Constable VAT Focus 10 January 2020


VAT Bad Debt Relief 

HMRC has updated its guidance on bad debt relief to correct certain minor errors.

Reverse Charge Sales List: Service and Availability Issues

There has been an announcement of planned downtime from 3pm to 5pm on Monday 13 January 2020.

VAT Refunds Manual

HMRC has updated its guidance around the time limits set out in the 1995 VAT Regulations.




1. Letting of Boat Moorings

This CJEU referral concerned the VAT liability of the letting of boat moorings in Germany. The appellant in the main proceedings is a non-profit association which seeks to promote the sport of sailing and other motorised water sports. EU law exempts the letting of immovable property from VAT, but German law provides that “there shall be no exemption for […] the letting of premises and sites for the parking of vehicles, the short term letting of places of camping sites and the letting and leasing of equipment and machinery of any kind…” German law affords a reduced rate (7%) to “the letting of living and sleeping areas which a trader keeps available for the short-term accommodation of visitors, and the short-term letting of camping areas.”

The appellant had been applying the reduced rate to its lets of boat moorings. The question before the Court was whether the reduced rate for the letting of camping or caravan sites also applied to the letting of boat moorings.

The Court opened its considerations by clarifying that exceptions, such as the exception to the exemption in the main proceedings, must be interpreted strictly and that the scope of exceptions must not be extended to services which are neither included in its wording nor intrinsically linked to the concept. It was concludedthat it is evident from the wording of the EU law is not to be read as permitting Member States to apply a reduced rate of VAT to boat moorings.

The Court held in favour of the German tax authority.

Constable Comment: This case clarifies that exemptions and exceptions must always be interpreted strictly. The letting of boat moorings does not appear to be analogous to the letting of short-term accommodation or camping areas.

2. Recoverability of VAT Incurred – Unregistered Land

This case concerned the right to deduct VAT incurred by the purchaser of some land in relation to registering that land in the Romanian Land Registry prior to its transfer by the vendor.

The appellant, Amărăşti Land Investment (ALI), carried out agricultural activities and purchased land to fulfil its purposes. The purchase of some of that land was affected by way of two stage process consisting of, primarily, a bilateral promise to sell whereby ALI acquired a claim to ownership of the land and, secondarily, upon completion of the administrative formalities. The contract would then be signed by both parties. Romanian law requires that contracts for the sale of land take the form of authenticated instruments and in order for this to be the case, the land in question must be registered at the Romanian Land Registry.

Despite being the purchaser, ALI incurred costs from a land-registration company for the purposes of the first registration of the land in the transaction; a statutory obligation of the vendor. It was agreed between ALI and the vendor that this was acceptable and that the vendor would reimburse ALI the costs incurred to register the land at a rate of €750 per hectare. The costs were not re-invoiced by ALI to the vendor and the full price of the land excluded the value of the land registration related expenses.

ALI deducted the VAT incurred on the land registration fees but was assessed by the Romanian tax authority on the grounds that each payment of €750 represented services supplied by ALI to the vendor without invoicing the value to the vendor or collecting the relevant VAT. EU law dictates that in this situation, where a party to a transaction acting in his own name but on behalf of another person takes part in a supply of services as an intermediary, he is deemed to have received and subsequently supplied those services himself. ALI disagreed with this position and argued that the costs incurred on land registration were investment related costs incurred for the purposes of carrying out its taxable transactions and, therefore, that it was entitled to deduct the VAT.

The Court held that the EU law does not preclude parties to a contract for exchange of land from agreeing that the purchaser, being a taxable person, will incur costs on behalf of the vendor. However, it was held that the mere presence of such a clause is not conclusive on whether the purchaser will be entitled to deduct VAT incurred in relation to these costs. The Court went on to conclude that even if such an agreement exists between the two parties, the purchaser is still deemed to have received and supplied the services.

Constable Comment: The matter will be referred back to the national Court to make an ultimate ruling on the deductibility of the VAT incurred by ALI. However, it appears from this judgment that ALI will be required to declare output VAT on supplies which it is deemed to have made to the vendor.



3. Zero-Rating Newspapers – News Corp UK & Ireland

This case is an appeal by News Corp UK & Ireland (Newscorp) against an FTT decision that digital versions of newspapers were not zero-rated. Newscorp is the representative member of a VAT group that publishes; The Times, The Sunday Times, The Sun and The Sun on Sunday. The issue is whether digital versions of newspapers, which were introduced in 1991, significantly after VAT law was first drafted in 1972, are “newspapers” within the intended meaning of the UK law allowing zero-rating to be applied to “newspapers, journals and periodicals”.

The FTT had previously concluded that zero-rating could not apply on the grounds that the digital versions of the newspaper, which are available through various mediums, constitute a supply of services. This differs from a traditional newspaper which is a supply of goods. This, the FTT concluded, was fatal to Newscorp’s case that the digital editions were “newspapers”. The UT disagreed with this assessment, highlighting that the UK law (s.30 VATA 1994) specifically allows zero-rating for goods and services. Therefore, it adopted a different approach and stated that in order to conclude that a “newspaper” in the UK law includes digital versions, it is necessary to determine if they share enough characteristics, or that “they fall within the same genus”. The FTT had made findings of fact that analysed this issue and had concluded that the paper and digital versions were “…when the evidence was viewed in the round, the same as or very similar to the newsprint editions.”

HMRC challenged the FTT’s findings and argued that the digital versions of the newspapers were sufficiently different from the physical versions; it claimed that the digital editions provided “rolling news” as opposed to a traditional newspaper and that, in any event, the two versions were sufficiently different to not be treated similarly. This argument was not successful, the UT dismissed HMRC’s challenge. It concluded that, as the FTT had found that the different versions of the newspaper were “the same or very similar”, and that the zero-rate could apply to both goods and services, that the zero-rate should be applied to the digital versions of the newspaper.

Constable Comment: This appeal may be taken further by HMRC despite the fact that the ruling seems to be in line with the UK law. However, the EU Council agreed a proposal for a Directive in October 2018 which allows member states to apply reduced and zero-rates to electronic publications where, previously, electronically supplied services have always been standard rated for VAT across the VAT system. Whilst this Directive will be discretionary, HMRC may seek  to mainitain a mandatory standard rate applied to electronic newspapers, as set out in VAT Notice 701/10.



4. DIY Housebuilders: Date of Completion

This appeal concerned a DIY Housebuilder’s claim for a refund of VAT made by Liam Dunbar who constructed a property and submitted a claim for repayment within three months from receiving a certificate of completion. Although the claim was submitted within the three-month time limit, HMRC rejected the claim on the basis that the house had been completed more than three months before receiving the claim and that the date of the certificate should be ignored.

In June 2017, the architect confirmed that the property was complete, so Mr Dunbar contacted the HMRC helpline to ask for guidance about making a refund claim for the VAT incurred whilst developing the new property. HMRC informed Mr Dunbar that he should wait until he had a formal certificate of completion and that the claim must be made within three months of that date. Following the receipt of a certificate of completion on 19 February 2018, Mr Dunbar sent his claim to HMRC on 8 May 2018 and it was received by HMRC on 15 May 2018; the claim was within the three-month time period after receiving the certificate of completion.

However, HMRC denied the claim on the grounds that the building had been complete for more than three months and argued that “completion”, for the purposes of the DIY Housebuilder Scheme, needs to be considered on a case-by-case basis. It was asserted that electricity was connected on 26 March 2017 and that this was the date of practical completion. In support of this, HMRC submitted that Mr Dunbar moved into the property in March 2017.

The Tribunal considered that the question which needed to be answered was “what is meant by the phrase “the completion of the building” in regulation 201(a) VATR”. It was stressed it could not be made clearer by the regulations that the certificate of completion is the primary evidence of completion needed to support a claim to a refund. Regulation 201(b) requires the taxpayer to furnish HMRC with a “certificate of completion obtained from a Local Authority or such other documentary evidence of completion of the building as is satisfactory to the Commissioners”.

The conclusion of the Tribunal was that, for the purposes of a VAT Housebuilder refund claim, the completion of a building takes place when a certificate of completion is issued or, if there is no certificate issued, on such other date as may be evidenced by documents produced to HMRC by the taxpayer. The appeal was allowed and the refund was paid to Mr Dunbar.

Constable Comment: The Tribunal commented in this case that if, as HMRC contend, the date of completion depends on all the facts of the case, it would be almost impossible for the taxpayer to be sure when completion had taken place. Whilst in other areas of VAT law the date of completion may be given a different meaning, in the context of the DIY Housebuilder’s Scheme, this decision states that the date of the certificate is the date of completion. Whilst this is a good result for the taxpayer, we have seen similar cases not held in favour of the taxpayer. If you are building your own property, it is always worth seeking professional advice to ensure that the claim is handled effectively to guarantee the highest chance of success.

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.