Constable VAT Focus 09 December 2021

Festive Closure

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

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


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

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

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

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

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

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

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


Upper Tribunal

1. Gray & Farrar International LLP v HMRC

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

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

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

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

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

2. Mandarin Consulting Limited V HMRC

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

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

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

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

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

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

3. Greenspace Limited V HMRC

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

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

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

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

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

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

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

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

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

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