically from the first that a taxable person may not be denied the right to recover input tax by domestic time limits.

CVC Comment: This case confirms that where input tax has been deducted at an incorrect rate, the right to recovery by the business incurring the incorrect expense cannot be precluded by domestic time limits on the right to recovery.

 

2. Interpretation of EU Law on deduction adjustment

This case concerning SEB Bankas AB (SEB) was related to a supply made to SEB by VKK Investicija (VKK) of building land. Initially the parties had agreed that the transaction was subject to VAT. Some years later VKK decided that the supply was VAT exempt and raised a credit note to SEB to reflect this. This left SEB owing the authorities the input VAT originally deducted on the transaction. A fine was raised on SEB by the authorities as well as the assessment to tax. After progressing through domestic courts, questions came before the CJEU regarding the interpretation of the EU law on VAT adjustments.

The key questions before the court were; whether the obligation to adjust undue VAT deductions applies where the initial recovery could not have been made lawfully as the transaction was exempt and, if so, whether the mechanism for doing so applies in situations such as those in the main proceedings. The Court held that the EU law does require the adjustments of VAT deductions which should not have arisen because VAT was charged unlawfully.

As regards the date on which the adjustment should be made, the CJEU held that this is for national courts to decide, taking account of the principles of legitimate expectation and legal certainty and that a taxpayer’s deduction of VAT cannot, applying the principle of legal certainty, be open to challenge for an indefinite period.

CVC Comment: Where a deduction of tax has been, mistakenly, unlawfully made in relation to an exempt supply, then there is a duty on the person making the deduction to make an adjustment when this is discovered. Whether or not the obligation arises immediately is a matter which has been left open to domestic interpretation. It appears that UK policies are already in line with this decision insofar as in most cases, after four years, VAT periods are no longer open for a mandatory adjustment.

 

3. Triangulation and EC Sales Lists

Firma Hans Bühler, a limited partnership established and VAT registered in Germany and also identified in Austria for VAT purposes, bought products from suppliers established in Germany. Those products were sold to a VAT registered customer in Czech Republic. The products were dispatched directly from the German supplier to the customer in Czech Republic. The German supplier provided its German VAT registration number and Firma Hans Bühler’s used its Austrian VAT registration number on its invoices provided to the Czech Republic customer. The triangulation simplification was used; as such, the final customer in the Czech Republic accounted for VAT due in the Czech Republic.

The Austrian tax authorities found that Firma Hans Bühler’s supplies were ‘abortive triangular transactions’ because the reference to triangular transactions did not appear on Firma Hans Bühler’s EC Sales List.

The CJEU stated that the triangulation simplification cannot be refused because the EC Sales List has been submitted late. In addition, it is not relevant that Firma Hans Bühler’s Austrian VAT registration number was no longer valid on the date it submitted its EC Sales List (it is relevant that the VAT number is valid at the time of the supply). If the failure to submit correct EC Sales Lists on time meant that the taxpayers could not evidence the conditions for triangulation had been met, the triangulation could not apply.

The CJEU also commented that the benefit of the triangulation simplification cannot be refused on the basis that the intermediate supplier is VAT registered in the member state of dispatch.

CVC comment: the judgment confirms that the triangulation simplification can apply even if the taxpayers EC Sales Lists are not compliant provided the taxpayers can evidence that all of the conditions for simplification are met.

 

First Tier Tribunal

 

4. Sufficiently Self-contained?

This appeal by Colin James Mitchell and Kim Louise Mitchell concerned the recovery of input VAT under the DIY Builders Scheme in respect of the construction of a building in their garden. HMRC had initially refused the recovery on the grounds that not only was the building was not “self-contained living accommodation” but also that the planning consent prohibited the separate use of the building from the house; conditions necessary for a claim under the DIY Builders Scheme.

In order for a refund to be successful the building must be self-contained living accommodation and a key issue between the appellants and HMRC in this case was the absence of a kitchen in the new building. HMRC contended that this meant the building was incapable of being self-contained. The Tribunal agreed, on this point, with the appellant who argued that the ability to install and use a microwave was sufficient for the building to be constituted as self-contained.

The second prong of HMRC’s contention was the prohibition of separate use of the building in the planning permission, “…shall not be used as a separate residential unit at any time” amounts to a prohibition on separate use. They also add that the planning permission for a “garage” cannot be construed as a “dwelling”.

The Tribunal agreed with HMRC on the second point and dismissed the appeal.

CVC Comment: In cases where planning permission specifically forbids separate residential use of a construction then the Tribunal are unlikely to find in favour of the applicant. Prior to any expenditure on development it is vital that the tax implications be considered and this involves detailed analysis of the proposal and planning permission granted.

 

5. Printed matter: Zero-rated goods or standard rated service?

In this instance, The Tribunal had to decide supplies by Paragon Customer Communications Limited (Paragon) to Direct Line Insurance Services (DLIS) amounted to, as Paragon contended, a single supply of booklets comprising of predominantly zero-rated matter or, as HMRC contended, a supply of services, of which booklets were not a predominant element. It is also asserted by HMRC that some of the booklets supplied as zero-rated were in fact not supplies of booklets and so should have been standard-rated.

Paragon supplied various documents in relation to insurance documents for DLIS including advertising, standard Terms and Conditions, appraisals and reminders. The question came before the Tribunal as a result of an assessment on Paragon who HMRC contended was making a single, standard-rated supply of services based on the preparation and packaging involved in the process of supplying the products, the envelopes used and separate documents which were not part of the main supply i.e. the aforementioned appraisals and terms and conditions documents. Paragon appealed this assessment by HMRC on the grounds that the supplies made were one composite supply of zero-rated booklets, this was, in essence, a question of single or multiple supply.

Whilst the Tribunal considered multiple cases, including the single supply criteria in Card Protection Plan and issues of divisibility considered in Levob Verzekeringen BV, the conclusion of the Tribunal was relatively clear; Paragon is successful in its appeal against the assessment. It is held that packaging and delivery of the disputed documents is, in this instance, considered to be a single, zero-rated supply of booklets.  

CVC Comment: this decision may have a wider implication, in particular for charities. Many charities cannot recover VAT incurred because of their non-business and/or VAT exempt activities. HMRC changed its policy some years ago with respect to the VAT liability of direct mailing services (standard rated). This decision may call into questions HMRC’s policy. It will be interesting to see if this decision is appealed by HMRC to the Upper Tribunal.

 

VAT recovery, supplying insurance and the benefits of customer location

20th April 2018

Introduction

Normally the terms insurance and VAT recovery do not go hand in hand. Insurance is VAT exempt under Schedule 9, Group 1 of the VAT Act 1994. Exempt supplies do not normally provide a right to reclaim VAT on costs incurred in making such supplies. However, certain supplies that would ordinarily give no right to VAT recovery may be ‘specified’ to do so when the customer is located outside the EU.

Supplies of insurance that allow VAT recovery

The Specified Supplies Order 1999/3121 gives a VAT recovery right in relation to supplies of insurance intermediary services such as brokers when the customer is based outside the EU. Additionally, in relation to intermediaries, a right to reclaim VAT on business costs exists when they arrange a supply of insurance to a non-EU person. In practical terms, this means that many UK based insurers and agents and brokers with an international aspect to their customer base do have the right to partial recovery.

If such supplies are made the VAT recovery position should be considered, particularly where these form a material portion of the business’ supplies.

Are my customers outside the EU?

It is easy to overlook that some European locations are not part of the European Union. Supplies of insurance or insurance intermediation services could still provide a VAT recovery right. For example:

• Jersey
• Guernsey
• The Canary Islands
• Gibraltar
• Norway
• Iceland

It is worth reviewing customer location or the location of underlying supplies if they involve these locations as a potential VAT recovery benefit might not be recognised.

Insurance for export of goods to outside the EU

Supplies of insurance related to export of goods from the EU may also allow VAT recovery. Where:

• goods are being exported by the recipient of the insurance;
• insurance is directly linked to the specific goods being exported, and
• the insurance covers the risks of the person who owns the goods or is responsible for their export.

This would also be a supply of insurance specified to allow a right to VAT recovery.

Assistance

VAT recovery and customer location may provide significant opportunities to companies offering insurance. The interaction of location and the partial exemption rules adds complexity and this may be when professional expertise becomes invaluable in realising an opportunity. CVC has assisted many businesses in this sector to improve their position in relation to VAT whilst also ensuring that this is within a compliant, logical and workable framework.

If you would like to discuss this area please contact Dean Carey or Robert Thorpe on 01206 321029.

CVC VAT Focus 12 April 2018

12th April 2018


PARTIAL EXEMPTION

It is around this time of year that those businesses that are partially exempt are required to calculate their annual adjustment.  This adjustment must be made in the VAT return period ending June/July or August but can be made in the prior period (March/April/May) if a business wishes.  CVC is able to calculate or review these annual adjustments for clients if required.

HMRC NEWS

VAT: road fuel scale charge tables

VAT Updated Valuation Table: Road Fuel Scale Charges effective from 1 May 2018 added to the page.

VAT Notice 700/11: cancelling your registration

This notice tells you when and how to cancel your VAT registration.

VAT Notice 700/1: should I be registered for VAT?

This notice cancels and replaces Notice 700/1 September 2016.

Apply for the Fulfilment House Due Diligence Scheme (Notice FH1)

Page updated with link to new application service and further information what information needed to apply to register.

 CVC BLOG

Sale of donated goods by a charity – an opportunity to reclaim VAT incurred

 

Where certain conditions are satisfied, the sale of donated goods by a charity is zero-rated for VAT purposes. This can be beneficial because no output VAT is due on the income generated by these sales but a right to input VAT recovery on associated costs arises.

CASE REVIEW

First Tier Tribunal

 

1. Reasonable Excuses?

 

In this instance the Tribunal heard an appeal from an individual, Mr. Phillip Ashley Legg against HMRC’s decision to impose various surcharges ranging from VAT accounting periods 12/05 to 12/14.
During this period, Mr Legg only made two payments from 14 September 2006 and 29 June 2012. Mr Legg sought to contend that he had a reasonable excuse for his behaviour in that he had contacted HMRC to establish a payment plan for the surcharges and by 2014 he had cleared all actual VAT arrears. Mr Legg relied heavily on the fact that his profits took a large drop in the period in question, owing to a rapid decline in his area of business.
Whilst the Tribunal accepted a sharp decline in the business had taken place, it still held that this was not a reasonable excuse as the down-turn took place over a number of years and Mr. Legg should have, as a prudent businessman, made adaptations to evolve and fortify himself against changing market conditions. The Tribunal were more sympathetic towards Mr Legg’s catastrophic hard drive errors which led to a severe loss of data. They also took into account that during the period in question, Mr Legg’s father was ill and Mr Legg played a large role in his care.
The important test in relation to a ‘reasonable excuse’ relates to whether or not the taxpayer has behaved reasonably in his or her circumstances. Whilst the Tribunal confirmed that a down-turn in business could not constitute a reasonable excuse, the death of a close relative and fatal computer crashes losing to loss of accounts can. For these reasons, the Tribunal allowed the appeal in half, cancelling a selection of those surcharges not relating to the decline in business activity.

2. Supply or unsolicited delivery

 

This appeal related to whether the applicant, Quality Engines Direct Ltd (QEDL), supplied silver ingots to Microring, a potential purchaser of the company. Whilst in the process of dealing with a transfer of his business, the proprietor (Mr. Rafiq) engaged with a purchaser (Mr. Healey) who immediately began treating the business as his own; making deposits and withdrawals and using the business address. HMRC questioned two invoices relating to the sale of silver from Mr. Rafiq to Mr. Healey which took place before the transfer of QEDL. The veracity of these invoices was denied by Mr. Rafiq, who denied any supply of silver was made to Microring or to Mr. Healey, or that QEDL makes supplies of silver at all, and that he owes no VAT on this alleged supply. He contended that the invoices raised by Microring are not genuine and there had been no silver trade activity with Microring at all.

Mr. Rafiq claimed that delivery of the silver to his business address was not sanctioned, the packages remained unopened as they were unsolicited and he informed Mr. Healey to remove the packages, which he did.

The Tribunal agreed on appeal with Mr. Rafiq that the delivery of silver was unsolicited, the invoices had been recreated by Mr. Healey on behalf of Microring. The Tribunal found that as the packages of silver were unsolicited, unopened and removed as a matter of urgency, that QEDL had not made a supply to Microring and Mr. Healey had in fact made the order.

3. Omitted sales and disallowed input tax

 

In this case, Mr. Paul Shore, trading as “DP Contractors”  disputed a decision by HMRC in relation to his 04/11 VAT return. Mr Shore submitted that in this period of trading he was owed a £3,025.60 VAT repayment. HMRC submitted that due to under-declared output VAT of £16,599.40 and over-declared input VAT, Mr. Shore in fact owed £14,605.52 to HMRC.

Mr. Shore traded as DP Contractors which he claimed HMRC had confused with D&P Contractors, a separate firm to which he was a partner alongside Mr. David MacMillan. D&P Contractors had tendered for a contract with Southern Electrical Contracting Limited (SEC) using Mr Macmillan’s VAT registration number as Mr. Shore was not, himself, registered for VAT. Whilst Mr Macmillan was taken ill, Mr. Shore continued to trade using the VAT number of D&P Contractors whilst establishing himself as a sole proprietor “DP Contractors”.

Mr MacMillan played no role in the business being done for SEC by Mr. Shore and ceased to trade with D&P Contractors owing to injury and received no payment from Mr. Shore for on-going work. D&P Contractors issued over 190 invoices to SEC without declaring these on VAT returns and could offer no reasonable explanation for this. Mr. Shore attempted to highlight some discrepancy between the names of the firms but, as the Tribunal found, the same VAT registration number and bank account were used in continuing the trade by Mr. Shore and that the suppressed sales were correctly assessed on Mr. Shore, despite his pleas that Mr. Macmillan was jointly responsible.

Irrecoverable input tax which had also been deducted by Mr. Shore for items such as power showers were also disallowed and a forgery was uncovered for the purchase of a lorry. The Tribunal dismissed all appeals by Mr. Shore and upholds the assessments in full in relation to the suppressed sales.