Constable VAT Focus 2 April 2020


VAT Payments on Account
Information about deferring VAT payments because of COVID-19 has been updated. Payments due between 20 March and 30 June 2020 can be deferred. Deferred payments must be paid on or before 31 March 2021.

Deferral of VAT payments due to Coronavirus
HMRC continues to update its Guidance on deferring payments of VAT during the COVID-19 outbreak. VAT MOSS payments cannot be deferred.

Import VAT on Medical Supplies, Equipment and Protective Garments (COVID-19)
Find out how to import protective equipment, relevant medical devices or equipment brought into the UK from non-EU countries VAT and duty free during the coronavirus (COVID-19) outbreak.


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. We have recently released a blog covering the various VAT measures being taken by different countries to assist businesses throughout the ongoing situation regarding the Coronavirus which can be read here.

As the Government continues to implement restrictive measures, which are impacting cash flow for businesses, we have released a blog covering the VAT Cash Accounting Scheme. The Scheme is available to some businesses and allows payment and recovery of VAT based on payments rather than invoices. This can be useful if customers are slow to pay and your business pays more VAT than it recovers. Read our coverage here.

Over the coming days we will be issuing more information on how VAT could impact on the changes to normal business practice during this time.


Court of Appeal

1. VAT Liability of Day-care Services

This case concerned the ongoing appeals of L.I.F.E Services Limited (LSL) and The Learning Centre Romford (LCR) relating to the provision of day-care services to vulnerable adults. Previously, the Upper Tribunal had held that supplies by both companies should attract VAT at the standard rate. The companies argued that their supplies were VAT exempt supplies of welfare. Our coverage of the previous judgment can be read here.

In the UK, welfare services are exempt from VAT when provided by either a charity or a state regulated welfare agency. Neither LCR nor LSL are charities, nor are they registered with the CQC. Having failed at the Upper Tribunal to contend that it was state regulated, LCR, along with LSL, advanced this appeal to the Court of Appeal based on the principle of fiscal neutrality.

LCR claimed that the VAT exemption infringed the principle of fiscal neutrality by imposing a differential VAT treatment between supplies made by two types of body: charities and private operators. However, the Court rejected this argument on the grounds that, in the eyes of consumers, welfare services provided by charities and private companies appear significantly different enough for the variance in VAT treatment to not infringe the principle of fiscal neutrality. LCR also mounted an argument based around the strict interpretation of the EU law which provides an exemption for bodies “…devoted to social wellbeing.” It alleged that the UK implementation was flawed as it allows exemption for charities which are not solely devoted to social wellbeing. This argument was rejected.

The final submission, which was mounted by both LCR and TLC, is that the English exemption infringes the principle of fiscal neutrality because of the differential treatment of providers of day care services in England and Wales on the one hand, and those in Scotland and Northern Ireland on the other. In Scotland and Northern Ireland, the provision of day-care services is a state regulated activity and supplies made by private companies are exempt.

The Court rejected this argument and agreed with the ruling offered by the Upper Tribunal that whilst there is a variance in VAT treatment between providers in different countries within the UK, the principle of fiscal neutrality was not infringed. The law was implemented uniformly across the UK and applied to both types of provider. The fact that the UK having devolved regulation of this sector has created the divergence, rationally and lawfully, does not mean that there is a distortion created within the VAT system.

The Court held in favour of HMRC, asserting that the services provided by both LCR and LSL were taxable at the standard rate of VAT.

Constable Comment: This decision upholds the Upper Tribunal’s judgment that VAT is chargeable on supplies of welfare services where the provider is not a charity or registered with the CQC. Being approved by the Local Authority and being required to DBS check staff were both held not to be sufficient to make a provider “state-regulated”.

To discuss the impact of this decision on your organisation, please contact Constable VAT, our charities experts will be pleased to assist.

First Tier Tribunal

2. HMRC Assessment: Made to “Best Judgment”?

In this appeal, the taxpayer, FW Services Ltd (FWS), appealed against HMRC best judgment assessments which were raised following an investigation into a petrol station operated by the appellant. HMRC alleged that FWS had underdeclared sales of fuel and assessed for £686,054 of VAT, relating to the periods 08/15 to 10/17.

HMRC conducted several visits to the petrol station where sales at the station were monitored and apportioned between diesel and unleaded petrol. There was a consistent skew in favour of diesel sales of around 80:20 which was not reflected in previously declared sales for the company which had shown a reasonably consistent 60:40 split. The HMRC Officer who conducted the investigations concluded that sales of diesel were being systematically underdeclared by FWS and concluded that the average throughput of diesel was 360 litres per hour. The Officer assessed based on the difference between FWS’s declared sales and the figure which he had extrapolated.

FWS claim that for the assessment to be correct in relation to the relevant period, it would have to have suppressed cash sales of over £5000 every day, amounting to over £4,000,000 received in cash in the period. It noted that in order for it to receive this much cash to suppress it would require the cooperation of the general public.

Further to this argument, it observed that HMRC only carried out inspections on Thursday mornings which did not give an accurate picture of the business as a whole throughout the entire period. Equally, it argued that HMRC failed to consider the shorter opening times on Saturdays and offered no explanation for assuming that sales on Sundays were exactly 50% of sales on weekdays.

The Tribunal observed that, in order to find that an assessment was not made to best judgment, it must find that HMRC’s assessment was a “… spurious estimate or guess in which all elements of judgment are missing; or is wholly unreasonable”. It found that as HMRC had no evidence for the volume of diesel sales during the evenings and weekends, an important element of its calculations was missing. It found that, in the absence of any evidence that FWS received an extra £5000 per day in cash through the period, the assessment was excessive and that it was, therefore, not made to best judgment. The Tribunal held in favour of the taxpayer and upheld the appeal.

Constable Comment: There have been several cases recently where HMRC assessments have been held to have not been made to best judgment. In this instance it seems reasonable to conclude that a small petrol station in Northern Ireland was not suppressing over £5000 in sales every day for three years. In the current climate, we have already seen indications that HMRC may have advised its staff to raise assessments immediately based on HMRC’s “best judgement” of the sums due rather than delay until a situation has been fully resolved and liabilities agreed. This means that clients with open enquiries/disputes may start to receive VAT assessments that are incorrect or inaccurate. If you receive an assessment in these circumstances please contact us.

3. Occupational Health: Exempt or Standard Rated Services?

This case concerned the VAT liability of “occupational health services”, RPS Health in Business Ltd argued that it was making standard rated supplies and HMRC contended that the supplies made were VAT exempt medical services.

Throughout the business’s negotiations with HMRC and in both party’s applications to the Tribunal, there was significant disagreement from both parties to the proceedings, as well as the Tribunal, around whether or not the issue of single/multiple supply should be considered. At different stages of the process, both parties changed their arguments on this point and the Tribunal necessarily debated with itself whether it was appropriate to rule on this point. Ultimately, it concluded that it could.

RPS provides occupational health services to businesses such as medicals, health surveillance, vaccinations, sickness absence management and drug/alcohol testing. It sometimes provides its clients with an Occupational Health (OH) practitioner, such as a doctor or nurse, who delivers a range of onsite, or mobile, services. For this service, RPS charges a fixed price. It also provides its customers with specific services on a bespoke basis.

The Tribunal considered that where one fixed price was paid for the delivery of all of the services in question, the supply was one, composite, VAT exempt supply of medical services. However, it observed that where RPS provides single supplies on a bespoke basis, whilst the majority of those services are exempt, some of them are standard rated such as medico-legal services and training courses. This ruling supports neither party’s submissions entirely but, substantially, the Tribunal agreed with HMRC and held the majority of RPS’s activities to be VAT exempt.

Constable Comment: This case supports the VAT treatment of general contracts for the provision of occupational health services as VAT exempt. However, it is useful in highlighting some specific services which are standard rated, when provided individually, despite falling under the umbrella of occupational health. The Tribunal observed that pre-employment medicals, pension scheme medicals, ergonomic assessments, laboratory services and administration charges are all standard rated.

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.