Constable VAT Focus 11 August 2022


Tell HMRC about any errors in your VAT Return
Taxpayers can now notify errors on VAT returns online rather than using form VAT652. A link to the new online form has been added to the above guidance. HMRC has also updated the details section and included information on how to use the online form.

Provide partnership details when registering for VAT
HMRC has updated form VAT1 and its associated notes with information about completing the VAT2 when VAT registering a partnership.

Complete your VAT Return to account for import VAT
The above guidance has been updated with information on checking previous VAT returns where businesses have experienced problems with monthly import VAT statements.



Since the end of the transitional period on 31 December 2020 European Court judgements are not binding on the UK in most cases. However, it is expected that UK courts will still take these judgements into consideration when reaching their own conclusions and there may be occasions where they have a more binding effect. If you are concerned about the impact of any matters raised in the following cases, please contact us.

1. Boat trips on the Moselle: Principle of fiscal neutrality

This case concerned Navitours, a business established in Luxembourg which supplies boat trips on the Moselle, a river which forms part of the border between Luxembourg and Germany. The waters of the Moselle are under the joint sovereignty of both countries. As passenger transport services such as boat trips are subject to VAT where they take place, a dispute arose, as to the country in which the boat trips are subject to VAT.

The CJEU considered the boat trips are correctly classified as transport services. For VAT purposes, transport services are supplied where those services actually take place having regard to the distances covered.

The CJEU confirmed that it is for the Member States to determine the extensions and limits of what constitutes ‘within the territory of the country’; however, in this case both Germany and Luxembourg consider the Moselle to be within the territory of their country.

The CJEU concluded that the principle of fiscal neutrality prevents Navitours from accounting for VAT in both territories. As a result, the taxation of the boat trips in Luxembourg prevented Germany from also imposing VAT on the services supplied by Navitours.

Constable comment: This case is interesting as by following the strict application of the law, the CJEU has concluded that VAT could be due in both Germany and Luxembourg. This is an unfavourable position for the taxpayer as they would be subject to double taxation. However, applying the principle of fiscal neutrality the taxpayer VAT is only due in Luxembourg. Germany could no longer collect VAT on the boat trip taking place within a territory under the joint sovereignty of both countries. 

2. Insurance claim handling services

This case concerned a dispute between Uniqa Asigurari SA (Uniqa), a Romanian insurance company, and the Romanian tax authorities, regarding the VAT treatment of insurance claims handling services. Uniqa offers international insurance policies covering risks relating to motor accidents and medical expenses occurring outside Romania. Uniqa entered into partnerships with 26 companies having registered offices outside Romania, these companies settle claims for Uniqa’s customers in the country in which the accident occurs.

The partner companies invoiced Uniqa for the claims handling and complaint resolution services delivered, but Uniqa did not declare VAT under the reverse charge regime in Romania on the grounds that the place of supply for those services was the place of establishment of the supplier of the services. The Romanian tax authorities took the view that the claims handling services came within the scope of ‘services of consultants, engineers, consultancy bureaux, lawyers, accountants and other similar services, as well as data processing and the provision of information’, and as a result of the relevant place of supply rules at the time, 2007-2009, the place of supply was Romania and VAT should have been accounted for by Uniqa under the reverse charge mechanism.

The CJEU considered whether claims handling services can fall within any of the classifications contended by the Romanian tax authorities. The CJEU first considered ‘engineers’ and confirmed that whilst assessment of damage resulting from a road traffic accident may be carried out by an engineer, insurance claims handling clearly does not come within the scope of services carried out as part of the engineer profession.

The CJEU then considered the services of ‘lawyers’ and confirmed that these concern the representation or defence of the interests of a person or to ensure that a claim of legal nature succeeds, and supplies of claims handling made by the partner companies do not fall within the concept of services of lawyers.

The claims handling services did not fall within consultancy services because, unlike consultancy, claims handling involves the exercise of decision-making powers as regards to compensation or refusal to grant compensation, which amount to more than merely consultancy services. The CJEU also confirmed that claims handling was distinct from the above professions with different aims and therefore it cannot be classified as ‘similar services’ either. Finally, the CJEU concluded that claims handling cannot be similar to data processing services or be treated as equivalent to the provision of information.

As a result of the above considerations, the CJEU concluded that claim settlement services provided by the partner companies to Uniqa did not fall within the reverse charge regime in Romania.

Constable comment: This case concerned place of supply rules applicable in 2007-2009 and these have since changed. However, this case has provided a very helpful summary of the classification of services which remain relevant for UK and EU cross border supplies.


3. Car Safety testing

This case concerns car safety tests carried out by The Towards Zero Foundation (TZF) and whether these represented a non-business activity.

TZF is a charity with the objective of achieving zero road traffic fatalities through the operation of New Car Assessment Programmes (NCAPs). In each jurisdiction where an NCAP is established TZF anonymously purchases and crash tests individual models of cars manufactured in that jurisdiction. TZF will then publicise the results. The results often encourage the car manufacturers to improve the safety features of their vehicles and pay for further testing by TZF. The initial anonymous purchase and testing of vehicle is funded by TZF. The majority of costs incurred by TZF are non-UK costs but as they are established and operated from the UK it incurs UK VAT on overhead running costs, particularly in relation to marketing and consultancy costs.

HMRC argued that non-manufacturer funded testing are provided for free, therefore these tests cannot represent a supply for consideration and are therefore not supplies capable of representing a business activity applying the Wakefield test.  As TZF is engaged in both business and non-business activities, HMRC stated that the recovery of VAT incurred on overheads is required to be restricted.

TZF contended that it is engaged exclusively in business activities. The testing of vehicles using its own resources represents a necessary investment for the establishment of that business activity with the car manufacturer and there is a direct link between the self-funded tests and the manufacturer funded testing such that there is a single business activity and, as a result, all input VAT incurred by TZF is recoverable.

The Tribunal confirmed there is no dispute that no consideration is received for the self-funded testing; however, the dispute cannot be determined by reference to the Wakefield analysis because, in this case, the critical question was whether the free testing represents an independent activity. The Tribunal concluded that it was clear from the evidence provided that a car manufacturer would not proactively seek to have vehicles tested without an initial unfavourable assessment that is provided by TZF via the self-funded testing. The Tribunal held that the self-funded testing represents a necessary precursor to making taxable supplies and therefore TZF is not engaged in any separate non-business activities. In this regard, the position is materially indistinguishable from that in Sveda. As a result of this conclusion, TZF can recover all input VAT incurred on its overheads.

Constable comment: This case highlights the complexities of classifying business and non-business activities and the inconsistencies in HMRC’s new approach in determining what is a business or a non-business activity by a charity. In this case HMRC argued that as no consideration was received, the free testing cannot be a business supply for VAT purposes. However, this appears to contradict HMRC’s position in its recent updated guidance. The Tribunal ruled against HMRC on the grounds that the free testing is not a distinct supply from the manufacturer funded testing which is a fully taxable supply. The initial investment has an underlying objective which forms the foundation from which to make taxable business supplies of testing.

4. VAT on recharges of merchant acquirer costs

This case concerned SilverDoor, a company acting as a disclosed agent between accommodation providers and clients, who are usually businesses seeking short term accommodation for employees on temporary assignments.

When a booking is made, the clients can either use their SilverDoor account to make payments for the accommodation or pay via bank transfer or corporate credit card. When a corporate credit card is used SilverDoor requires the client to pay an additional fee of 2.95% of the accommodation charge. SilverDoor believed this payment to be a disbursement and outside the scope of VAT, however HMRC took the view that this fee cannot be a disbursement as the merchant acquirer was not paid on behalf of the client, instead HMRC contended the fees are standard rated taxable supplies of reservation services.

SilverDoor argued that it charged the card handling fee for providing the facility of being able to pay by corporate card and this is a separate and distinct supply from the supply of accommodation, which is made by the accommodation provider and that this supply was a financial service within the VAT exemption.

After reviewing the terms and conditions of the agreements, the Tribunal took the view that the 2.95% fee charged by SilverDoor is a reservation fee and therefore subject to VAT at the standard rate.   Although the appeal was dismissed on this basis the Tribunal went on to consider the VAT exemption for financial services.

The Tribunal found that SilverDoor’s actions were too remote to have an effect of transferring funds for the purposes of VAT exemption, its actions at best are to start a series of actions in which other parties at some point effect the transferring of funds.

SilverDoor contended that account holders can themselves make debits and credits by making online payments, rather than the regulated financial institution at which the account is held. The Tribunal rejected this argument by confirming that it was the bank that issued the card that authorised the withdrawal, debited corresponding amounts to the user of the machine’s bank account and transferred the ownership of the money directly to that user. It is not the account holder which is making the debits and credits in their bank account when the individual withdraws money from an ATM, it is the bank. The same applies when a person makes an online payment.

SilverDoor also made the argument that it supplies financial intermediary services because it brings together clients who wish to pay by credit card and the merchant acquirers, with a view to securing payment by this means for the accommodation. The Tribunal found that SilverDoor does not ‘bring together’ parties in any context required for the exemption to apply. SilverDoor did not do anything other than issue a payment request containing a website link which took the client to the merchant acquirer webpage in order to make payment.

Constable Comment: This case highlights the potential risk of not correctly identifying a VAT supply. The Tribunal confirmed that the supply, which SilverDoor believed to be an outside of scope disbursement, is a taxable supply of a reservation fee. The case also highlights the strict requirements to fall within the financial services exemption. Ensuring the correct VAT liability of all supplies made can avoid potential assessments and penalties by HMRC and this can often involve complex VAT rules.

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.