This VAT Focus provides the usual updates of HMRC news, in particular updates on the availability of certain HMRC services in the upcoming planned downtime. We also cover some of the most recent developments from the Tax Tribunal and Court of Justice of the European Union including the decision in the C&D Foods Acquisitions ApS case.
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1. Holdings Companies Recovering VAT
C&D Foods Acquisition ApS was the Danish parent company in the Arovit group which included Arovit Holdings. Arovit Holdings controlled Arovit Petfood which, in turn, owned other companies within the group. C&D Foods provided management and IT services to Arovit Petfood in exchange for a fee to which VAT was added.
The Arovit group failed to repay a loan received from Kaupthing Bank so the group was acquired for EUR1 by the bank. The bank then entered into a number of consultancy agreements on behalf of C&D Foods in relation to selling the shares in Arovit Petfood to satisy the outstanding debt. Having paid the money over for the consultancy, C&D sought to recover the input VAT on the fees.
The Danish tax authorities refused this claim on the grounds that the expenditure by C&D did not relate to their taxable supplies or exhibit any connection with them at all.
The Court held that owing to the fact that there is no connection between the taxable activities of the company being sold and the input VAT incurred on consultancy relating to that company’s sale, the transactions are themselves outside the scope of VAT and, therefore, no right to deduct the VAT ever arose.
Constable Comment: This decision gave much consideration to the rules of holding companies seeking to recover VAT on activities other than purely holding and acquiring shares which is outside the scope of VAT. The rules are complicated and can easily lead to mistakes and there is significant case law relating to holding companies recovering VAT. It is always prudent to seek professional advice before making a VAT reclaim using a holding company involved in a complex business structure.
2. Exemption for Supplies Closely Linked with Supplies of Education
This appeal concerned whether sales of goods by a student’s union can benefit from the VAT exemption for supplies closely associated with education. The FTT had previously ruled in HMRC’s favour, holding that the supplies did not benefit from the exemption.
The Upper Tribunal considered that Loughborough Student’s Union (LSU) could constitute an eligible body for the purposes of the exemption as it is a registered charity and any surplus cash generated is assigned to the continuance of its own, charitable activities.
However, despite being an eligible body, the Court considered that in order for the exemption to take effect the supplies being provided must be closely related to a supply of VAT exempt education. As LSU does not make supplies of education and does not make its supplies to an education provider but rather to individual students, it will not be able to benefit from the exemption.
The UT concluded that the supplies made by LSU were not closely linked to education in any event as the supplies of education provided by the University would be just as good without the supplies of household goods made by the SU. Other supplies which could be associated with education such as stationery were not shown adequately by LSU to benefit from the exemption.
The appeal was dismissed.
Constable Comment: This case demonstrates that a mere association with an eligible body such as a University does not mean that educational VAT exemptions extend to all supplies made by affiliates of that body. Interestingly there was some consideration given to supplies of art materials by LSU which could be associated with education and therefore benefit from the exemption, however LSU failed to show this to any substantial degree.
3. Amending Grounds of Appeal
This decision relates to an application by Ballards of Finchley Plc (Ballards) to amend its grounds of appeal relating to a historic Fleming claim for overpaid output VAT.
Ballards submitted a claim in 2003 claiming repayment of VAT overpaid during the period from 1 April 1973 to May 1999. Following the decision in Fleming, HMRC wrote in 2017 agreeing to pay part of the total amount claimed subject to certain confirmations and that, if the House of Lords were to overrule Fleming, an agreement to pay back the money to HMRC.
There was correspondence between the parties during which the accountants of the appellant wrote to HMRC seeking to adjust the amount of the reclaim, asserting that the retail price index used by HMRC failed to take into account times of great inflation. It was on these grounds that Ballards sought to amend their appeal. HMRC sought to deny the amendment on the grounds that the claims had already been settled and could, therefore, no longer be subject to the Tribunal’s discretion.
Giving consideration to case law, this decision revolved around whether the claims could be regarded as “completed” by the agreement in 2007. It is an established principle that where a claim has been paid in full the Tribunal has no jurisdiction to amend the grounds of appeal since it can no longer hear the appeal.
The Tribunal decided that, despite the fact that Ballards may have to pay the money back, the claims are to be seen as settled and there is no right to amend their grounds of appeal. The Tribunal also refused to employ discretion in this case on the grounds that “…it would be to no avail.”
Constable Comment: Legislation and case law both dictate that once a claim has been settled or “completed” then it is no longer within the jurisdiction of the Tribunal to analyse that claim. In this instance Counsel for the appellant sought to increase the value of a claim by asserting that incorrect inflation calculations had been performed when calculating the initial claim. This case reaffirms that once an agreement is reached between HMRC and the taxpayer, that agreement is, in most cases, conclusive.