Constable VAT Focus 26 November 2020


Value Added Tax (Disclosure of Information Relating to VAT Registration) (Appointed Day) (EU Exit) Regulations 2020 (SI 2020/2013)
These EU Exit Regulations appoint 1 December 2020 as the day on which the Value Added Tax (Disclosure of Information Relating to VAT Registration) (EU Exit) Regulations, SI 2018/1228 will come into force.

List of customs agents and fast parcel operators
HMRC has updated its lists which help UK businesses find customs agents and fast parcel operators who can help submit customs declarations from 1 January 2021.

VAT and overseas goods sold to customers in Great Britain using online marketplaces from 1 January 2021
HMRC has published new guidance on how online marketplaces will deal with VAT for goods from overseas that are sold to customers in Great Britain from 1 January 2021.

VAT and overseas goods sold directly to customers in Great Britain from 1 January 2021
HMRC has also published guidance on how sellers will deal with VAT for goods from overseas that they sell direct to customers in Great Britain from 1 January 2021.

Pay VAT deferred due to coronavirus (COVID-19)
Find out how to pay VAT payments deferred between 20 March and 30 June 2020. HMRC has updated this guidance with details of how to opt-in to the new payment scheme under which, instead of paying the full amount owed by the end of March 2021, taxpayers can make up to 11 smaller monthly instalments, interest free. All instalments must be paid by the end of March 2022. Businesses and charities cannot opt in yet. The online opt in process will be available in early 2021. Taxpayers must opt in themselves; agents cannot do this.


As the end of the Brexit transition period draws closer, it is essential that businesses monitor ongoing developments. We continue to update our coverage of Brexit and how VAT and business will be impacted. The situation, unfortunately, is still not perfectly clear; however, there are important steps which businesses should be taking as a matter of urgency if they have not yet done so. Our coverage can be read in full here.

Following the recent decisions in Chelmsford City Council and Mid-Ulster District Council, we have released updated coverage of Local Authority Leisure Facilities and VAT. The VAT liability of charges made by local authorities for use of sporting and recreational facilities has been brought into question. Our coverage can be read in full here.


Court of Justice of the European Union

1. Entitlement to deduct VAT Incurred by Holding Company

This case concerned the right to deduct VAT incurred by Sonaecom SGPS SA (Sonaecom) in relation to expenditure incurred on the commissioning of a market research report with a view to acquiring shares in a telecommunications business and, secondly, VAT incurred on a commission paid to a bank for organising a bonded loan to enable the purchase of those shares. No acquisition occurred and the capital secured through the bonded loan was, instead, made available to the parent company of the group which Sonaecom is in.

Sonaecom is a mixed holding company which acquires and holds shares in businesses. It also provides ongoing, taxable, support services. It sought to deduct the VAT incurred on the market research report based on its intention to provide ongoing management and consultancy services to the telecommunications business which it intended to purchase. Considering previous caselaw such as Ryanair, the Court found that Sonaecom was permitted to deduct this VAT incurred as input VAT as it related to a genuine intention to provide taxable services to the business being acquired.

However, it turned to consider the VAT incurred on the commission paid to an investment bank for arranging a bonded loan. Following the Principal VAT Directive, VAT incurred can be deducted based on the use to which it was consumed. In the present circumstances, the bonded loan was used to make extra capital available for Sonaecom’s parent company.

The Court observed that this expenditure was incurred with a view to investing in new business segments and that, therefore, this expenditure did not relate to any intention to make taxable supplies of management services to subsidiaries. Indeed, the use to which the loan was put (making extra capital available to the parent company), is not taxable. Therefore, the Court held in favour of the authorities in relation to this point, confirming that this VAT incurred was not recoverable as input VAT.

Constable Comment: This is an interesting decision in an area where there is already extensive caselaw. In order for a holding company to deduct VAT incurred on market research based on an intention to provide management services to the new subsidiary, the arrangements must be bona fide and enshrined in contract. Payments should also actually pass from the subsidiary to the holding company. However, where VAT is incurred on commissions for the arrangement of loans to permit the purchase of specific shares, but that loan is not used to buy those shares but is instead passed through to a parent company, no taxable supply arises and the VAT incurred is not recoverable. We would always recommend that where holding companies do incur VAT on expenses that thought is given to whether that VAT incurred can be reclaimed.

Upper Tier Tribunal

2. VAT Liability of Juice Cleanse Meal Replacement Products

This recent appeal in The Core (Swindon) Limited considered the correct VAT liability of meal replacement shakes made from juicing raw fruits and vegetables. The Core offers “Juice Cleanse Programmes”, under which customers replace all of their meals over a set period of time with smoothies and shakes supplied by the company. In 2018, the FTT held that the meal replacement products were liable to the zero-rate as a food and not a beverage. HMRC were given permission to appeal to the UT on the grounds that the FTT had erred in law.

HMRC appealed against this decision on the grounds that the FTT had given too much weight to the way the product was marketed and the purpose for which the products were purchased. It commented that the FTT had set too much store by the tests in Bioconcepts which HMRC have adopted. The beverages test is in five parts:

  • it must be a drinkable liquid that is commonly consumed; and it must be
  • characteristically taken to increase bodily liquid levels; or
  • taken to slake the thirst; or
  • consumed to fortify; or
  • consumed to give pleasure.

The FTT had relied heavily on this decision and HMRC argued that these tests are not definitive. It suggested that the FTT erred in concluding that because the products were marketed as meal replacements, that they could not be beverages. Representing HMRC, Mr Vicary drew an analogy to a retailer marketing a chocolate bar as a meal replacement and, therefore, being allowed to zero-rate the product and highlighted how this would be an unacceptable result.

However, in this instance, the UT concluded that it had not erred in law and dismissed HMRC’s appeal. It considered that equal weight had been given to the way the products were consumed, and why they were used, as well as the way that they were marketed.  The juice cleanse products sold by The Core were, and continue to be, correctly VAT zero-rated.

Constable Comment: This case demonstrates that marketing material, and the purpose for which a typical consumer would purchase the product, are important factors to think about when reaching a conclusion on whether a product is a beverage or not and should be considered closely, albeit that other considerations should be made. This principle applies more broadly in all cases of classification for VAT purposes, where all of the facts must be considered and sometimes an ‘on balance’ conclusion formed. In cases of genuine uncertainty within the law and HMRC guidance then it is possible to apply to HMRC for a non-statutory clearance.

We act as VAT advisors to many businesses supplying similar products to the taxpayer in this case. If you have any doubts as to the correct VAT liability of the supplies your business makes please do not hesitate to contact 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.