Constable VAT Focus 21 April 2022


Energy-saving materials and heating equipment (VAT Notice 708/6)
The above guidance sets out how to account for VAT for contractors or subcontractors when installing energy saving materials and grant funded heating equipment. It has recently been updated with information about legislative changes effective from 1 April 2022 to include guidance on when the zero, reduced and standard rates apply to the installation of energy saving materials in Great Britain and Northern Ireland.

Get your postponed import VAT statement
Information about how to access statements older than 6 months old has been temporarily removed due to a technical issue with older statements not being available automatically. An alternative method for accessing statements older than 6 months will be published soon.

RCB 7 2022 Repayment of VAT on imports of dental prostheses
The government announced at Autumn Budget 2021, that the import of dental prostheses would be exempt from VAT if the prostheses are imported on behalf of or by registered:

  • dentists
  • dental care professionals

Importers who fell within that description can now retrospectively reclaim overpaid VAT from 1 January 2021.

This brief explains how businesses can claim a repayment of any overpaid import VAT on imports made between 1 January 2021 and 27 October 2021


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. Place of supply of services and fixed establishment

The dispute in this case was between Berlin Chemie A. Menarini SRL (‘BC Romania’) and the Romanian tax authorities. BC Romania is a subsidiary of Berlin Chemie AG (‘BC Germany’) which was the sole shareholder. BC Romania had a contract to actively promote the products of BC Germany (its only customer) in Romania through marketing activities.  BC Romania made charges to BC Germany for its services and did not charge Romanian VAT as BC Germany had no Romanian fixed establishment and the services were treated as outside the scope of Romanian VAT.

The Romanian tax authorities took the view that BC Germany had a fixed establishment in Romania as a result of its ownership of BC Romania, which the taxpayer disputed.  If this were the case BC Romania would have to add Romanian VAT to its charges. The question referred to the CJEU was whether it is necessary for the human and technical resources employed by a company in that Member State, to belong to it, or is it sufficient for the company to have immediate and permanent access to such human and technical resources through another affiliated company which it controls.

The CJEU confirmed that the legal provisions do not provide any detail as to whether human and technical resources must belong to a company in order for a fixed establishment to arise. However, it highlighted that a fixed establishment required a sufficient degree of permanence and a suitable structure in terms of technical and human resources. The classification of a fixed establishment cannot depend solely on the legal status of the entity, meaning that merely owning a subsidiary does not create a fixed establishment.

The CJEU stated that it is assumed a company would use the technical and human resources at its disposal for its own needs. In the absence of contractual provisions allowing the German company to use the technical and human resources of the Romanian company as if they were owned by the German company, the Germany company does not have a fixed establishment in Romania.

The CJEU concluded that a company which has its registered office in one Member State does not have a fixed establishment in another Member State where it owns a subsidiary there that makes available to it human and technical resources under contracts by means of which that subsidiary provides, exclusively to it, marketing, regulatory, advertising and representation services that are capable of having a direct influence on the volume of its sales.

Constable Comment: This case considered whether a subsidiary of a company could create a fixed establishment for that company in another Member State. Had the court decided that it did this would have had implications for companies receiving cross border supplies from subsidiary companies and could have led to more businesses having fixed establishments in other EU locations.  This would impact on the place of supply of services and the VAT treatment. Where a business makes cross border supplies of goods or services, we would recommend seeking professional advice to ensure the correct place of supply rules are followed, including fixed establishment implications.

First Tier Tax Tribunal

2. Dishonest Input VAT deductions

This case concerned HMRC’s refusal of Grantham Ceilings and Interiors Ltd’s (GC’s) claim for recovery of input tax of £268,429 incurred on supplies received from an associated company, Grantham Holdings Limited (Holdings).  GC and Holdings had common directors. Holdings charged GC a management fee for the provision of services, which was subject to VAT. GC claimed the VAT charged as input VAT, but Holdings went into liquidation after less than a year and did not pay output VAT due to HMRC.

HMRC denied the input tax claim by GC on the grounds that either GC exercised the right to deduct for fraudulent or abusive ends, or the transactions were connected with fraudulent evasion of VAT and GC knew or should have known that this was the case.

GC appealed HMRC’s decision on the following grounds:

  • Holdings was established in order to manage and implement a new payment bonus scheme, there was no intention to use the company for fraud or abusive ends,
  • Where GC has not paid Holdings in full, bad debt relief provisions were applied and the liquidator of Holdings is pursuing GC for settlement of the outstanding amounts as a debtor,
  • At the time of supplies made by Holdings to GC it was not known that, due to a serious problem with the contracts being undertaken by GC, substantial cash flow issues would occur. Therefore, GC could not have reasonable known that the commercial issues of one contract would cause the liquidation of Holdings. The facts did not involve fraud but unfortunate commercial pressures.

HMRC argued that the input tax claims were fraudulent and the companies’ common directors would have known that Holdings would not account for output VAT due on the management fees charged to GC.

The Tribunal reviewed the evidence presented to them and concluded that GC made the VAT reclaim knowing that Holdings would not account for the output VAT to HMRC, which was considered dishonest. The Tribunal recognised that GC was facing real commercial and financial pressures but despite advice to do so, it failed to take the open and honest course of contacting HMRC to explain the problems faces. The appeal was therefore dismissed and GC is not entitled to the input tax claimed.

Constable Comment: This case highlights the importance of VAT compliance. If a taxpayer knew or should have known they were involved with fraudulent transactions, HMRC can deny input tax claims and penalties may also arise.  We always recommend, as established in this case, that businesses take an open and honest approach in dealing with HMRC seeking professional advice and contacting HMRC to discuss any VAT issues in order to minimise the risk of VAT liabilities and penalties.

3. VAT on take-away food and drink

Mangio Ltd (Mangio) sells hot and cold food and drink both for take-away and for consumption at a small number of seats on its premises

HMRC raised a ‘best judgement’ assessment of £18,063 on the basis that it did not accept Mangio’s breakdown of sales between standard rated items, such as hot food, and zero rated items including cold take away foods. Mangio appealed arguing that the assessment was too high and it should be £8,096.

Take away businesses need to be able to distinguish between different items sold as they may attract different VAT liabilities. Mangio’s till system did not distinguish between customers eating in the shop (giving rise to standard rated supplies) and zero-rated sales such as cold take away food.  HMRC identified the following errors leading to the assessment:

  • Eat in sales were not recorded and as a result cold food consumed on premises was incorrectly zero rated.
  • Toasted sandwiches (which should have been standard rated as hot food) were recorded as cold food and were zero rated.
  • All orders for delivery were zero rated despite the sales involving cold and hot food.
  • Pasta meals with salad and bread were considered a single supply for VAT purposes and subject to standard rate VAT.

The Officer’s best judgment assessment was calculated by selecting five days, analysing the sales data and working out the standard rated sales, as a proportion of overall sales during that period. HMRC found that 82% of the sales were standard rated and the percentage was applied to the periods in dispute to calculate the VAT due.

Mangio argued that best judgement had not been used as the business had expanded substantially since the period considered and the calculation did not take into consideration factors such as weather conditions.

The Tribunal considered the assessment and upheld that it was made to best judgment and there was no suggestion of any wrongdoing by HMRC. The assessment was not arbitrary in nature, the test days considered were within the relevant periods and there was no evidence submitted from Mangio on the ratio of standard to zero rated sales applied.

The Tribunal also stated that whilst it was accepted that the business underwent considerable expansions during the relevant periods, Mangio’s analysis does not reveal a change in the ratio of standard to zero rated sales which could affect the assessment. Therefore, the appeal was dismissed.

Constable Comment: This case highlights the importance of correctly identifying the VAT liability of supplies where this is complex, such as in the case of supplies of food where VAT treatment may vary depending on whether the items are for take-away or are consumed on the premises. Errors can lead to VAT liabilities and potential penalties. If your business supplies food or catering services you should ensure that your accounting processes are robust and can support the VAT treatment of supplies made. Constable VAT are happy to provide assistance in both determining the VAT liability of supplies and advice on calculating the amount of VAT due.

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.