Constable VAT Focus 19 May 2022


Prepare for upcoming changes to VAT penalties and VAT interest charges
This is newly published guidance provides more information about the new VAT penalties and interest charges that will apply to everyone who submits a VAT return from 1 January 2023.

Fulfilment House Due Diligence Scheme registered businesses list
This guidance allows traders from outside the EU to check if the business storing their goods in the UK is registered with the Fulfilment House Due Diligence scheme. The list has been updated with 31 additions, 22 removals and 1 amendment.

How to value goods for Import VAT
This guidance advises businesses how to value their goods to help when working out the VAT due when importing goods into the UK. Additional information has been added about moving goods into Northern Ireland.

Investment Gold Coins
The UK list of coins recognised as investment gold coins for exemption has been updated.

Revenue and Customs brief 8 (2022): Single DIY Claim
This brief clarifies HMRC’s position in relation to making a claim under the DIY Housebuilders scheme. This case specifically considered the implication of multiple DIY claims submitted for the same building. We have covered this brief in more detail which you can read here.


Constable VAT has recently released a new blog regarding Land Promotions.

Our new Land Promotion blog considers Land Promotion Agreements and key VAT considerations including whether it is beneficial to opt to tax, is permission to opt to tax required, understanding legal and beneficial ownership and more. The full blog can be read here.


Since the end of the transitional period on 31 December 2020 European Court judgements are not binding on the UK in most cases. However, it is expected that UK courts will still take these judgements into consideration when reaching their own conclusions and there may be occasions where they have a more binding effect. We will therefore continue to include summaries of any European judgements that we consider to be relevant. If you are concerned about the impact of any matters raised in the following cases, please contact us.


1. Rate of VAT applicable to lift repair and maintenance services

DSR is a Portuguese company which produces lifts, hoists and conveyor belts and provides lift repair and maintenance services. In 2007, DSR applied a reduced rate of VAT to the lift refitting and repair services supplied by it, while invoicing the materials incorporated in connection with those supplies at the standard rate of VAT. Following a tax inspection in 2011, the tax authority found that DSR had wrongly applied the reduced rate of VAT to those services.

In a judgement on 16 October 2017, the administrative and tax court held that lifts are an integral part of the buildings in which they are installed and therefore, the application of the reduced rate of VAT isn’t precluded in respect of the repair and maintenance services for such lifts, provided that those services are carried out under a works contract and that rate is only applied to the labour.

The tax authority brought an appeal against the judgement of 16 October 2017 before the supreme administrative court. In support of its appeal, the tax authority submits that the reduced rate of VAT is to be applied to certain works contracts relating to immovable property for residential use, excluding materials which constitute a significant part of the service supplied. The referring court is asking the CJEU whether ‘renovation and repairing of private dwellings’ covers repair and renovation services for lifts in residential buildings.

The reduced rate of VAT is authorised to apply to services relating to the ‘renovation and repairing of private dwellings, excluding materials which account for a significant part of the value of the services supplied’. These words must be interpreted uniformly and in accordance with their meaning in everyday language. The words ‘repairing’ and ‘renovation’ refer to the restoration of a damaged object and the refurbishment of an object. Such services are characterised by their occasional nature so that maintenance services supplied on a regular and continuous basis cannot fall within the reduced rate provisions. Accordingly, it must be concluded that the provision covers repair and renovation services for lifts in residential buildings, excluding maintenance services for such lifts.

Constable Comment: This case highlights the complexity of the VAT law regarding land and buildings and installed goods. Certain services within the construction industry can be either zero rated or reduced rated, however these are always subject to strict conditions. If a business applies the wrong VAT treatment it could potentially incur VAT assessments and penalties. Therefore, where there is significant amounts of VAT involved in a land and building related service, we would always recommend seeking professional advice. Constable VAT has relevant experience and have VAT land and property specialists who would be happy to assist.

Supreme Court 

2. Right to input tax recovery and exempt postage services

The case concerns the right of Zipvit to deduct input VAT due or paid by it on supplies of services to it by Royal Mail, so far as those supplies are used for Zipvit’s taxable supplies of goods or services to a consumer.

The general terms and conditions governing the supply contract between the supplier and Zipvit provided that it should pay the commercial price for the supply, plus such amount of VAT as was chargeable in respect of the supply. The supply should have been treated as standard rated for VAT purposes. Zipvit should have been charged VAT assessed at the relevant percentage of the commercial price for the supply.

However, at the time of the supply, Zipvit and Royal Mail understood that the supply was exempt from VAT. Zipvit was only charged, and it only paid, a sum equal to the commercial price for the supply. The invoices relating to the supplies specified the supplies as VAT exempt and indicated that no VAT was due in respect of them. However, this was incorrect. HMRC also misunderstood the position in believing that the supplies were VAT exempt. HMRC also contributed to that misunderstanding by issuing guidance containing statements to the effect that the supplies in question were VAT exempt.

The effect of the mistake is that Zipvit has only paid the amounts equivalent to the commercial price for each supply, and there is now no prospect that it can be made to pay the additional amount equivalent to the VAT element of the total price which should have been charged and paid in respect of the supplies. Similarly, Royal Mail has not accounted for or paid any VAT due in respect of the supplies made, and there is no prospect that it can now be made to account for the VAT it should have charged to HMRC.

Zipvit maintains that it is entitled to make a claim to deduct as input VAT the VAT due in respect of the supplies in question, or a VAT element deemed by law to be included in the price charged by Royal Mail for each supply. This is Zipvit’s position even though no VAT was paid by it to Royal Mail.

HMRC contend that in the circumstances of this case there is no VAT due or paid in respect of the supplies so no claim can be made to recover input tax in relation to them.  The invoices relating to the supplies did not show that VAT was due, and since Zipvit at no stage held invoices which showed that VAT was due and its amount, it is not entitled to recover input tax in relation to the supplies.

Zipvit’s position is that VAT must have been treated as having been paid as part of the overall price, and that as all relevant facts are now known, and it can prove by other means the amount of VAT due or paid on each supply. The sums claimed by Zipvit as input VAT on the supplies received from Royal Mail amount to £415,746 plus interest.

The Supreme Court dismissed Zipvit’s appeal. Technical arguments involved issues around invoicing, whether VAT was due or paid, and HMRC’s discretion. The Supreme Court agreed with the Tribunals and Court of Appeal that any payment of VAT to Zipvit would have been an ‘unmerited windfall’ and concluded that ‘there was no sound basis on which it would have been appropriate to use public monies to make any such payment’.

Constable Comment: This case has been ongoing for 13 years following Zipvit’s initial request in 2009 for a refund of input VAT on supplies that were incorrectly treated as VAT exempt, and for which no VAT invoice was held, or VAT charged by Royal Mail. Zipvit argued that the prices it paid for supplies received must be treated as having included a VAT element because these are standard rated supplies. The Courts disagreed with this technical assessment and this case demonstrates how interesting and complex VAT can be.

The decision notes that this is a test case and whilst Zipvit’s claim is not insignificant, £415,746 plus interest, there are several cases stood behind this lead decision with estimated total claims of between £500million and £1 billion which could had been a costly outcome if Zipvit had been successful, and those other claims succeeded.   


3. Time limits and Assessments

50 Five (UK) Limited appealed to the FTT in respect of assessments raised by HMRC against the company prior to the date on which it was purchased by the present owners. The present owners were not made aware of the assessment at the time of purchase as it had not been disclosed to them as part of the due diligence undertaken at the time.

50 Five (UK) Limited’s business is that of supply and installation of heating and hot water systems pursuant to which customers are supplied with fully installed systems. The appellant does not ask its customers to separately source the parts for such systems and then simply fit them.

50 Five (UK) Limited accepted that they are fitters/installers of heating and water systems who supply the parts as a composite element of what they do, HMRC were correct to assess them to VAT and the VAT assessment will become payable with interest.

The tribunal decided that there was no reasonable prospect of the appeal succeeding and that accordingly the appeal should be struck out.

Constable Comment: This was an unfortunate case involving the purchase of a business which received a VAT assessment. The new owners were not aware of the VAT assessment because this was not disclosed to them as part of the due diligence process. Whilst the Tribunal had sympathy that the VAT assessment was a surprise to the new owners, the FTT can be of no assistance in resolving this dispute, it can only make a ruling based on the correct VAT treatment. This case certainly shows the importance of performing a high-level due diligence exercise before purchasing a business, including VAT, to avoid any potential hidden VAT liabilities, the business has. Constable VAT has significant experience of carrying out due diligence for business sales and verifying the VAT accounting history and liabilities of the business. Constable VAT recently issued a blog on VAT due diligence which can be viewed here.

Please note that this newsletter is intended to provide a general overview of the subject. 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 blog post. Specialist VAT advice should always be sought in relation to your particular circumstance.