Constable VAT Focus 11 November 2021

Constable News

We have recently released our special Autumn Budget 2021 VAT Focus, covering all the VAT related announcements and updates. Click here to read in full and see also further documents issued by HMRC in the HMRC News below.


Food products (VAT Notice 701/14)
This notice has been updated to reflect the fact that the temporary reduced rate of VAT changed from 5% to 12.5% from 1 October 2021. This reduced rating will be in place until 31 March 2022. The supplies to which the temporary reduced rates will apply remain the same.

Pay the VAT due on your One Stop Shop VAT Return
HMRC has updated its guidance on reporting and paying VAT on distance sales of goods from Northern Ireland to cover businesses whose turnover is below the UK VAT registration threshold.

Revenue and Customs Brief 14 (2021): Changes to the VAT treatment of importations of dental prostheses into the United Kingdom
The government announced in the Autumn Budget 2021 that the import of dental prostheses by registered dentists or registered dental care professionals would be exempt from VAT, applied retrospectively to 1st January 2021. HMRC has now published a new VAT brief explaining the changes, how businesses can claim repayment of any overpaid import VAT paid after 1st January 2021 and how businesses can declare the correct VAT value for imports of dental prostheses.

VAT (Distance Selling and Miscellaneous Amendments) Regulations 2021 and VAT (Distance Selling and Miscellaneous Amendments No.2) Regulations 2021
The distance selling provisions amended by these regulations were enacted by FA 2021 to implement the e-commerce package in relation to VAT. This included the introduction of the OSS scheme and the IOSS scheme. The schemes are designed to simplify VAT accounting for the sale of goods direct to consumers by suppliers based in the EU and by suppliers who import goods into the EU for sale. These regulations come into force on 1st December 2021.


Since the end of the transitional period on 31 December 2020 European Court judgments 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. Payments by instalments

This case concerned the German tax authorities and X-Beteiligungsgesellschaft mbH (X-B) regarding the sale of a plot of land by X-B to T-GmbH. T-GmbH entered a fee arrangement with X-B on 7 November 2012. The sale of the land was for EUR 1,000,000 plus VAT. The fee arrangement stated that the fee was payable by instalments at yearly intervals for 5 years, and each amount was EUR 200,000 plus VAT. An invoice was issued at each interval and the VAT was paid corresponding to the amount received at each interval. The tax office took the view that the supply took place in 2012 and X-B should have paid the VAT on the entire amount of EUR 1,000,000 in 2012.

Article 64(1) of Directive 2006/112 provides that where a supply gives rise to successive payments, that supply of goods or services shall be regarded as being completed on expiry of the periods to which such payments relate. The question referred to the CJEU was whether Article 64(1) can be interpreted to include transactions arising on the basis of an agreement to pay by instalments.

In response to this question, the CJEU stated that VAT is to become chargeable when the goods or services are supplied, that is when the transaction takes place, regardless of whether consideration was received or not, therefore accordingly VAT is due to the authorities when the supply was made, even if the full consideration was not received for that transaction. The CJEU concluded that Article 64(1) must be interpreted as meaning that a supply arising on a single occasion, remunerated by way of instalment payments, does not fall within the scope of that provision. This means that for a single land transaction, VAT is due on the entire amount when the supply takes place not when the instalment payments are made, therefore VAT should have been accounted for on the EUR 1,000,000 in 2012.

As an alternative, given that the conclusion to this question was not favourable, another question referred to the CJEU regarding the transaction was whether, in a case of payment by instalments, the fact that an instalment of the consideration has not been paid before its terms must be regarded as non-payment of the price and as a result would lead to a reduction of the taxable amount.

The CJEU have stated that such a payment plan does not change the amount of consideration that the taxable person is supposed to receive, the taxable amount remains unchanged. If there is a non-payment without rescission or annulment of the contract, the purchaser of goods or services remains liable to pay the agreed price, and therefore the same amount of VAT remains due. In conclusion the CJEU stated that the above situation cannot lead to a reduction of the taxable amount.

Constable Comment: This case provides interesting analysis of the distinction between a continuous supply (with separate tax points arising) and payment by instalments (where a single tax point arises at the time of the initial supply).

Upper Tribunal

2. VAT Exemption: Supply of consultants and GP specialists

Mainpay Limited (Mainpay) appealed against the decision of the First Tier Tribunal on 29th April 2020. The question at issue in the appeal is whether Mainpay is supplying medical care within the meaning of Group 7 schedule 9 VATA 1994, so that its supplies are exempt from VAT or whether it is making a standard rated supply of staff.

Mainpay (an umbrella company) supplied medical consultants and specialist general practitioners to an intermediary company called accident and emergency Limited (A&E). A&E then supplied the consultants and GP specialists to various hospital clients, generally NHS trusts. The supplies were made in the period 1st November 2010 to 31st January 2014. The FTT held that Mainpay’s supplies were not VAT exempt medical services, but were standard rated supplies of staff.

Mainpay employed various doctors. 80% of the doctors which it placed indirectly with hospitals were consultants and the remaining 20% were GP specialists. Mainpay assumed various obligations to its medical practitioners such as pensions and sick pay and accounted for PAYE and National Insurance contributions. Consultants were employed on fixed term assignments which could be renewed.

The FTT concluded that it was not satisfied that Mainpay did arrange professional indemnity insurance for consultants. The absence of any evidence that Mainpay itself was insured against liability for professional negligence suggested that it was supplying staff and not medical care.

The Upper Tribunal concluded that the FTT considered all relevant evidence and it was correct to reject Mainpay’s argument that control over clinical decision making was the key test to distinguish between a supply of staff or medical care. That test is impractical to apply in the context of highly skilled and specialised workers. Taking into account all the facts and circumstances surrounding the supply, paying particular attention to the contractual provisions, the FTT applied the correct analysis and did not take into account irrelevant considerations.

The appeal was dismissed.

Constable Comment: The distinction between a supply of staff and a supply of medical services is an important one as it impacts on whether VAT is added to a supply. Where the supply is made to a customer that is unable to recover the VAT charged, such as a GP surgery or hospital, this can increase the cost to the customer by 20%.  If there is to be a successful argument for exemption of the supply of the medical practitioner, contracts and underlying facts would have to support the fact that the supplier is itself making supplies of medical services.

First Tier Tribunal

3. Consideration for grant of lease

This case concerned Polo Farm Sports Club (PFSC). PFSC constructed an indoor sports centre and received a capital contribution of £2 million towards the works from Canterbury Christ Church University (CCCU). PFSC also contributed £2 million to carry out the development. PFSC retained the freehold of the land and charges £250,000 per annum to CCCU as rent and service charge for use of the building. The dispute concerned whether the £2 million capital contribution from CCCU was consideration for the grant of a leasehold interest in the development in which case VAT is due at the standard rate on that consideration.

HMRC’s argument was that the payment of £2 million represented a consideration for the grant of the leasehold interest and is therefore subject to VAT on the basis that there is a direct link between the agreement to pay the monies and the grant of the lease

The Tribunal and HMRC had some difficulty in understanding the appellant’s arguments as on the one hand he argued that the word premium is simply a label and should be disregarded but on the other hand he argued that the term was important and referred to case law to advance an argument that the word premium has a technical meaning which the Tribunal should apply.

Following the appellant’s argument, the Tribunal and HMRC stated that it appears that PFSC made the following points:

  • CCCU did not account for the £2 million as a premium for the lease, but for the construction of the building, and so it cannot be for the lease.
  • The appellant’s accounts supported by the appellant’s calculations show that the rental was sufficient to cover the costs associated with the building, so the £2 million cannot be a premium (in a technical sense) for the lease or use of the facilities, as essentially CCCU would then be overpaying.

The Tribunal reviewed the evidence presented to them and found that the Heads of Terms stated that CCCU is to pay £2 million as a premium for the grant of the CCCU lease which is to be used for the construction of the building. Furthermore, the Tribunal  found that PFSC’s VAT consultant advised them to seek HMRC confirmation as to whether or not the £2 million payment should be taxable. PFSC did not act on the recommendation, it did not clarify the position with HMRC. Also CCCU was advised that the £2 million should be described as a premium for Stamp Duty Land Tax purposes.

In conclusion the Tribunal stated that the £2 million and the grant of the lease are inextricably linked on an economic and commercial basis, it found that:

  • There is a legal relationship between the parties
  • There is a reciprocal performance
  • There is a direct link between the lease and the consideration
  • The consideration, being the £2 million, was for the grant of the lease.

For all the reasons set out above the appeal was dismissed and the Tribunal held that VAT is due on the £2 million as it is consideration for the grant of a lease on a building on which an option to tax had been notified.

Constable comment: This case highlights the importance of ensuring the correct VAT treatment of any complex land and building transaction from the outset in order to avoid VAT disputes and potential penalties. Constable VAT is happy to assist with any relevant queries.

4. Sporting VAT exemption: True beneficiaries

This case concerned Cambridge University Boathouse Limited (CUBL) which constructed a boathouse. CUBL licenses the use of the boathouse to three clubs, each of which is a limited company by guarantee and the clubs provide training to individual athletes taking part in certain rowing competitions. CUBL incurred VAT of £575,000 in relation to constructing the boathouse.

HMRC refused repayment of the VAT incurred arguing that the supplies of the boathouse were subject to the sporting exemption and as a result associated input tax was not recoverable as it was directly attributable to an exempt supply. The legislation provides that the supply by an eligible body to an individual of services closely linked with and essential to sport in which the individual is taking part is exempt from VAT. CUBL appealed this decision

HMRC relied on the “Canterbury Hockey Club” case which established that a corporate body could fall into the exemption too if the true beneficiaries of the supply was the individuals. This means that if HMRC was successful in persuading the Tribunal that the true beneficiaries of the supplies were the individual rowers rather than the clubs, the supplies would be VAT exempt and associated input tax irrecoverable.

The Tribunal considered the facts of this case to determine whether the clubs or the rowers were the true beneficiaries. Firstly, HMRC argued that the rowers are the beneficiaries because they pay £150 for accessing the boathouse. CUBL responded that £150 charge is simply a fee for “putting yourself up for selection” as it was payable even by those rowers who did not make it into the final team and therefore had no actual connection with use of the boathouse, on the other hand the clubs made considerable payments to CUBL for the use of the facilities.

Also, it was the clubs that had the right of use of the boathouse not the rowers. The rowers were not permitted to enter the boathouse without an invitation or permission of the clubs and their employees. The rowers did not have the benefit of using the boathouse, it was the clubs who were enjoying the right of use and who trained the individuals. Similarly, it was the clubs that were allowed to make use of the facilities for storage of club equipment and boats. Individual rowers were not permitted to store personal equipment in the boathouse.

Taking the above points into account, the Tribunal concluded that the true beneficiaries of the supply of the boathouse were the clubs, not the rowers. For that reason, the VAT exemption does not apply because the supply was made to corporate bodies rather than individuals.

Constable Comment: This case considers the sporting VAT exemption and how to determine who the true beneficiaries are. This can be important as a business may benefit from VAT exemption even if it is a corporate body, if the supplies are ultimately to individuals. We recommend seeking advice in relation to supplies where it is uncertain whether this particular VAT exemption will apply or not.

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.