Constable VAT Focus 23 June 2023


Revenue and Customs Brief 6 (2023): VAT liability of digital publications – Supreme Court decision in News Corp and Ireland Ltd
This newly released brief follows on from Revenue and Customs Brief 3 (2021) and gives an update on the VAT treatment of supplies of digital newspapers and other digital publications before 1 May 2020. Prior to this date, HMRC took the view that only physical newspapers were zero rated and all digital versions of newspapers should be standard rated.

News Corp has challenged HMRC’s policy and submitted claims for overpaid VAT on granting access to digital versions of publications. However, the Supreme Court dismissed this appeal by its decision released in February 2023. HMRC has now released this brief to confirm that supplies of digital publications before 1 May 2020 are standard rated.

This brief has no impact on the Government’s introduction of a new zero rate for supplies of certain digital publications, including e-newspapers, which came into effect from 1 May 2020.

Check if you need to report errors in your VAT Return
This newly published guidance can be used to check if taxpayers need to notify HMRC about errors that are over the error reporting threshold on VAT returns and find out how to report them using form VAT652. Taxpayers can enter the relevant figures (net error and turnover) and they will receive further guidance based on the figures provided.

VAT payment plan
Taxpayers can now set up a payment plan for VAT through the Government Gateway account where they are unable to pay the VAT owing and:

  • have filed the latest VAT return;
  • owe £20,000 or less;
  • are within 28 days of the payment deadline;
  • do not have any other payment plans or debts with HMRC; and
  • plan to pay the debt off within the next 6 months

HMRC have confirmed taxpayers will not be able to set up a VAT payment plan online if using the cash accounting or annual accounting scheme or are within the payments on account regime.

Updates on VAT appeals
The above link can be used to check the list of VAT appeals that HMRC has lost, or partly lost, that could have implications for other businesses. The list of VAT appeals that HMRC has lost and that may have implications for other businesses has been updated with 5 removals, 5 amendments and one new addition.

Fuel and power (VAT Notice 701/19)
The above guidance can be used to find out the correct VAT rate that should be charged on supplies of fuel and power. HMRC has recently amended section 4.1 with examples of minor impurities.

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. The list has been updated with 3 additions and 1 removal.



1. Input tax incurred on business activity?

This case concerned 3D, a community interest company (CIC) incorporated in March 2020. It was set up by a small group of volunteers to donate personal protection equipment (PPE) to NHS and care homes in response to the COVID 19 pandemic. However, the number of volunteers grew significantly into thousands of volunteers and over 200,000 articles of PPE were donated to the NHS. 3D incurred VAT on supplies made to it, including seeking CE certification, general overhead costs and materials. 3D sought to recover this VAT incurred however HMRC denied the claim.

Whilst HMRC was sympathetic towards 3D and was aware of the importance of their actions, HMRC denied the claim on the grounds that 3D did not carry out a business activity because the PPE was ultimately given away by 3D. Therefore the costs incurred cannot be said to have been incurred for any business activity.

3D argued that it had the intention of making taxable supplies of PPE however it was first required to obtain BSI accreditation in order to sell PPE as opposed to donate. Although it was not able to fulfil this intention, as the accreditation was delayed and other suppliers fulfilled the need for PPE, input VAT should be recoverable as the CIC had the intention of making taxable supplies in return for consideration.

The Tribunal first concluded that it was clear 3D had the intention of making taxable supplies in return for consideration as otherwise there was no benefit to incur the costs on getting BSI accreditation (BSI was not necessary in order to donate, but was a requirement to sell PPE). As a result, any VAT incurred on immediate cost of CE/BSI accreditation was incurred solely for intended business purposes and is recoverable as input tax in full.

Referring to relevant case law, the Tribunal concluded the fact that 3D did not fulfil its plans of taxable supplies does not, in the absence of fraud or abuse, impact its ability to recover input tax as an intending trader. However, at a certain point, 3D was aware that it would not be able to sell all of the PPE and knew some must be donated, therefore the business purpose was not the only purpose of 3D. As a result, the Tribunal concluded that VAT incurred on general overhead costs and materials will need to be apportioned to reflect the non-business activity of donating PPE.

Constable Comment: This case considered whether there was an intention by 3D to undertake a business activity supplying PPE and, if so, whether the VAT incurred by 3D was for the purpose of making those supplies in the future. It also considered whether it matters if those intended taxable supplies are never made.  Whilst HMRC made it clear that were sympathetic to 3D’s position and aware of this importance of 3D’s actions, they were bound by the legislation and unable to act outside of this. The case provides some useful detailed analysis on what constitutes a business activity applying various case law. Where there is ambiguity if VAT was incurred for business purposes, we would recommend seeking professional advise to reduce the risk of HMRC challenging the VAT treatment. Constable VAT has experience in this area and would be pleased to assist with any related queries.

2. Default surcharge: Reasonable excuse

This case concerned W.W.M.Rose & Sons Ltd (the appellant) appealing against a VAT default surcharge issued by HMRC. The appellant is a wholesaler of agricultural machinery, equipment and supplies. The payment for the 01/21 VAT return was made late and the appellant was issued a Surcharge Liability Notice (SLN) by HMRC. Subsequently, a payment for the 01/22 VAT return was also made late and HMRC issued a 2% surcharge.

The appellant argued that it had a reasonable excuse as it contacted HMRC on 10/03/2022 and agreed a time-to-pay (TTP) agreement. In addition, it argued that it was unable to pay the VAT as a result of a shortage of delivery equipment from supplying manufacturers. The appellant was unable to purchase equipment which would have offset the VAT due by recovering the input VAT incurred on the equipment.

The Tribunal found that even if a TTP was agreed, this was only requested on 10/03/2022 when the appellant first contacted HMRC and the statutory due date for payment of the 01/22 VAT return was 07/03/2022. The Tribunal stated the appellant would have been aware of this as a result of correspondence when it received the SLN for the 01/21 VAT period. As the TTP was not agreed prior to the due date, the appellant did not have a reasonable excuse for the late payment of the 01/22 VAT return.

With regards to cashflow problems as a result of equipment shortage, the Tribunal did not accept this as a reasonable excuse because the appellant had raised these concerns in the past for previous periods and it seems this issue is an ongoing hazard of trade for the appellant. The Tribunal found it reasonable to expect the appellant to have put measures in place to ensure compliance with its VAT obligations. As a result, the appellant did not have a reasonable excuse and the appeal was dismissed.

Constable Comment: Reasonable excuse is not defined in legislation and the Courts have to rely on case law and carefully consider the specific facts of each case. In this case the Tribunal confirmed that where an issue has been raised before and therefore can be considered ‘ongoing’, a reasonable taxpayer would put measures in place to avoid further defaults. This would include agreeing a TTP with HMRC prior to the due date for payment.

Whilst the above case provides some useful analysis on what constitutes a reasonable excuse, it is important to note that the default surcharge regime in the above case has been replaced by the New VAT Penalty regime which commenced from 1 January 2023. Constable VAT has released an article covering the new regime which can be read here.

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.