Constable VAT Focus 23 March 2023


Complete your VAT Return to account for import VAT
The above guidance has been updated and may be used to determine how to account for import VAT on a VAT return when using postponed VAT accounting. Information about what to do if there are specific entries missing from your statement has been added to the ‘how to complete a VAT return if you’re having problems with your monthly statements’ section.

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 2 amendments.


Constable VAT Budget Focus 2023

We have recently released our special Budget VAT Focus which covers the VAT elements of the 2023 Spring Budget announcement. Make sure to check our coverage here to see if your business is affected.


Upper Tribunal

1. Deliberate or careless error

This case concerned CPR Commercials Limited (CPR), a company which sold commercial vehicles to VAT registered customers based in Ireland. CPR treated these sales as zero rated exports. HMRC was not satisfied that CPR had provided sufficient evidence that goods supplied had been dispatched/exported outside of the UK. HMRC assessed CPR for VAT of £98,820 and penalties of £58,340. The penalty assessments were issued on the ground that CPR’s VAT returns contained inaccuracies in that they treated supplies as zero-rated when CPR did not hold evidence it knew it required to support zero-rating of those supplies. HMRC calculated the penalties on the basis that  the inaccuracies were deliberate.

CPR appealed to the FTT against the assessment and penalties. The FTT found that CPR had not obtained and retained appropriate evidence of export to support zero-rating of the supplies and that CPR should, therefore, have charged and accounted for VAT at the standard rate on those supplies. In relation to the penalties, the FTT found that the behaviour of CPR was deliberate as the returns has been submitted when CPR was at least reckless as to whether it had the required evidence to zero rate.

CPR appealed to the Upper Tribunal (UT) only regarding the deliberate penalty. It argued that the FTT erred because it did not find that CPR had subjective knowledge that the VAT returns were inaccurate. CPR argued that anything short of actual knowledge, including recklessness, is not sufficient to support a finding of deliberate behaviour.

HMRC submitted that the FTT’s findings of fact were that CPR had actual or, at the very least, blind-eye knowledge that the returns submitted contained inaccuracies. Accordingly, the FTT did not err in dismissing CPR’s appeal and confirming the deliberate penalties.

However, the UT stated that the conclusion that CPR was “at least reckless” is not a finding that CPR had actual or blind eye knowledge of any error in the VAT returns and therefore concluded that the FTT’s findings of fact do not support a conclusion that the inaccuracies in CPR’s VAT returns were deliberate. The Tribunal replaced the deliberate penalty with a careless penalty classification.

Constable Comment: The UT found that the FTT made an error on a point of law to conclude that the error was deliberate. As a result, the UT re-made the decision, and ruled that CPR is liable to a penalty for failure to take reasonable care (careless error) attracting a lower percentage for calculating the penalty due.


2. Admission to attraction: Driving experiences

This case considered whether the supplies made by The Young Driver Training Limited (the appellant) were subject to VAT at the temporary reduced rate introduced in response to the Covid-19 pandemic. The appellant provides driving experiences for 4 to 17 year olds including 2 seater miniature electric cars, as well as conventional cars, classic cars and a fire engine. The experience takes place at a fenced off private land.

The appellant argued that the experiences cannot be classified as ‘real’ driving lessons as the children are not aged 17 years old, they have not taken the driving theory test and are ineligible to take the practical driving test. The experiences are bought for reasons of entertainment and fun and therefore the appellant is in the amusement and attractions industry in the same way as theme parks, amusement parks, funfairs and circuses. As a result, the appellant took the view the supply fell under ‘admission to attractions’ which was temporarily reduce rated.

HMRC disagreed, stating that the appellant’s supplies are not “rights of admission” and, even if they are, they are not rights of admission falling within Group 16.

The FTT accepted that the appellant’s supply includes admission to the fenced off area, however, the supply comprises considerably more than a “right of admission” when one looks to the plain and ordinary meaning of the wording. The supply includes not only a “right of admission” to the fenced off area but also the use of a vehicle, driving tuition and supervision. What is being supplied is a package of benefits over and above a right of admission to the fenced off area.

In addition, the FTT also concluded that the experience is not an event or venue specified in Group 16 or an event or facility of sufficient similarity. As a result, the FTT concluded the supplies were not rights of admission to an event that fell under the temporary reduced rating.

Constable Comment: This case considered the temporary reduced rating for admission to certain events. The Tribunal concluded that driving experiences extend beyond a right to admission as the supply comprises considerably more than that. As a result, the appeal was dismissed and the appellant was required to account for VAT at standard rate.

3. Retrospective Bad Debt Relief claim

This case concerned Allegion (UK) Limited (AUL), appealing to the FTT against HMRC’s decision to refuse AUL’s claim for retrospective VAT bad debt relief (BDR) dating back from 1989 to 1997. In the relevant period, AUL made supplies of security systems, products and services for domestic and commercial premises. Following litigation, it had previously been decided that the historic conditions for BDR were disproportionate thus claims could be made in the period referenced not subject to time capping. However, HMRC refused the claim on the grounds that AUL could not satisfy the evidential requirements for a valid BDR claim.

AUL argued that its standard contracts included a retention of title (RoT) clause which prevented a BDR claim in cases where goods were repossessed pursuant to the RoT clause. AUL stated that the recovery was prevented by non-compliant UK law, and confirmed that no previous recovery of BDR has been made except in certain specific circumstances. The previous incorrect HMRC property condition requirements around RoT were ruled disproportionate in GMAK UK Plc [2017] STC 1247 thus not a barrier to BDR.

HMRC argued, and the Tribunal agreed that the RoT clause would not have prevented AUL from claiming BDR. In addition, the FTT found more likely than not that AUL’s terms and conditions did not contain a RoT clause. They reached this conclusion based on a lack of evidence, as the earliest terms and conditions located by AUL was dated 2000 which post dated the relevant period.

The FTT concluded that AUL did not discharge the burden of proof to demonstrate that the conditions for a valid BDR claim were satisfied. In addition, the only evidence the FTT could rely on confirmed that AUL had previously claimed BDR and used debt factoring. As a result, the appeal was dismissed.

Constable Comment: VAT law and HMRC’s guidance on BDR at the time stipulated that relief is not available where retention of title clauses were present in the contracts, AUL argued this was the case. However, in a previous case, Saint Gobain, the appellant tried to argue the same but the FTT and UT dismissed stating that there was no evidence to show that previous claims for the period have not been made.

In addition, in that case, the FTT stated that where building materials had been incorporated into various buildings, the retention of title clauses were rendered irrelevant. In the case of AUL, the FTT followed this case closely stating it was similar, therefore applied the same reasoning and concluded that the RoT clauses, even if there was evidence they were present, would have not prevented AUL from making a valid BDR claim.


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 and there may be occasions where they have a more binding effect.

4. VAT liability of car parts sold by insurer

This case concerned Generali Seguros SA (GS), an insurance undertaking which, in the course of its business, purchases vehicle parts from written-off motor vehicles damaged in accidents involving the persons whom it insures and subsequently sells them to third parties, without accounting for VAT on those sales.

The Portuguese tax authorities took the view that the sale of car parts is subject to VAT and therefore raised assessments. However, GS argued that its supplies were VAT exempt on various grounds. The following questions were referred to the CJEU:

  • Must Article 135(1)(a) be interpreted as meaning that ‘insurance and reinsurance transactions’ include related or supplementary activities such as sale of parts from written off motor vehicles?
  • Must Article 136(a) be interpreted as meaning that parts from written off motor vehicles are regarded as being purchased and sold solely for an exempt activity, where those goods have not given rise to the right to deduction of VAT?
  • Is it contrary to the principle of VAT neutrality for the sale of parts from written-off motor vehicles by insurance companies not to be exempt from VAT where there was no right to deduction of VAT?’

With regards to the first question, the CJEU highlighted  that the value of the parts constitutes the residual value, after the accident, of the insured vehicle and is therefore not part of the damage suffered by the insured person. Consequently, that price does not form part of the insurance compensation itself, and is paid to the insured person under a contract of sale separate from the insurance agreement and separable from it. As a result, it was concluded that the sale of parts by the insurer does not fall within Article 135(1)(a).

With regards to the second question, the CJEU concluded that sale of parts will not be exempt under Article 136(a) as GS had no intention of using the parts in the course of its insurance business, but rather intended to sell them in an unaltered state.

To conclude the CJEU stated that that principle of neutrality cannot extend the scope of an exemption in the absence of clear wording to that effect. That principle is not a rule of primary law which can condition the validity of an exemption, but a principle of interpretation, to be applied concurrently with the principle of strict interpretation of exemptions. It was therefore concluded that the exclusion of the transactions above from VAT exemption is not contrary to the principal of fiscal neutrality.

Constable Comment: In this case the CJEU has ruled that the sale of car parts from written off motor vehicles, purchased from insured individuals, by the insurer cannot be VAT exempt. Whilst this is not binding on UK businesses, there are similar provisions in the UK. More generally, the UK also has complex VAT rules around insurance, and it is recommended to seek professional advice if there is any ambiguity regarding insurance related supplies.

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.