Constable VAT Focus 30 June 2022


Change to HMRC Option to Tax process
Many of our readers will be aware that there have been significant delays in receiving a response from HMRC’s Option to Tax unit following the submission of an option to tax (OTT). To try to address this issue HMRC is trialling a new system. This trial began at the end of May 2022 and will last 6 weeks. Previously when a taxpayer notified HMRC of an intention to opt to tax a property, HMRC acknowledged the notification confirming that the option was in place.

During the trial period HMRC will only acknowledge the receipt of the OTT. Our full article covering this change in HMRC procedure can be read here. We will update readers on any extension to the trial, or any further comment from HMRC on the subject, in future editions of VAT Focus.

If you or your business require assistance on any issues involving an Option to Tax, Constable VAT has a great deal of experience in this area and would be happy to assist with any queries.

Agent Update: Issue 97
HMRC has released this new agent update containing the latest guidance and information including:

  • Increase in National Insurance Threshold
  • Residency and the remittance basis charge
  • Changes to VAT penalties
  • P11D and P11D(b) filing and payment deadlines
  • Making Tax Digital (MTD) for Income Tax Self-Assessment


VAT Partial Exemption: Annual Adjustment

Partly exempt businesses recover VAT incurred provisionally throughout their VAT accounting year. Those businesses are then required to complete an annual adjustment calculation that takes account of supplies made, and input tax incurred, across the entire VAT year and an adjustment to the VAT claimed may be required. This adjustment is normally made on the VAT return following a business’ partial exemption year end. Many taxpayers will be required to calculate and declare these adjustments shortly. Constable VAT can assist with this. Our guidance on partial exemption may be useful.

VAT & Charities Newsletter

We have recently released a new Constable VAT & Charities Newsletter. This newsletter covers some important and interesting areas of VAT for charities. Whilst some of the issues and cases have been discussed in our VAT Focus, the newsletter aims to give a more detailed summary of those items specifically impacting on the Charity sector.



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 when reaching their own conclusions and there may be occasions where they have a more binding effect. We will therefore continue to include summaries of any European judgements that we consider to be relevant. If you are concerned about the impact of any matters raised in the following cases, please contact us.

1. Place of supply of services and abuse of rights

This case concerned DuoDecad, a Hungarian registered company which provided technical support services allowing access to entertainment services via websites.  The question was whether DuoDecad was providing its services cross border to a Portuguese business or locally to an associated Hungarian Company. The local Hungarian tax authorities ordered DuoDecad to pay significant amounts of VAT, a tax fine and interest in respect of unpaid VAT, on the grounds that the recipient of the services provided by DuoDecad was its Hungarian associate WebMindLicences Kft (WML).

WML is a company registered in Hungary, which has few resources of its own. WML licensed its know-how to Lalib (a Portuguese entity) allowing Lalib to charge consumers for access to its websites. DuoDecad provided the necessary IT support and contractually this support was provided to Lalib as provider of the online services. The Hungarian tax authorities argued that the online service was provided not by Lalib but by WML, from Hungary, and that the licence agreement was in its view ‘fictitious’. As a result, Duodecad’s service was supplied to WML and Hungarian VAT was due on the supplies.

DuoDecad argued that Lalib had available to it the human and material resources necessary for the provision of the services supplied. DuoDecad also stated it provides its services directly to Lalib and not to WML. In addition they added that Lalib appeared to the outside world as the provider of the services, it concluded contracts in its own name, held a database of customers and many other factors demonstrating that Lalib was the recipient of those supplies.

The CJEU was asked to determine whether WML or Lalib were supplying the entertainment services and therefore receiving the technical support from DuoDecad. The CJEU confirmed that if there was abuse of rights, meaning the contractual relationship, between Lalib and DuoDecad was solely to obtain a tax advantage, then the contractual relationship should be redefined. However it concluded that the CJEU has no jurisdiction to apply rules of law to a particular situation, therefore it refused to rule which company should be treated as supplying the services instead determining that this is a matter for the national courts to determine.

Constable Comment: This case highlights issues around applying place of supply rules and also briefly discusses abuse of rights. Whilst the Advocate General’s opinion issued earlier this year indicated that part of the role of the CJEU was to resolve conflicts such as those arising in this case, even if it meant pronouncing on questions such as whether an abuse of law had, in fact, taken place, the Court in the end declined to comment on the correct VAT treatment of this supply.


2. Chelmsford City Council: sports and leisure facilities

The main issue of the appeal is the VAT liability of admission charges for sports and leisure facilities (the facilities) provided by Chelmsford City Council (CCC). HMRC contends that CCC was acting as a taxable person when providing the facilities.

Under Section 41A of the VAT Act 1994, supplies of goods and services made by certain public bodies are not regarded as being made by way of business, and they are therefore outside the scope of VAT, if:

(i) The public bodies form a part of the public administration.

(ii) The public bodies in question engage as public authorities when they make the supplies in question. This happens when they act under a special legal regime applicable to them, that is, under different legal conditions from those that apply to private traders, typically carrying out public interest activities for the service of the community.

(iii) This outcome would not significantly distort competition.

The benefit for a public body in agreeing that an activity is outside the scope of VAT is that this treatment brings with it a right to recover VAT on associated costs, which may not be the case if a supply was within the scope of VAT but was VAT exempt.

CCC argued that it was acting as a public authority when providing the facilities and the question that followed was whether the CCC was acting pursuant to a special legal regime applicable only to the public authority and not to private operators providing similar facilities. The FTT agreed with CCC that its services were provided under a special legal regime and so the supplies did not bear VAT. HMRC appealed on that issue. You can read more about the FTT case on our website where we have a blog on this topic.

The particular features which the FTT relied on its decision were pricing (including setting of concessions) and location and scope of facilities. The FTT’s reasoning was that, in providing its services, the authority was subject to different requirements when deciding what services to provide, at what price, where to provide them and to whom, by comparison with a private sector operator. The provision of the facilities involves the use of public powers and is subject to a public law regime. The Upper Tribunal agreed with the FTT that the legal conditions under which CCC provides leisure facilities amount to a special legal regime because private operators providing such facilities are not subject to those same conditions.

HMRC’s appeal on the special legal regime issue is dismissed; however the question of distortion of competition, which could impact on VAT treatment, has been deferred to a separate hearing and so the matter is not yet concluded.

Constable comment: As the question of distortion of competition is an important factor in determining whether a transaction undertaken by a Public Body falls within the scope of VAT it will be interesting to see how the courts decide on that factor. Only once this point has been addressed will it be completely clear if the supply of leisure facilities by a Public Body is outside the scope of VAT.

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.