Constable VAT Focus 20 April 2023


Revenue and Customs Brief 12 (2021): VAT treatment of gaming machines from 6 December 2005 to 31 January 2013
RCB 12 (2021) was originally released in August 2021, explaining HMRC’s position after the decision of the First Tier Tribunal cases; The Rank Group Plc and 2016 G1 Ltd. In these cases, the FTT held that the operation of certain gaming machines should have been VAT exempt between 6 December 2005 and 31 January 2013. In the original Brief, HMRC confirmed it would repay overpaid VAT to businesses with valid claims. However, the Brief has now been updated to state that HMRC will not pay any claims relating to crane grab, coin pusher and penny fall machines as these were not held to be VAT exempt under the FTT cases and so no VAT repayments are due in relation to their operation.

VAT portal closure
The ATT has reported that HMRC is now contacting taxpayers who file annual VAT returns to confirm that the pre-MTD online VAT return portal is closing from 15 May 2023. The portal has already been closed for quarterly filers but was kept open for an extended period of time for those operating annual VAT accounting. From 15 May 2023, all VAT registered persons (subject to limited exceptions) must now submit their VAT returns using MTD compatible software.

Importing as freight
HMRC has recently updated the following guidance with information on how to claim relief if you are importing items as freight or in baggage:



1. Validity of option to tax

This case concerned the validity of an option to tax (OTT) made by Rolldeen Estates Ltd (REL) in respect of the Jubilee Business Centre (the Centre). REL opted to tax the Centre in February 2008 and consequently recovered input VAT incurred on repairs and maintenance of the building. The Centre was sold in 2015 but REL did not charge VAT. HMRC raised assessments for £50,000 relating to REL’s failure to charge VAT on the sale of the opted property.

REL argued that it made VAT exempt supplies of leases of the centre prior to making the option and therefore HMRC’s permission was required to opt to tax. No permission was requested or granted. REL argued that as a result the OTT was not effective and VAT was not due on the sale.

HMRC relied on the provisions in the VAT Act 1994 at Schedule 10, para 30, which allow HMRC to retrospectively dispense with the permission requirements and treat a ‘purported option as if it has been validly exercised’.

The first issue before the FTT was whether REL had the right to appeal against HMRC’s decision to rely on para 30. Whilst both REL and HMRC took the view there was a right to appeal, the FTT concluded there was no such right. The FTT set out that an appeal right exists where HMRC have refused to do something which a person has asked HMRC to do, however in this case HMRC have not refused to do anything, they have instead deemed the purported OTT to have effect. As a result, there was no right to appeal. However, the FTT went on to consider in the alternative, what the position would be if it was wrong, and REL did have a right to appeal.

The FTT stated that, even if REL had a right of appeal, it would be refused because REL’s situation is exactly what para 30 was designed to address. Both REL and HMRC operated on the basis that the OTT has been valid. If HMRC were prevented from retrospectively deeming the OTT effective, there would be a significant tax loss as REL was allowed to recover input VAT based on an effective OTT but did not pay output VAT on the sale arguing the OTT was not effective.

As a result of the above, the FTT concluded REL had ‘purportedly exercised’ the OTT and it was entirely reasonable and appropriate for HMRC to deem the OTT to have been validly exercised. The appeal was dismissed and the £50,000 assessment for the sale of the centre is valid.

Constable Comment: This case considered VAT Act 1994, Schedule 10, paragraph 30 which allows HMRC to retrospectively dispense the permission conditions for an option to tax. In practice, if VAT exempt supplies of a property have been made prior to the proposed date of an option to tax, HMRC’s permission is required before the option is effective. However, as this case confirms, if this requirement  is overlooked and both HMRC and a taxpayer operate on the basis that the OTT is effective (by recovering input VAT or charging VAT on supplies of the property) then HMRC is allowed, under paragraph 30, to dispense the permission rule.

Opting to tax a property involves complex VAT rules and it is important these are considered prior to making any option. It is always easier to address any potential VAT issues prior to making decisions regarding a transaction than to try to resolve errors afterwards. Constable VAT has relevant experience and would be pleased to assist with any option to tax or property related queries.

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.