Constable VAT Focus 16 April 2020


Option to Tax
The contact details for submission of an option to tax have been updated in Public Notice 742A.

VAT Payment Deadline Calculator
HMRC has added information to the page, clarifying that VAT payments due between 20 March and 30 June can be deferred until 31 March 2021.

COVID-19: Guidance for Employees, Employers and Businesses
HMRC continues to update its guidance for businesses throughout the COVID-19 pandemic.

VAT and Imports
HMRC issued a statement via the CIOT on 10 April 2020 regarding VAT payable on imports. This can be read in detail here, and will be of interest to all parties importing goods during the Covid-19 pandemic.

Service of Legal Proceedings to HMRC
HMRC has stated that the service of new legal proceedings and pre-action letters on HMRC should be via email during the COVID-19 pandemic. New legal proceedings in England and Wales which are required to be served on the Solicitor for HMRC can be sent by email to


As the ongoing situation with COVID-19 continues to impact businesses, charities and individuals alike, European countries have implemented various measures to assist in reducing the financial consequences. Our coverage aims to provide a synopsis of the VAT related measures being taken in different Member States to aid those struggling to meet financial obligations.  We have not confirmed everything directly with all of the tax authorities concerned and local advice/confirmation is recommended.  The situation is so fluid that changes and additional measures can be anticipated and we continue to update our coverage, which can be read here.

We also continue to update our table which provides answers to frequently asked questions regarding VAT and COVID-19 as well as other useful information which is useful to businesses and charities throughout the COVID-19 pandemic. This can be read here.


Court of Session

1. Quantification of Fleming Claims

The decision in NHS Lothian Health Board (NHSL) concerned a claim for recovery of input VAT relating to the periods between 1974 and 1997. This claim was made as a result of the House of Lords’ judgements in January 2008 in the cases of Fleming and Conde Nast, which concerned the way that the three year time limit on making claims had been introduced.

NHSL operated 44 laboratories, most of the work performed in these labs during the relevant period was non-business activity, being clinical work carried out for the NHS. However, the labs also performed some business activities through carrying out additional work for third parties. It was agreed between all parties that input VAT paid by NHSL in respect of providing the taxable lab services had not been reclaimed, but that it was recoverable.

The FTT and The UT had previously held in favour of HMRC, rejecting the claim for repayment on the grounds that the claim could not be sufficiently quantified and evidenced to be authorised. NHSL appealed to the Court of Session, arguing that the refusal to authorise the claim infringed the EU principle of Effectiveness – that requirements of national law must not make it excessively difficult to exercise one’s rights.

The claim was based on the first year of accurate records which were available to NHSL, 06/07. The VAT recovery fraction shown in these accounts is 14.7% and NHSL sought to extrapolate this figure backwards to the other periods. HMRC argued that there was insufficient evidence to support this methodology and, as the claim could not be reliably quantified and evidenced, the taxpayer could not make such a claim.

The key question before the Court of Session was whether this percentage could reasonably be extrapolated backwards, bearing in mind the principle of effectiveness. The Court also considered NHSL’s proposal that, where the taxpayer’s methodology for calculating a claim is rejected, HMRC and the Tribunals must assist the taxpayer in quantifying a claim rather than preventing the taxpayer from exercising their right to VAT recovery.

The Court observed that, looked at holistically, the critical question was whether the taxpayer’s calculations are more likely to amount to a proper quantification of the claim than the alternative, which dictates that no input VAT is recoverable because of the impossibility of perfect quantification.

It concluded that, ultimately, the difficulties of proof were not sufficient to reject the possibility of quantification and, where such difficulties exist, The FTT must attempt to identify a satisfactory methodology to permit quantification of the amount. It also considered that the Tribunals and HMRC should adopt a flexible approach to the burden of proof in connection with historical claims for repayment.

The previous decisions of the FTT and UT are set aside and the matter is referred back to a differently constituted First Tier Tribunal for reconsideration.

Constable Comment: This case is from a Scottish Court but is interesting to taxpayers throughout the entire UK. This claim is worth nearly £1million, and it is estimated that there are still around 200 unsettled Fleming claims relating to NHS trusts. This case is good news for those claimants who, it seems, will now receive the assistance of the Tribunals in reaching a quantification where HMRC has previously rejected the claim outright. It is also interesting that the Court considered that the Tribunals and HMRC should adopt a flexible approach to the burden of proof in these cases; this shows a degree of pragmatism in favour of the taxpayer. This is useful in relation to estimated claims in general.

Upper Tier Tribunal

2. Prompt Payment Discount or Separate Contract?

Virgin Media Limited (VML) made supplies of telecommunications to its domestic customers. 95% of these customers paid a monthly subscription fee, the remaining 5% paid one lump sum for a 12-month subscription which amounted to less than 12 monthly instalments. Output VAT was calculated for all customers using the lower price based on the suggestion that if a “prompt payment discount” is offered then output VAT should be calculated using the discounted amount even if the customer did not take advantage of this discount.

HMRC disagreed with this position and assessed VML, which appealed. The First Tier Tribunal dismissed the appeal, holding that VML’s supplies to the monthly customers were not “supplied on terms allowing a discount for prompt payment” as the supply to monthly customers and the supply to annual customers were different supplies on different terms. Essentially, the 12-month saver option was a wholly different product to the monthly payment contracts. VML appealed this decision to the Upper Tribunal.

The Upper Tribunal considered that, in order for the “prompt payment discount” legislation to take effect:

  • There must be terms on which the supply is made
  • A discount must be offered by those terms
  • The discount offered is for prompt payment

Therefore, it was necessary to analyse the contractual position between VML and its customers. The key question was whether there is a single contract which provides for two possibilities as to payment (monthly payment or saver basis) for the same supply, as VML contends, or are there two possible contracts, each with different terms, as HMRC contend?

The Tribunal observed that there are different contracts in place between the two types of customer; the contract for the monthly customer does not offer the opportunity to pay for all 12 months in advance. Rather, monthly customers were entitled to switch their contract to a different one and pay £120 for the upcoming 12-month period; the monthly customer only becomes subject to the contractual terms relating to the saver basis on making the payment for 12 months.

As a result, the Tribunal held in favour of HMRC and dismissed VML’s appeal as the discounted amount was for a separate contract, even though the customers received the same services.

Constable Comment: The relevant legislation dictates that where a discount is offered for prompt payment of an invoice, the VAT is calculated on the reduced amount, as if the customer took the discount. This decision seems logical; the option to change your monthly contract to a cheaper annual contract does not constitute a discount for prompt payment.  

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.