Constable VAT Focus 23 September 2021


VAT on movements of goods between Northern Ireland and the EU
HMRC has recently updated its guidance with additional information in section 6 to reflect the changes to the VAT treatment of distance selling between Northern Ireland and the EU, including the One Stop Shop (OSS). The OSS enables a business to submit a single quarterly VAT return for all their sales to the EU through an online portal. This avoids businesses having to register for VAT in each member state in which they make supplies.

If you or your business, make supplies to customers in EU member states, we recommend you seek advice to ensure the correct and most efficient VAT treatment, Constable VAT will be happy to assist with any related queries.

Accounting for import VAT on the VAT return
HMRC has identified a problem where imports are not being allocated to the correct monthly VAT Postponed VAT Accounting statements and they are seeking a solution to the problem. In the meantime, their recently updated guidance, states that businesses have the following two options:

  • They can use the figures on their import VAT statement to complete their VAT return
  • If they can identify the affected entries, they can reallocate them to the correct monthly statement and use these figures to complete their VAT return.

Care should be taken to avoid duplicate entries.

HMRC training

HMRC has been publicising the following training designed to raise awareness of upcoming customs webinars and CDS training. HMRC’s information on this training is reproduced below and may be helpful to readers newly involved in the process of import declarations.

HMRC Webinars – How to make a delayed import supplementary declaration using CHIEF

HMRC has recorded a webinar on making supplementary declarations that has been uploaded to YouTube at the following link: How to make a delayed import supplementary declaration using CHIEF – YouTube

HMRC – Taxpayer Training for the new Customs Declaration Service (CDS) system for importers/exporters

As you will no doubt be aware HMRC’s new Customs Declaration Service (CDS) is live and we require businesses to migrate away from CHIEF and to the new service as soon as possible. However, HMRC fully recognises that the move to the new service brings with new and a different set of declaration completion rules as dictated by the Union Customs Code (UCC) which came into effect in 2016. HMRC are also aware that businesses are finding this challenging.

The Training Offer – With that in mind we have developed a comprehensive online training-package which we would like to offer you to help with your readiness to migrate. It consists of a number of modules designed to explain how the new Customs Tariff should be used to ensure you have access to the information you need to correctly complete your declaration.

Course detail – The modules (listed in the attached document) will provide practical steps to allow you to determine the correct customs procedure codes to be used as well as the specific data elements, additional information codes and document codes required in specific scenarios. The course will also provide step by step declaration completion examples based on the guidance and is supported by manual workbooks and content to support the learning. All sessions will also be recorded for future reference.

Course length and attendee requirements – The duration of the full course will be five full days, spread over the course of five weeks; attendees must commit to attending all five training sessions. The training is in a ‘train-the-trainer’ format, which will allow you to send your own trainers, compliance officers, or managers and subsequently cascade the learning within your business. As such, attendees require a base level of customs knowledge.

Course dates – Sessions run online from 9-5, will begin on 12th October, and will take place every Tuesday for a further four weeks. We reserve the right to limit or refuse places.

How to apply – We ask that you or your members express interest by forwarding the below information to  by 17th September so that we can review uptake and reply to those that have registered interest with further details and joining instructions.

OrganisationPrimary Contact NameJob TitleEmail AddressNumber of spaces requested


Autumn Budget 2021

The Chancellor has recently announced that the Autumn Budget will be on 27 October 2021. The government spending plans are to be set out at the Spending Review along with the Autumn Budget.


Option To Tax (OTT)

Constable VAT has recently been in contact with HMRC’s option to tax team and they have stated that they are currently working towards a target of 120 working days to process an OTT notification. Furthermore, individual HMRC officers have advised that they have been told of delays of up to 6 months.  This is a significant amount of time, something that you or your business should take into consideration when notifying an option to tax.  In particular it is important to retain evidence of the submission of the option to show prospective tenants and buyers of a property, in the absence of a formal acknowledgment from HMRC. Constable VAT has experience with dealing with OTT applications and would be happy to assist in cases of difficulty.


Upper Tribunal

1. Disallowing Input tax

Babylon initially appealed to the FTT against HMRC’s decision to disallow 2 input tax claims totalling £19,760.50 and reduce Babylon’s input VAT claim in the relevant period to nil. The basis for denying the input tax claim was that HMRC did not consider that Babylon carried on a business for VAT purposes in that period. Babylon claimed that it was carrying on a business, comprising the activity of selling hay to the co-owner and director of Babylon (Mr McLaughlin). The claims for input tax in the period arose mainly from costs incurred in building a new barn to replace outbuildings which it had sold and which was to be used to store equipment used in carrying out haymaking activities. Babylon also challenged HMRC’s decision to deregister Babylon for VAT on the basis that it business.

The FTT concluded that the appellant’s activities during the relevant period were confined to haymaking and the sale of buildings and these activities had not been conducted on a basis that followed sound and recognised business principles or on a basis that was predominantly concerned with the making of taxable supplies for consideration. Therefore, the appellant was not operating as a business during the relevant period. Babylon appealed these findings and although the UT set aside some of the FTT findings on the basis that the FTT had erred in its approach, it agreed that Babylon was not carrying on an economic activity during the relevant period. This conclusion was reached for a number of reasons:

(1) Babylon’s activity was not being conducted in a regular manner and on sound and recognised principles. There was no evidence of the commercial basis on which the appellant was able to carry out the cutting of the hay or any other activity on Mr and Mrs McLaughlin’s land.

(2) there was no direct link between Babylon’s activities and the income which it received, Mr McLaughin was Babylon’s only customer. There was also no evidence that it made any efforts to obtain other customers. Babylon’s income was not determined by the value of Babylon’s supplies, or by reference to Babylon’s business costs.

(3) the profitability of the appellant’s hay making activities were entirely dependent on Mr McLaughlin’s subjective judgement as to where costs and revenue should be allocated between his various activities.

(4) Babylon raised no invoices for payment and no payment for the hay was made for a number of years, there was no evidence that Babylon maintained any insurance in respect of its activities and Babylon had only one customer, with its income during the relevant period being only £440 per annum. This lead to the conclusion that Babylon’s activities were not carried out for the purposes of obtaining income.

In conclusion, the UT agreed with the FTT decision that Babylon was not carrying on an economic activity during the relevant period and the appeal was dismissed.

First Tier Tribunal

2. VAT exempt or zero rate: reconstruction of a residential listed building.

This case concerns Richmond Hills Developments (Jersey) LTD, (RHD). RHD has purchased a listed building called The Royal Star and Garter Home (RSGH) in 2013 with a view to converting the building into 86 residential units (flats) which would be sold. The issue in the appeal was whether the onward supply of the flats was zero rated or VAT exempt. If zero rated, RHD would be able to recover all the input tax incurred on the conversion works, however if the input VAT related to a VAT exempt supply, it could not.

RSGH was originally constructed in 1920 and was used as nursing facilities for servicemen returning from war and was sold to RHD in 2013. Prior to conversion the building consisted of five storeys on some parts and up to 9 storeys on other parts, with space for some 60 rooms on each floor. Post conversion the building consisted of 86 self-contained residential units. The works were substantial; they took over two and half years and cost £95 million plus VAT.

Schedule 8 Group 6 Item 1 of VATA 1994 allows the first grant by a person ‘substantially reconstructing’ a protected building, of a major interest in, or in any part of, the building or its site to be zero rated. It was evident in this case that the reconstruction was substantial, the issue was related to Note 4 of item 1 which states that a protected building is not to be regarded as substantially reconstructed for the purposes of zero-rating unless the reconstructed building incorporated no more of the original building than the external walls, together other external features of architectural or historic interest.

During the reconstruction, as part of the planning consents, RHD left the walls and roofs intact but also retained some internal features including a chapel, a marble staircase, majority of reinforced concrete floor slabs and the chimney stacks. HMRC’s argument was that the retention of those parts of the existing building deprived RHD of the benefit of zero rating under Note 4.

In response to HMRC, RHD argued that the provisions of Note 4 permit the retention of those internal features which forms part of the external walls, or are structurally necessary to provide them. They stated that “external walls “cannot just mean the external skin of the building because there is an interior element to any wall. Something which is a component of an external wall, and in particular is necessary for its stability, is part of the wall.

The Tribunal stated that they agree with RHD on that “external walls” does not mean only the outside skin of the wall. They accept that foundations of a wall and a buttress are properly regarded as part of a wall, however floor slabs are different because they t also provides floors to walk and place objects on. For that reason, the Tribunal stated the retained floor slabs were not part of walls. They reached the same conclusion on all items retained meaning that the building is not substantially reconstructed.

In case the Tribunal was wrong to conclude that the parts retained were not part of the of the external wall or features it considered whether the other retained features, such as the staircase, could be ignored as de minimis in determining if Note 4 is satisfied. RHD stated that in the context of the extraordinary scale of the works the retained items were de minims and should be ignored as they are only a handful of items, each of which was only a small fraction of the building.

The Tribunal responded that even when considering the scale of the whole building, the retention of the original marble lined grand entrance and staircase and the passage to the formal garden were three significant features of the building both before and after the construction and on that ground, it found that the de minimis exemption would not apply.

For those reasons the Tribunal concluded that on domestic construction of Note 4 the reconstruction works were not a substantial reconstruction, therefore the onward sale of the flats was not zero rated but exempt, meaning that input tax incurred on the conversion was not recoverable.

Constable Comment: This case highlights the fact that the legislation around buildings and construction can be quite complex and not following the guidelines could result in additional, unexpected, VAT liabilities. Constable VAT has experience in dealing with land and property transactions and will be able to assist with your queries.

3. VAT Exemption – philosophical, philanthropic or civic nature

This case involved United Grand Lodge of England (UGLE), the governing body for the majority of Freemasons in England and Wales. UGLE charges VAT on their membership fees to Freemasons, but made two claims for the repayment of £2.38 million VAT accounted for in VAT periods 06/10 – 03/18 on the basis that the membership fees were exempt because its main aims were of a philosophical, philanthropic or civic nature.

HRMC rejected the claims on the grounds that the supplies were properly taxable, UGLE has appealed to FTT against HMRC’s refusal to pay the amount claimed. Although HMRC did accept that UGLE’s aims include aims of a philosophical, philanthropic or civic nature, they argued that its membership fees cannot be VAT exempt because such aims were not UGLE’s sole main aim and even if they were the aims were not in the public domain.

This was not the first time that UGLE has appealed to the FTT, in 2013 it appealed an earlier decision of HMRC that the supplies were not exempt, concerning the VAT accounted for between 1973 and 1996. In their first case the FTT dismissed the appeal on the conclusion that UGLE had a variety of different aims, some of which fell within the scope of VAT exemption but also had other aims such as social, self-improvement and promotion of Masonic ritual and ceremony which were found significant and was sufficient to cause UGLE’s membership income to fall outside exemption.

VAT legislation provides for VAT exemption for certain activities in the public interest, including those of a philosophical, philanthropic or civic nature, provided that this exemption is not likely to cause distortion of competition. In this current case the Tribunal have followed the findings in the “British Association for Shooting and Conservation Limited” case which clearly set out the criteria applied to determine whether supplies fall within the exemption. Applying these criteria the Tribunal determined that UGLE must show that:

  • It is a non-profitmaking organisation;
  • It makes supplies of services;
  • The services are supplied to its members in their common interest, i.e. for the benefit of all the members;
  • The services are supplied in return for a subscription fixed in accordance with its rules;
  • It has aims of a philosophical, philanthropic or civic nature; and
  • The exemption of those services is not likely to cause distortion of competition.

The Tribunal has agreed that UGLE makes a single supply of services to its members in their common interest in return for a subscription fixed in accordance with its rules and there is no dispute that it is a non-profit-making organisation and that exemption is not likely to cause distortion of competition. Therefore, the only criteria in dispute was whether UGLE has aims of a philosophical, philanthropic or civic nature.

HMRC argued that the aim of the legislation is to exempt from VAT certain activities which are in the public interest, stating that for any aim to fall within the exemption it must be one of the aims listed in the legislation as well as being in the public interest. UGLE disagreed stating that there was no additional test of public interest. The Tribunal considered the “IMI” case in which it was determined that public interest is not an additional test to be met, it merely indicates the nature of the transactions and for that reason the Tribunal rejected HMRC’s argument that UGLE must prove its aims are in the public interest.

The Tribunal then considered whether the aims of UGLE were philanthropic. It stated that an aim of benefitting a group of persons with specified characteristics such as orphans, can properly be regarded as promoting the well-being of people and society, which meets the accepted definition of philanthropy. However, the Tribunal distinguished UGLE’s supply from philanthropy on the ground that it is benefitting only those who contributed to the organisation providing the benefits, this is a form of self-insurance and it is not philanthropy. The Tribunal also stated it does not believe UGLE has a civic aim.

The Tribunal went on to consider whether UGLE’s philosophical aim was a main aim.  UGLE provided information about the nature of its activities and discussed the importance of rituals, the Tribunal accepted that the rituals are primarily intended to teach the philosophy of Freemasonry. The emphasis placed on the learning and performance of the ritual and the fact that it embodies and instils the values and principles of Freemasonry indicate that philosophy is a main aim of the organisation.

However, from the evidence provided the Tribunal also found that a central tenet of  Freemasonry is the provision of  “relief” to other Freemasons and their dependants. This relief took the form of donations to good causes unconnected with Freemasonry and supporting Freemasons and their dependants in distress. The Tribunal therefore found that the provision of “relief” was a further main aim of UGLE. On that basis the Tribunal agreed with HMRC’s argument that philosophy was not the sole main aim of UGLE therefore its membership subscriptions do not fall within VAT exemption. The appeal was therefore dismissed.

Constable Comment: This case shows the difficulty of establishing the correct VAT treatment of membership fees and in particular the application of the VAT exemption and shows the importance of seeking advice when there is any doubt. Constable VAT has the relevant experience of dealing with VAT exemptions as they apply to membership organisations and are happy to assist with any 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.