Constable VAT Focus 2 May 2024


Revenue and Customs Brief 4 (2024): Interpretation of VAT and excise law from 1 January 2024
This newly published brief explains how VAT and excise legislation should be interpreted in light of the Retained EU Law (Revocation and Reform) Act 2023 and the bespoke solution introduced for VAT and excise in Finance Act 2024. It confirms that HMRC policy for VAT and excise is unchanged. Section 28, Finance Act 2024 means that UK VAT and excise legislation will continue to be interpreted in the same way as it was before 1 January 2024. However, businesses will no longer be able to rely on the ‘direct effect’ of EU law. It will no longer be possible for any part of UK legislation to be quashed or disapplied on the basis that it’s incompatible with EU law, as UK law is now supreme.

Revenue and Customs Brief 5 (2024): Tour Operators’ Margin Scheme for business to business (B2B) wholesale supplies
This brief clarifies HMRC’s technical position on the inclusion of business to business (B2B) wholesale supplies within the Tour Operators’ Margin Scheme (TOMS). Under the TOMS, tour operators cannot recover any VAT on the services they buy in, but only account for VAT on their profit margin. HMRC’s policy provides tour operators with a choice of whether to apply the TOMS to B2B wholesale supplies. This policy remains unchanged.

Form (VAT 484) – Changes to bank details
HMRC has recently been made aware of a small number of cases where the form VAT 484 has been wrongly used in an attempt to gain access to business’s VAT repayments. HMRC intends to put in place solutions to minimise any further cases and will also take action to address existing cases, including contacting businesses to confirm changes made to their details since January 2024.

VAT refunds for new builds if you’re a DIY housebuilder
HMRC has updated the above guidance to include an invoice schedule template and information in relation to using an agent when making a DIY housebuilders claim.

Manage your import duties and VAT accounts
This newly published guidance can be used to obtain import VAT statements and certificates, manage payment accounts, and manage or view authorities all in one place.

Fulfilment House Due Diligence Scheme registered businesses list
This guidance can be used to check if businesses storing goods in the UK are registered with the Fulfilment House Due Diligence Scheme and details four additions.


Upper Tribunal

1. Zero rated food items: Mega Marshmallows

HMRC appealed the decision of the First-tier Tribunal (FTT), which held that the Mega Marshmallows supplied by Innovative Bites Limited are not standard rated ‘confectionery’ but a zero rated food item. The FTT reached this conclusion following a  multi-factorial assessment and our summary of the decision can be read here.

HMRC’s primary argument  before the Upper Tribunal (UT) was that Note 5 of Group 1, Schedule 8, VATA 1994 which states that, ““confectionery” includes chocolates, sweets and biscuits; drained, glace or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers”, is a deeming provision, meaning anything within Note 5 is automatically deemed to be confectionery and that is the end of the matter, there is no requirement for a multi-factorial assessment.

However, the Upper Tribunal (UT) identified inconsistencies within HMRC’s arguments and concluded that Note 5 cannot be a deemed provision. The UT confirmed that even if an item falls within Note 5, if there are other relevant factors then a multi-factorial assessment is required to determine if a product is confectionery.

Given the above, the UT considered the FTT’s multi-factorial assessment and concluded that there was no material error of law in the FTT’s analysis of the evidence and the weight it afforded to the evidence.  As a result, the decision was upheld.

Constable Comment: This decision provides further case law in relation to what is considered ‘confectionery’ and how the relevant legislation should be interpreted. We have recently seen many cases where the VAT liability of food items is challenged by HMRC. In cases where the VAT treatment is ambiguous, businesses should seek professional advice to ensure the correct VAT treatment is established. Constable VAT has relevant experience in dealing with zero rated food items and would be pleased to assist.


2. Sale by auction of pledged goods

This case concerned CUCP, a Portuguese company making VAT exempt supplies of loans guaranteed against moveable property. When borrowers failed to reclaim the pledged goods or were late by more than three months in reimbursing the amount borrowed or paying the relevant interest, CUCP would hold an auction sale in respect of the goods. CUCP earned a commission on the sales and treated this commission as VAT exempt, forming part of a single VAT exempt supply of granting credit. The local tax authority disagreed taking the view the sales commission is subject to VAT and raised assessments accordingly.

The referring court asked whether the supplies relating to the organisation of a sale by auction of pledged goods are ancillary to the principal supply of granting credit, so that it shares the same VAT treatment as the principal supply, i.e. VAT exempt.

After considering the appropriate case law in relation to single and multiple supplies, the CJEU confirmed that the supplies, being the sale commission and granting of credit, do not depend either substantively or procedurally on one another. The sale by auction of pledged goods has a distinct purpose compared to the granting of a loan, and this was not merely the means of better enjoying the supply relating to the granting of that loan, but an end in itself. As a result, the CJEU concluded that the sale commission cannot be ancillary to granting of the loan, and therefore cannot share the same tax treatment.

Constable Comment: Whilst this case considers a Portuguese company and this decision is no longer binding in the UK, the case law in relation to single and multiple supplies, and the interpretation of it, continues to be used by UK Courts in determining whether a supply is a single or multiple supply, therefore the CJEU’s analysis in this case will be of interest to all those involved with VAT in the UK.

CJEU Advocate General

3. Supplies made via EV charging points

Digital Charging Solutions (DCS) is a business established in Germany with no fixed establishment in Sweden. DCS supplies electric vehicle (EV) users in Sweden with access to a network of charging points. Via that network, users receive real-time information on prices, location and availability of charging points, in addition, to functions for locating charging points and route planning. The charging points on the network are not operated by DCS but by charge-point operators (CPOs) with which DCS has entered into contracts. DCS provides EV users with a card and an application for authentication to enable them to charge their vehicles at the charging points. When the card or application is used, the charging session is registered with a CPO, which then invoices DCS for that session. Invoicing takes place on a monthly basis at the end of each calendar month.

The Swedish tax authority issued a ruling that the supply made by DCS constituted a single supply of electricity, taking place in Sweden, with the network access provided by DCS considered ancillary.

In this opinion, Advocate General Ćapeta was required to consider the following questions:

‘(1)      Does a supply to the user of an [EV] consisting of the charging of the vehicle at a charging point constitute a supply of goods under [Article] 14(1) and [Article] 15(1) of the VAT Directive?

(2)      If the answer to Question 1 is in the affirmative, is such a supply then to be deemed to be present at all stages of a chain of transactions which include an intermediary company, where the chain of transactions is accompanied by a contract at every stage, but only the user of the vehicle has the right to decide on matters such as quantity, time of purchase and charging location, as well as how the electricity is to be used?’

The Advocate General considered three possible options to classify the supplies made by DCS:

  1. the credit provision model (based on the case law of the CJEU in the Auto Lease Holland and Vega International cases concerning the VAT treatment of transactions related to fuel cards);
  2. the purchase-sale model (whereby the transactions are considered successive sales within a single chain of supplies); and
  3. the commissionaire model (involving a commissionaire acting as an intermediary between the CPO and the card or app user).

The Advocate General concluded that the commissionaire is the most suitable VAT treatment as it better aligns with the contractual arrangements and the role of the parties involved. For this model to apply there must be an agreement for the commissionaire to act on behalf of the principal in relation to the supply of the goods, and the goods received by the commissionaire must be identical to those sold to the principal. Alternatively, if the two conditions are not met, the supply of electricity to the user should be considered to be made by the company which provides access to a network of charging points to users.

Constable Comment: Whilst this is the opinion of the Advocate General and does not necessarily mean that the Court of Justice will agree, the opinion provides an interesting and detailed analysis of the possible ways the relationships involved could be characterised for VAT purposes.

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.