Constable VAT Focus 1 November 2019

Thank you for subscribing to our VAT Focus. This edition provides the usual updates of HMRC news as well as coverage of some of the more recent developments in the Tribunals and Courts. This version discusses the rulings in Unitel, DIREKTexpress and Lunar Missions. Issues covered include the zero-rate for exports, the exemption for universal postal service providers and the time of supply for single purpose vouchers.


DIY Housebuilders VAT Refund Scheme

HMRC has updated some of the terminology used in its guidance around reclaiming VAT for DIY housebuilders.

Domestic Reverse Charge

This notice has been updated to include information about the introduction of the domestic reverse charge on renewable energy certificates.


The UK has been granted a “flextension” by the EU which extends the deadline for reaching a Brexit deal until 31 January 2020. The nature of such an extension means that the UK can leave before this date, if a deal is reached, on either 1 December or 1 January. No new action is required from businesses as a result of this extension, but it allows a bit more time to ensure preparedness in the event of a no-deal scenario. If you would like any assistance with making sure that your business is ready for Brexit, from a VAT perspective, please get in touch with Constable VAT.

As a result of the upcoming general election, Parliament will be dissolved on 6 November 2019 to allow for political parties to mount effective campaigns. This means that there will now not be a budget announcement on this date and it is unlikely that there will be a budget announced in the remainder of 2019.

Get your business ready to import from the EU to the UK after Brexit

Read HMRC’s guidance about what businesses need to do now to make sure they are able to receive goods from the EU if the UK leaves without a deal.

Help and support for traders getting ready for Brexit

Registration for a new webinar about completing customs import declarations has been added.



1. Substantive Conditions for Zero-rating Dispatches

This referral concerned an appeal by Unitel, a Polish company, against a decision of the Polish tax authorities to refuse zero-rating on goods which were sold and shipped to a customer in Ukraine. The refusal was because the recipients of the goods who were identified in the invoices for the export were not the parties who actually received the goods.

The domestic Court therefore referred the issue to the CJEU and posed the question whether the principles of fiscal neutrality and proportionality preclude the disapplication of the zero-rate for exports where it can be shown that the goods were exported to a destination outside the EU purely because the recipient was not the recipient identified on the sales invoice.

The purpose of the exemption for exports is to ensure that exported goods are taxed in the place where those goods will be consumed – in this case, Ukraine. For the purposes of VAT, goods are regarded as having been sold when the right to dispose of the goods as owner has transferred to the recipient. It was observed that the substantive conditions for the zero-rating of an export are that the goods are sold and exported to a customer outside of the EU; there is no specific EU requirement that the customer be identified.

It was, therefore, stressed that the principle of fiscal neutrality requires the VAT exemption to be granted even where certain formalities have not been adhered to, provided that the substantive conditions for the zero-rate have been met:

  • The goods are sold
  • They are exported outside of the EC
  • They have physically left the EC

The matter was referred back to the domestic Court with the decision being that the zero-rate cannot be disapplied because the recipients were not the recipients declared on the sales invoice.

Constable Comment: This is another case in a long line of previous caselaw which suggests that so long as the substantive conditions for zero-rating are met, with regard to exports, that the absence of certain formalities will not restrict the application of the zero-rate. Interestingly, the possibility of the supplier being involved in tax evasion was discussed and it was observed that there would be a different outcome if the supplier knowingly made false declarations.

2. Exemption for Postal Services

This CJEU referral concerned the interpretation of the VAT exemption for postal services and the way in which it was applied in Germany. EU Law provides a VAT exemption for the supply of a universal postal service.

The company in question, DIREKTexpress, is now in liquidation but had been concerned with the delivery of, primarily, Court or administrative authority documents through subsidiaries throughout Germany. It held a licence issued by the German authorities to carry on this business. The question before the CJEU was whether the provision of such a service constituted a “universal service” as described by the VAT exemption.

The Court observed that the exemption in EU law is intended to promote certain activities which are in the public interest. Therefore, it was suggested that the exemption would not apply where the services in question were for the specific benefit of an economic operator. This was a key consideration in deciding whether the VAT exemption would apply.

The Court considered that the purpose of the services offered was not to meet the requirements of an economic operator but to assist in the proper administration of justice and, therefore, that the activity was in the public interest. This means that those providing services such as those in the main proceedings, i.e. the licensed delivery of Court documents, must be regarded as “universal service providers” for the purpose of the exemption and are, therefore, VAT exempt.

Constable Comment: This judgment confirms that other businesses who may be operating similar models should consider the historic VAT treatment of their supplies. VAT exemptions will always be interpreted very strictly by the Courts. Before trying to retroactively apply a VAT exemption the circumstances need to be carefully considered and it is advisable to seek professional advice.


3. Time of supply for single-purpose vouchers

This appeal by Lunar Missions Limited (LML) against the decision of the FTT relates to the time of supply of vouchers it gave customers in exchange for their pledges of investment. HMRC had decided that LML was liable to register for VAT based on these sales which significantly exceeded £85,000 and reached a total of over £600,000 within a matter of days.

In exchange for pledges of investment money, LML would provide the customer with the right to occupy some digital, or physical, space within a spacecraft which would be sent to the moon; this was described as a time-capsule. Initially, LML had believed that it was making no taxable supply but ultimately conceded that it was giving rewards to customers in exchange for consideration. After lengthy consideration, both parties agreed that LML were making supplies of single purpose vouchers and, therefore, that they were liable to VAT. The Tribunal found in favour of HMRC’s judgment that LML should have registered in 2014 when it received the money and issued the vouchers.

The issue in the appeal at hand is when the time of supply arises for the sale of single-purpose vouchers. Where vouchers are sold which can be used to buy things at different VAT rates, for example a voucher to use in a supermarket, the VAT is accounted for by the supermarket when the voucher is redeemed – not when the sale is made. However, where the voucher can only be used to buy a particular item which attracts one rate of VAT only, then the tax point arises when the voucher is sold and the VAT rate is whatever rate the underlying benefit attracts. This means that for a single purpose voucher of this nature, the sale was standard rated.

LML argued that there was no reason for the time of supply for the sale of a single purpose voucher to be the time at which that supply was made; essentially it argued that s6 VATA does not apply to vouchers. LML submitted that there was no legal basis for applying s6 VATA to the “issue of vouchers” as there is no definition of when a voucher is “issued”.

The UT dismissed this appeal, analysing the decision in Lebara where it was decided that a voucher is issued when the sale takes place – the service is performed for the purposes of s6 VATA when the sale takes place and not when it is fulfilled.

Constable VAT: From the submissions of LML, it is hard to tell what their case was as where a voucher is a single purpose voucher it is regarded as a supply of services which does not fall within any of the special provisions for multi-purpose vouchers (for which a tax point arises when redeemed, not issued). The essence of their argument was that, under s6 VATA, the tax point for services arises when those services are “performed”. It was decided that the service being supplied was completed when the voucher is issued and not when the service to which the voucher entitles the holder is fulfilled.

This case is, therefore, useful in clarifying that where a voucher is not a multi-purpose voucher, the tax point arises when the voucher is sold to the customer as this is when the service is performed. It would seem a fair view to adopt to say that the service supplied in this context is the provision of the voucher and not the underlying benefit of that voucher.

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. 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 newsletter. Specialist VAT advice should always be sought in relation to your particular circumstance.