Constable VAT Focus 18 October 2019


Who should register for VAT? (VAT Notice 700/1)

HMRC has updated its guidance on submitting advanced notification of UK VAT registration should the UK leave the EU without a deal.

Find software suppliers for VAT and the EC Sales List

Guidance has been updated to include new suppliers.

VAT MOSS exchange rates

The VAT MOSS exchange rates ending September 2019 have been added.

New Extra Statutory Instrument

The government has tabled an extra statutory instrument (number 1309, 2019) under the cross-border trade (Public Notices) (EU Exit) Regulations 2019.

The regulation allows HMRC to ask the Treasury to change the law as it applies to VAT and excise duties in the UK, for a period of six months from the date of the UK’s withdrawal from the EU, without having to seek permission from Parliament.

MTD Digital links – applications for deadline extension

On 17 October HMRC announced that businesses with complex or legacy IT systems can apply for additional time to put the required digital links in place, subject to meeting certain qualifying criteria. If a business qualifies then the additional time will be granted as a specific direction.

Further detail on the criteria to qualify for an extension, and how to apply, are set out in new paragraph in VAT Notice 700/22.

In summary to be considered for a specific direction, affected businesses will need to:

  • make a formal application to HMRC as soon as possible for an extension and by no later than the end of the relevant soft-landing period
  • explain why it is unachievable and not reasonable for the business to have digital links in place by the MTD VAT digital links mandation date (in April 2020 or October 2020, for businesses mandated to join MTD in 2019) for example, why does commercially available software not meet the digital link requirement for the business?
  • submit details of the systems that are unable to be digitally linked (provide a current map of existing VAT systems, highlighting the exact areas that cannot be digitally linked)
  • provide a clear explanation and timetable for when and how the business will become fully MTD compliant (ordinarily no later than one year from the end of its soft-landing period)
  • state the controls the business will put in place to ensure any manually transferred data is moved accurately and without error

Brexit – auto enrolment for Transitional Simplified Procedures

Simplified import procedures called Transitional Simplified Procedures (TSP) will come into effect if the UK leaves the EU on 31 October. For businesses new to customs processes this is likely to be the best option for them.

On 15 October 2019 HMRC announced that they were in the process of writing to around ninety five thousand VAT registered businesses to notify them that they have been registered for TSP.

TSP will allow registered businesses to import goods from the EU to the UK without having to make full customs declarations at the border or pay import duties they owe straight away.

To move goods from the EU into the UK using TSP they will need to:

  • be established in the UK and meet the eligibility criteria;
  • keep records of their imports, and be prepared to make monthly supplementary declarations to HMRC;
  • check the tariff rates on imports to find out if there will be any customs duties to be paid; and
  • apply for a Duty Deferment Account, which will allow them to pay duties owed on goods monthly rather than as soon as the goods enter the UK.

For more information about TSP and record keeping, see ‘Register for transitional simplified procedures to import goods in a no-deal Brexit‘ on the HMRC website.

Businesses that are not VAT registered will not be automatically enrolled for TSP. If businesses are not VAT registered and they import goods, HMRC recommend they apply for TSP.


The chancellor has said that if the UK leaves the EU with a deal on 31 October 2019 his budget will be the following week, Wednesday 6 November 2019. However, if there is no deal, the government has confirmed that it will ‘take early action to support the economy, businesses and households.’ A budget would occur in the following weeks.



1. Exemption for Medical Services 

This EU referral concerned the interpretation of the VAT exemption for medical services. The appellant, Mr Peters, is a medical specialist in the field of chemistry and laboratory diagnostics. Between 2009 – 2012, he supplied services to a laboratory in Germany in exchange for remuneration of €6,000 pcm. This income places Mr Peters’ turnover above the VAT registration threshold in Germany, however, he did not register for VAT as he believed that his turnover was wholly exempt as it related to the provision of exempt medical services. The German tax authority considered that his supplies were taxable and assessed accordingly.

There were two questions before the Court in this instance; whether the provision of medical care supplied by a medical expert in chemistry and laboratory diagnostics is capable of falling within the exemption, and whether the exemption is subject to the condition that the medical care in question is supplied within a framework of a confidential relationship between professional and patient (this was a contention of the German tax authority).

In considering the first question, it was observed that “medical care” is characterised by an intention to diagnose, treat and cure diseases and health disorders and it was concluded that the services provided by Mr Peters were capable of falling within this exemption. To provide an answer to the second question, The Court assessed the wording of the relevant Article:

“The provision of medical care in the exercise of the medical and paramedical professions as defined by the Member State concerned”

It was noted that “It does not in any way follow from the wording of that provision that, in order for the provision of medical care to be exempt, it must be supplied within a framework of a confidential relationship…”

It followed that the Court ruled that the services provided by Mr Peters are capable of being exempt for VAT purposes and the matter will be referred back to the domestic Court to reach a conclusion.

Constable Comment: It is hard to see why the German authorities believed that, in order for the medical exemption to apply, the supplies must be made in the framework of a doctor/client confidential arrangement. There is no such qualification in EU law. It is possible that this is a German domestic principle, but this illustrates the superiority of the EU judgments.

2. Eynsham Cricket Club

This appeal related to whether the zero-rate of VAT was applicable to construction services supplies to Eynsham Cricket Club (ECC). ECC built a new pavilion after their old one burned down and issued a certificate to the contractor stating that the new pavilion would be used by a charity as a village hall or similar and, therefore, that the payment between ECC and the contractor should be zero-rated for VAT. HMRC disagreed with this and assessed for the VAT owed by the club.

The First Tier Tribunal had held in favour of HMRC on the grounds that ECC had not been established for purely charitable purposes. However, during a case review, HMRC conceded that this was incorrect and an Upper Tier Tribunal reversed the decision so ECC was permitted to treat the construction expenses as zero-rated for VAT. The case now comes before the Upper Tribunal formally with ECC as the respondents.

In UK VAT law, where a new building is constructed for a charity and is to be used as a village hall or similar in providing social or recreational facilities for a local community, the construction costs can be zero-rated. HMRC believed that ECC was not a charity. There was a lengthy consideration of the law in the Finance Act and the Charities Act around what constitutes a charity and whether a “Community Amateur Sports Club” could have been established for charitable purposes. None of this focussed around VAT law and was based on the interpretation of law of charities and sports clubs. The Tribunal concluded in favour of HMRC, that ECC was not established for purely charitable purposes.

This meant that the zero-rate did not apply to the construction costs and the assessment raised by HMRC stood, ECC had to account for this VAT.

Constable Comment: Whilst this case ultimately focused on law unrelated to VAT, there were some useful observations made by the Tribunal. One area of the VAT law which often causes issues is charges made by the charity to the community for use of the newly constructed building. In this judgment, it was reiterated that the fact a person wishing to hire a building has to pay a fee does not preclude the building being seen as similar to a village hall. This is a particularly current area of the law, it would seem that HMRC have been targeting charities constructing village halls. If your charity is going to construct a building, it is essential to seek professional advice to ensure the correct VAT treatment.


3. Supply of services or staff?

This appeal by Medacy Ltd is against assessments raised by HMRC for underdeclared output VAT. Medacy made supplies to GP practices and believed it was exempt supplies of medical services, HMRC argued that the supplies were standard rated supplies of staff.

UK VAT law exempts the provision of medical care services when provided by members of the register of pharmaceutical chemists and their employers. The effect of this is that when a company contracts to supply medical services, this supply is exempt despite the fact that the company itself is not on the register.

There is a significant amount of case law relating to this area of VAT which the Tribunal considered, including Sally Moher, Rapid Sequence Limited and City Fresh. After considering all of these cases, the Tribunal observed that to reach a conclusion, regard must be had for all of the relevant facts and not just the contract between the GPs and Medacy. It also observed that, following the case law, one of the most important factors to consider is who controls or supervises the activities of the relevant individuals (in this case, the pharmacists supplied to the GPs).

HMRC argued that the GP practices have control over day to day activities of the staff as it is the GPs who decide what services to purchase from Medacy and they control the amount of hours of service they wish to receive. It is the GP who allocates the tasks to the pharmacist and has some control over the way in which the pharmacist provides the service within that surgery.

The Tribunal considered a broad range of factors in determining whether these supplies should be treated as supplies of staff or services. Of significance was the fact that Medacy spends a significant amount of money on insurance for its staff; why would it do this if it was supplying staff rather than services? It was also observed that in this case, Medacy had more control over the pharmacists than the employers in some of the case law referred to. The first port of call for the pharmacists if they were struggling with any activity was Medacy and not the GP. Whilst the GPs did have some control over the hours that the pharmacist was present and the services which were to be provided, the Tribunal considered that this was just a reflection of any working contract for the provision of services. It was concluded that, on balance, this was an exempt supply of medical services.

Constable Comment: Cases of this kind are always interesting as there is no legal line which is crossed to change a supply of staff into a supply of services. Regard must always be had for the whole circumstance and the reality of the situation. As with other areas of the law, the contractual terms are not always determinative. When deciding whether a supply is of staff or of services, it can be very complicated and it is always prudent to seek professional advice.


4. DIY Housebuilders Scheme

Stewart Fraser has lost his appeal against a decision of HMRC to refuse to refund VAT incurred on the construction of a new dwelling. A claim in the sum of £17,707.84 had been submitted under the DIY housebuilders scheme. The case dealt with the sole issue of whether the claim was made within 3 months of completion of the dwelling. The timeline can be summarised as follows:

  • Mr Fraser occupied the property from 23 December 2015
  • Council Tax Banding issued on 3 June 2016 (retrospective date for council tax of 23 December 2015)
  • Certificate of completion issued by local authority on 16 April 2018
  • VAT refund claim submitted to HMRC on 10 July 2018

The significant time log between the occupation of the property and the issue of the certificate of practical completion concerned ventilation which was installed in June 2016.   A dispute arose between Mr Fraser and the local authority concerning a validation report as to the quality of the ventilation and gas membrane to protect future residents in the event of a gas leak. The dispute was resolved in April 2018.

Mr Fraser did not attend the hearing, but he agreed that he could not apply for a completion certificate until the validation of the gas membrane was accepted by the council. This was a matter beyond his control and the building was not completed until that point.

HMRC’s arguments were that the time limit is enshrined in law and the Commissioners have no discretion to extend it. The property was occupied in 2015. The only work completed since occupation was to change the fans in June 2016. The DIY refund claim was submitted 2 years after this. There was no requirement to await the issue of a completion certificate to submit a DIY housebuilders VAT refund claim.

The Tribunal Judge found in HMRC’s favour noting that neither VAT law nor HMRC guidance states that a VAT refund cannot be applied for until a completion certificate has been issued under the DIY housebuilders scheme.

Constable Comment: This decision is slightly at odds with that in Farquharson where the FTT concluded that despite occupying the property for over 8 years, a DIY housebuilders claim was valid because it was made within 3 months of the completion of the dwelling. That said, each case must be judged on its own facts which are specific to it. This is a particularly ambiguous area of the law in its application and it is always worth seeking professional advice when initially considering the project rather than when it may be too late.