Constable VAT Focus 17 December 2019

Christmas closure

We will be closing on the afternoon of Tuesday 24 December and will reopen on Thursday 2 January 2019 at 9am. If you have any urgent queries during this time please contact your usual CVC partner by email and they will respond to you as soon as possible.

We have not sent Christmas cards this year and instead donated to a local shelter providing support to homeless men and women. However, we would like to take this opportunity to wish all our clients and regular readers a Merry Christmas and a happy and prosperous New Year.


Group and divisional registration (VAT Notice 700/2)

This notice has been updated to include information about the legislative changes to the eligibility criteria to include certain non-corporate entities, which are individuals, partnerships and Scottish partnerships.

VAT Annual Statistics

HMRC has released an overview of VAT statistics, covering receipts information and the characteristics of the VAT trader population in the UK.

December 2019 Exchange Rates

HMRC has issued its approved exchange rates for foreign currency. These are available in various formats.



We have recently published a blog about the four EU VAT “quick fixes”. It is available to read on our website.

The quick fixes will be relevant to all businesses involved in cross-border trade and include:

  • Simplification of “Call-off stock”
  • Simplified evidential standards for dispatches
  • Uniformity of rules in chain transactions
  • Clarification of rules for zero-rating dispatches

If you would like to discuss anything highlighted in this blog then please do not hesitate to contact Constable VAT. We will be happy to answer any questions and talk about the ways in which the quick fixes apply to your business operation.

MTD Survey

The CIOT and ATT are asking tax professionals and businesses to complete a survey on their experiences of making tax digital (MTD) for VAT and their thoughts on next steps. The survey (47 questions) is expected to take 15 minutes to complete and closes on 31 December. The professional bodies will use the responses as the basis for a submission to HMRC on any future roll-out of MTD.

The survey can be accessed here. It should take approximately 15 minutes to complete for agents or nine minutes for those who are not agents. If you are only completing the questions on the future of MTD, this will take less than five minutes.




1. Exemption for Cost Sharing Groups – Infohos

This referral to the CJEU concerned whether services provided by Infohos were exempt from VAT; Infohos arguing that its services were exempt, The Belgian Tax Authority disagreed and considered that the services supplied were taxable at the standard rate of VAT.

Infohos is an association set up by a group of Belgian hospitals, the hospitals are the members of the association. It specialises in supplying hospital IT services. It provides specific IT services to hospitals in the group and the same services to non-members. EU law exempts from VAT services provided between members of independent groups (cost-sharing exemption) where the persons in the group are carrying on activities which are exempt from VAT. This is enshrined in Belgian law with the following provision “the activities of the group consist exclusively in providing services directly to the benefit of their members […] and they all carry out an activity exempted under section 44…”

Owing to the EU provision, Infohos did not register for VAT. It believed that it was not eligible to do so as it made exclusively VAT exempt supplies. However, the Belgian tax authority ruled that because Infohos supplied services to non-members as well as members, the exemption could not apply to any of the supplies made and that Infohos should have registered for VAT. The question which was referred to the CJEU was whether EU law precludes domestic laws, such as the one at hand, which make the applicability of this VAT exemption conditional on the fact that only group members receive supplies.

The Court observed that it does not appear from the wording of the EU law that in order to benefit from exemption, no supplies can be made to non-group members. This was a provision only in the Belgian law. Therefore, according to the EU law, the exemption may be granted for services rendered by autonomous groups of persons to their members – it cannot be inferred from its wording that it could be applied only if these groups are required to provide services to their members only. In concluding, The Court held that the Belgian provision was precluded by the overriding EU law. It did, however, confirm that the supplies made to non-group members were not VAT exempt.

Constable Comment: This case demonstrates how, in certain specific circumstances, identical supplies of services may attract different rates of VAT depending on the status of the recipient of the services. Whilst EU law permits domestic law-making bodies to guard against this by applying specific restrictions, they are not permitted to generally restrict the applicability of an EU provision as Belgian law tried to in this case.



2. Supplies of loan administration services – Target Group Limited

This appeal concerned whether loan administration services supplied by Target Group Limited (TGL) were VAT exempt payment processing services or standard rated loan management services; HMRC arguing the latter.

The question which the Tribunal fashioned for itself to answer was whether TGL’s services were exempt as “transactions concerning deposit and current accounts” and, if so, if the supplies were nonetheless standard rated as debt collection services. In order to reach this conclusion, it was necessary to assess what the definition of “current account” is.

The Upper Tribunal agreed with the assessment of the FTT that the accounts in question were not “current accounts”. A key function of such an account is the ability not only to pay in and draw out funds but also to pay third parties directly by drawing on the funds available in the account. The accounts in question in this case lack this functionality, amongst other things such as the inability to go into credit, and so are not “current accounts” which fall within the VAT exemption.

Having reached the conclusion that the services supplied by TGL were not exempt from VAT as they were not applied to “current accounts”, the Tribunal observed that it was not necessary to assess and comment on the notion of the services being excluded from the exemption as “debt collection services”. The appeal was dismissed.

Constable Comment: Whilst the outcome of this case goes against the taxpayer, it is nonetheless useful in highlighting the key factors of current accounts for the purposes of the VAT exemption. Whilst there is no specific definition in the legislation, it is accepted that current accounts allow clients to deposit and draw funds at any time as well as permitting customers to draw from the funds to pay third parties directly.




3. Entitlement to deduct VAT incurred on advice in relation to bonus payments – Taylor Pearson Construction Limited

This appeal by Taylor Pearson (Construction) Limited (TPC) concerned a VAT assessment by HMRC seeking to recover input VAT which TPC had recovered. The input VAT incurred related to services provided by tax advisors as to how the company could reduce its tax and NIC liabilities when paying bonuses to its directors. HMRC sought to assess on the basis that the supplies were not for the purpose of the company’s business and did not relate directly to a taxable business activity.

Emerging from the recession of 2008/09, TPC was seeking tax efficient ways to reward its directors without increasing their salaries. In order to achieve this, several professionals were engaged between 2010-2013 to advise on how to issue shares to the directors to mitigate tax and NIC contributions.

HMRC argued that, despite the supplier’s invoice being made out to TPC, the supply was for the benefit of the directors as individuals. It was also argued that the issue of shares is an exempt supply and, therefore, that the VAT incurred was irrecoverable as it directly related to VAT exempt supplies.

The Tribunal observed that HMRC was, in fact, incorrect in its contention that the issue of shares is exempt as, following the case of Kretztechnik, an issue of shares is a transaction which is outside the scope of VAT. Generally speaking, input VAT in relation to supplies of this nature is treated as residual and is recoverable in line with the company’s partial exemption calculations. The appeal therefore turned mostly on the point around whether or not the costs were incurred for the overall taxable business purposes of TPC.

Considering this point, the Tribunal observed that the advice was provided to the company and, although the directors were the significant beneficiaries, the benefit was earned entirely in their capacity as directors of the company. The Tribunal noted that there was a significant benefit to the company – the directors would not have to pay income tax on their bonus. Had it been that the directors were required to pay income tax, the company would have had to pay out higher amounts. Therefore, the Tribunal held that the benefit was to the company as well as the directors and allowed the appeal against HMRC’s assessment. The supplies received were for the purposes of the business and had a direct and immediate link with TPC’s taxable supplies.

Constable Comment: This case is useful in demonstrating an issue which has arisen before the Tribunals and Courts previously in a wealth of caselaw including Becker and Praesto. In this instance, despite there being a benefit to the directors of the company, there was, conversely, the same direct benefit to the company as it had to pay out less in bonus payments.

4. Zero-rating Construction – Westow Cricket Club

Westow Cricket Club (the Club) is a Community Amateur Sports Club (“CASC”) registered under section 58 of the Corporation Tax Act 2010 from October 2012. It is not, for the avoidance of doubt, a registered charity.

The Club is run by unpaid volunteers with a love for village cricket.  The Club raised funds to build a pavilion and sports hall adjacent to the cricket ground. Prior to any building work starting, on 22 March 2012, the Club wrote to HMRC giving details about the Club and the building project and seeking guidance on the zero rating of supplies to the Club in the course of the construction of the pavilion and sports hall. HMRC’s response was not definitive and referred the Club to HMRC’s notice, but was read by the Club as indicating that zero-rating was appropriate and a certificate was issued to the contractors undertaking the work

This appeal concerns itself with the decision by HMRC to issue, on 31 March 2015, the Club with a penalty in the sum of £20, 937.  The penalty arose from the decision to issue a zero-rating certificate to Atkinson Builders Ltd on 9 March 2013 in relation to supplies to the Club during the course of the construction of a new pavilion.

The only issue before the FTT was whether or not the Club could prove that it had a reasonable excuse for issuing the zero-rating certificate, it having been conceded that the Appellant ought not to have issued the zero-rating certificate.

The FTT concluded that there was not a reasonable excuse on two grounds:

  1. HMRC’s letter stated that it was not definitive advice and pointed the Club to consider further information.
  2. The zero-rating certificate is explicit and asks for confirmation that the building will be used “solely for…a relevant charitable purpose, namely by a charity”. The requirement is expressly set out and there is no other objectively reasonable interpretation that might be applied. The Club is not a charity.

The FTT also considered whether the penalty was disproportionate, but concluded it was not as it simply resulted in the Club paying a sum equal to the amount of VAT that was properly due.

Constable Comment: This is one of several cases that have been considered by the Tribunals on this point and given HMRC’s response it seems harsh that it was not that the Club had a reasonable excuse. However, this does highlight the need to obtain a non-statutory clearance on matters of uncertainty.  

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.