Constable VAT Focus 23 July 2020


VAT Reduced Rate for Hospitality, Holiday Accommodation and Attractions
HMRC has updated its guidance on the temporary reduced rate to include a new section about Retail Schemes.

Amendment to VAT Refund Scheme
HMRC has released a new policy paper covering a measure which amends the VAT refund scheme to include S4C, the Welsh television provider, as an eligible body.

Changes to VAT Treatment of Overseas Goods Sold to Customers from 1 January 2021
This policy paper gives information on the changes to the VAT treatment of overseas goods sold to UK consumers which will take place after the end of the Brexit transition period.

Pay No Import Duty and VAT on Goods for Charity
HMRC has published new guidance discussing the VAT relief available to certain bodies importing goods for charitable use.

Pay No Customs Duty or VAT on Goods for Disabled People
HMRC has released new guidance covering the relief from customs duties and import VAT which is available to certain people and bodies importing goods specially designed or adapted to assist disabled people, including people who are blind or partially sighted.


We have recently released the second edition of our Land & Property Focus. This newsletter is intended for readers with an interest in the land and property sector and provides a summary of recent updates and significant judgments from the Tribunals and Courts which may be relevant to you or your business. The edition can be read in full here.

Currently we are seeking an apprentice or trainee VAT consultant to begin training in September 2020. More information can be found on our website. This is a great opportunity for someone looking for a career in tax and may suit a school or university leaver considering the accountancy or legal professions. If you would like to discuss career opportunities with Constable VAT, please contact us.



1. Are Lawyers “Taxable Persons”

This case concerned a Romanian dispute between UR, a Romanian law firm, and the domestic tax authority in Romania. UR made a request that it be removed from the Romanian register of taxable persons for VAT purposes and requested repayment of the VAT which it had paid previously, on the grounds that it is not a taxable person within the definition of EU law.

UR sought to rely on the legal doctrine of res judicata, which states that no person may be sued twice whilst acting in the same capacity, for the same cause of action, and with the same subject matter. Attached to this submission is a judgment from a Romanian court which stated that a taxpayer acting in a similar capacity to UR did not engage in an economic activity and so could not be considered a taxable person.

The Romanian court referred two questions to the CJEU, the first of which being whether lawyers are taxable people for the purposes of EU VAT law. The second question was whether the doctrine of res judicata is overridden by the primacy of EU law.

In response to the first question, the Court considered the EU law provisions around what constitutes a taxable person for VAT purposes. Article 9 of the Principal VAT Directive defines a taxable person as anyone who independently carries out an economic activity. It goes on to clarify that this includes persons supplying services, including “activities of the professions”. Therefore, it considered that lawyers are taxable persons for VAT purposes.

Considering the second issue, the Court observed that EU law does not require a Court to disapply domestic rules of procedure conferring finality on a judgment, even if to do so would make it possible to remedy a domestic situation which is incompatible with EU law. However, it commented that the doctrine of res judicata does not apply where the decision which UR seeks to rely on relates to different tax periods and different subject matter. It also observed that res judicata cannot reasonably apply to decisions where there is an error of law, such as that in the case being cited by UR which stated that lawyers are not taxable people.

The Court found against UR on both points, considering that it is a taxable person and it cannot rely on res judicata to positively gain a tax advantage as a result of a previous error in law.

Constable Comment: The contention that UR was not providing services was based on the idea that it was providing legal assistance to its clients and that the contracts were not for the provision of legal services – this was the case in previous caselaw which was cited. It sought to say that it could not be challenged on this position as a Court had already reached an identical ruling. However, the Court found in this instance that unless a decision relates to the exact same tax periods and subject matter, that res judicata does not apply. This is a complex and somewhat ethereal area of legal principle rather than VAT law, though readers with an interest in due process may wish to read the full judgment.

Court of Appeal

2. Northumbria NHS Trust: Salary Sacrifice and Cars

This appeal by HMRC concerned the Northumbria NHS Foundation Trust (the Trust). As part of a salary sacrifice scheme, the Trust provides some of its employees with motor cars. The issue is whether the Trust is entitled to a refund of the VAT which it incurs when acquiring these cars. The Upper Tribunal has previously held that it was entitled to such a deduction and our coverage of that judgment can be read here.

The Trust incurred VAT in respect of leased and maintained cars which it acquired for the purpose of providing to NHS employees under a salary sacrifice scheme. Under UK law, where cars are leased to employees under such a scheme, not for the purposes of the employer’s business, there is no supply of goods or services by virtue of the “De-Supply Order”. Whilst there is deemed to be no supply, UK legislation (s43 VATA) entitles the employer to recover input VAT in relation to such car schemes supplied by Government bodies such as the NHS.

HMRC argue that whilst by virtue of the De-Supply Order there is no supply, the concepts of “supply” and “economic activity” are distinct and that it is not a precondition of economic activity that a supply has taken place. To support this position, HMRC cited the case of Ghent Coal Terminal NV.

In this case, Ghent Coal Terminal purchased land for the purposes of its business and carried out improvement works. It was subsequently compelled to exchange the land for other land with the consequence that it never operated its business from the land that it had acquired. The Court ruled that it was entitled to recover the VAT incurred on the improvement works to the site even though no taxable supplies arose from the site as a taxable person, acting as such, is entitled to deduct the VAT incurred on expenses related to an intention to make taxable supplies.

The Court rejected this argument, noting that if VAT is incurred on goods or services which are intended to be used in activities which do not constitute supplies for VAT purposes, Ghent Coal is not relevant. Despite this, the Court continued to consider the suggestion that a supply is not a precondition of an economic activity. This is a point which had been considered by the Upper Tribunal, which concluded that whilst an activity which is not a supply is capable of supporting an overall economic activity, the provision of cars to NHS staff pursuant to a salary sacrifice scheme is not an economic activity.

Agreeing with the position of the Upper Tribunal, the Court held in favour of the Trust, upholding its right to recover 100% of the VAT it incurs on the provision of cars to its staff under a salary sacrifice scheme.

Constable Comment: This case considers the interesting idea that supplies do not need to arise in order for there to be an economic activity taking place. Conversely, it is important to consider the De-Supply order when operating salary sacrifice schemes. Organisations offering salary sacrifice schemes, especially those operating in the public sector, should consider if their VAT treatment of the benefits offered to employees is correct.

First Tier Tribunal

3. DIY Housebuilder Scheme: Are Houseboats “Buildings designed as dwellings”?

This case concerned Mr Edward Burrell’s claim for repayment of VAT incurred on the construction of a houseboat. He submitted a claim under the DIY Housebuilder scheme which HMRC denied on the grounds that a houseboat is not a building designed as a dwelling and is, therefore, not within the scope of the DIY Housebuilders VAT refund scheme.

Mr Burrell argued that the foundations of the construction project were built on land as was the structure of the boat. Concrete was added to the foundations and a crane was used to lift the concrete based houseboat into the river where it remains. This, he suggested, made it a concrete based home which is designed as a dwelling, in line with the planning permission he had received.

HMRC argued that the DIY scheme applies to “… the construction of a building designed as a dwelling or a number of dwellings…” and that this definition does not encompass houseboats as “building” is the operative word in the provision. Considering previous caselaw around houseboats, the Tribunal agreed with HMRC and observed that a houseboat is not a building within the usual sense of the word.

The Tribunal considered the planning permission which Mr Burrell had received which specifically stated that “No permanent structures or buildings placed on the land are permitted”. It found that the express prohibition in the planning permission on building permanent buildings was fatal to Mr Burrell’s argument and held in favour of HMRC.

Constable Comment: The DIY Scheme is a topic which is often seen in the Tribunals for a variety of reasons. However, what counts as a building for VAT purposes is not such a common issue. The Tribunal relied on the Oxford Dictionary’s definition of building – “A permanent fixed thing built for occupation, such as a house, school or factory”.  If you are wondering whether a building you are constructing, or have constructed, could be eligible for the scheme, please do not hesitate to get in touch with Constable VAT.

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.