Constable VAT Focus 18 December 2020


Exporting Excise Goods to The EU from 1 January 2021
Check the changes coming into effect regarding how you export and declare excise goods – alcohol, tobacco and certain oils.

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.

Trading and Moving Goods in and out of Northern Ireland
Information has been added about where there may be changes to some processes from 1 January 2021; bringing goods into Northern Ireland from Great Britain and from outside the EU, what you need to do if you import goods into Northern Ireland and want to declare your goods not ‘at risk’, making declarations for bringing or receiving goods into Northern Ireland, transporting and carrying goods if you’re a haulier or a carrier and moving goods under transit.

Revenue & Customs Brief 21 (2020)
HMRC has published R&C Brief 21 (2020), this confirms the withdrawal of ‘airside’ tax-free shopping in the UK and the VAT Retail Export Scheme from Great Britain, following the UK transition.

The Value Added Tax (Miscellaneous and Transitional Provisions, Amendment and Revocation) (EU Exit) Regulations 2020
This measure makes amendments to existing VAT legislation and introduces saving and transitional provisions to allow for a functioning UK VAT system that meets obligations under the Withdrawal Agreement.

Complete your VAT Return to account for import VAT from 1 January 2021
From 1 January 2021, find out how to account for import VAT on your VAT Return if you’re using postponed VAT accounting.


We will be closing our offices on the afternoon of Thursday 24 December and will reopen on Monday 4 January 2021 at 9am. If you have any urgent queries during the Christmas and New Year holiday period, please do not hesitate to contact your usual Constable VAT partner by email and they will respond to you as soon as possible. We are aware that some of our clients may have concerns around Brexit as the transition period ends and we will be available to assist and offer support if required.

We have not sent Christmas cards to clients and contacts this year and instead donated essential groceries and other items to a local food bank. We would like to take this opportunity to thank all our clients and regular readers for your support in this difficult year for everyone. We hope that you and your families have a safe and peaceful Christmas and a healthy new year that is less challenging than 2020!


First Tier Tribunal

1. Incorrectly Charged VAT

This case concerned Kang & Mand Limited (K&M), a fish and chip business which changed its business activities in 2017 to become an investment company, holding the freehold interest in various properties. In August 2016, K&M purchased a pub which had been converted into residential flats and which it continued to rent out to residential tenants.

The seller of the property in question charged VAT to K&M in addition to the purchase price of £315,000, creating a VAT charge to K&M of £63,000. The seller had not opted to tax the property and, as the Tribunal observed, HMRC would not have accepted an option to tax regarding the property. Following completion of the purchase, K&M submitted a VAT return seeking to recover the VAT incurred as input VAT in September 2016.

An HMRC VAT compliance inspection in August 2017 revealed that K&M did not hold a valid VAT invoice to support the input VAT claim and that, moreover, the VAT paid should not have been charged to K&M by the seller as the sale of existing residential properties is VAT exempt. HMRC therefore issued an assessment to K&M for the VAT which it had incorrectly recovered.

K&M appealed against the VAT assessment on the grounds that the seller was a VAT registered trader and was required to charge VAT in relation to the sale of the property to K&M and, if allowed to keep the money, HMRC would receive an illegal windfall.

However, when the hearing took place K&M, which was represented by one of its directors, accepted that the appeal was misconceived and it had failed to appreciate that VAT should not have been charged on the sale made to it as sales of existing residential properties are VAT exempt.

The director, Mr Singh, requested an adjournment so that the incorrectly paid VAT could be recovered from the seller and repaid to HMRC. It subsequently requested an extension of time, but nothing has been heard from K&M or its representatives since the request for an extension in early 2020. In its absence, the assessment against K&M was upheld by the Tribunal.

Constable Comment: This case demonstrates the importance of ensuring the correct VAT position of high value transactions prior to their execution. In this instance, a fish and chip business significantly changed its original business activities and did not appear to have an adequate or full understanding of the implications. VAT which is incorrectly charged can never be recovered as input VAT and it is essential for businesses to seek professional advice when undertaking property transactions.

2. Input VAT Recovery by Holding Company

This case concerned Bluejay Mining PLC (BM), a holding company which operates in the mineral exploration and mining industry. The company acquires licences to explore for minerals in Austria, Finland and Greenland. It then undertakes works in preparation of extracting any minerals found.

Owing to domestic laws, the licences to explore are held by subsidiaries of BM which are established in the relevant countries. The licences are therefore held by these entities locally. Once the local subsidiary has a licence to explore, BM assembles a technical team and provides technical services to the subsidiary. It also loans the subsidiary the money required to pay for these services.

In return, BM is repaid 115% of the costs incurred by the subsidiary, essentially meaning that it would only be paid if the subsidiary generated profit. In addition, the loans were described as repayable “when sufficient cash resources are available”. HMRC argued that this indicated that there was an unwritten term in the loan agreements to the effect that the subsidiary did not have to pay back the funds until it was profitable. BM denied this, arguing that the wording used in its accounts was merely a reflection of the reality of any loan, an assertion with which the Tribunal ultimately agreed.

HMRC refused to repay over £550,000 VAT to BM on the grounds that it was not making, or intending to make, taxable supplies for consideration to its subsidiaries and/or there was no economic activity being carried on by BM which carried out the sole activity of generating income through investments. HMRC suggested that BM was not supplying the services to the subsidiaries to generate income but rather as a method of further investing in the operation. HMRC also argued that the loan and services payments being due when profitable did not represent a price which had been agreed upon for the provision of services, but instead represented investment returns.

In addition to considering a wealth of caselaw around this subject, the Tribunal also considered the loan arrangements and agreements for the provision of services. Based on this analysis, it concluded that BM was supplying services for a consideration – 115% of the costs incurred by the company in providing those services. It noted that the fact that repayment to BM was contingent does not mean there is no consideration. This seems to follow given the amount of work which is done throughout the UK on a contingent basis which HMRC accepts is performed for a consideration.

BMP’s appeal was therefore allowed and BMP is entitled to receive credit for input VAT amounting to over £550,000.

Constable Comment: This case offered an in-depth discussion of the topic of whether a holding company can deduct VAT incurred as input VAT when providing services to subsidiaries. It must have bona fide agreements in place, services must actually be supplied and loans must be repayable. Some readers may be interested in the complexities of these points if they are operating as a holding company which provides services to its subsidiaries. To discuss this complex and involved area of VAT law, please contact Constable VAT.

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.