Constable VAT Focus 30 September 2022


HMRC email updates, videos and webinars for VAT
Form VAT 484 should be used to notify HMRC about any required changes to bank account details, contact details or VAT return periods. HMRC have released a live webinar about using this form to report changes. You can view this by following the link above.

Goods or services supplied to charities (VAT Notice 701/58)
This guidance relates to when the zero-rate VAT applies to charity advertisements and goods used for the collection of donations. HMRC has updated the following sections:

  • “Media where charities can advertise VAT free”
  • “What the term ‘the public’ covers”
  • “Information on the internet”
  • “Relief on the design or production of an advertisement”

Reporting VAT accounting mistakes to HMRC
HMRC has recently improved its VAT652 Error Correction Notice form by launching a new online form. The ‘print and post’ form has not been replaced and can still be used.  However, the online form is now HMRC’s preferred option.

The online form aims to reduce incomplete or incorrect forms, reducing customer contact and leading to a more efficient processing. If you or your business have any queries about the new online form, please contact Constable VAT and we will be happy to assist.



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.

1. Reduced rating of sports supplies

Escape Center BVBA (TEC) is the operator of a fitness centre, providing access to facilities and equipment. The equipment is used either by individuals or groups, with or without coaching. TEC also offers personal training and group classes. TEC accounted for VAT at 21% on its supplies but sought a reimbursement of previously declared VAT, taking the view that a 6% reduced rate should have applied. The Belgian tax authorities rejected that claim which led, initially, to consideration of the issue in the Belgium courts.

The court in Belgium noted that the Belgian tax authorities do not follow a uniform practice.  Some inspectors considered that standard rate VAT of 21% should be applied and others accepted a reduced rate of 6%.  As a result, the court referred a question to the CJEU.

The CJEU confirmed that the use of sporting facilities should cover the right to use facilities for the practice of sport and supplies linked to the use of those facilities. The CJEU commented that the reduced rating is to encourage the effective practice of sport rather than to focus on access to sport facilities. The CJEU considered whether the activities of TEC form a single supply and concluded that a supply of permission to use sporting facilities in a fitness centre and the supply of individual or group coaching may be subject to a reduced rate of VAT where that coaching is linked to the use of those facilities and is necessary for the practice of sports or where that coaching is ancillary to the use of those facilities or to their actual use.

Constable Comment: This case is not relevant to the UK in the sense that the reduced rate is an option not a mandated rule in relation to the supplies in question.  The UK never adopted the reduced rate for comparable supplies.  The UK offers VAT exemption for certain sport supplies however strict conditions needs to be met.  The main relevance of the judgement may be regarding a determination of when a bundle of services must be treated as a composite supply (the same VAT rate applying to the full package) or should be broken down with component elements attracting different rates of VAT.  This is a complex point that arises frequently in many different contexts and should always be considered by businesses that provide a bundle of services when the components in isolation could be subject to different VAT liabilities or place of supply outcomes.   

Upper Tier Tribunal

2. Personal Liability Notice – burden of proof

Mr Zaman, appealed a personal liability notice (PLN) issued by HMRC, imposing a penalty of £1.7million to the First-tier Tax Tribunal (FTT).  The PLN had been issued to transfer a liability on Zamco Ltd (Zamco), a company of which Mr Zaman was the sole director, to Mr Zaman.  FTT had allowed Mr Zaman’s appeal, which led to HMRC appealing to the Upper-tier Tax Tribunal (UT) on the grounds:

  • The FTT erred in its approach to the burden of proof because it held that the burden rested solely with HMRC
  • The FTT erred in its evaluation of the evidence because it failed to draw the correct inference from its findings of fact

The burden of proof on a dispute regarding HMRC’s appeal against VAT assessments rests with the taxpayer.  However, if HMRC elects to impose a PLN the burden of proof as regards HMRC’s rights to hold an individual director responsible for a company’s mistakes shifts to HMRC.

The UT considered the FTT’s decision and stated that it is for the taxpayer to prove, by evidence, that an assessment to VAT issued by HMRC is incorrect. The UT commented that the FTT lost sight of that fact.  After establishing whether the PLN was validly issued, the evidential burden in relation to the assessment to VAT on Zamco shifted to Mr Zaman.  It therefore allowed HMRC’s appeal on the first ground of appeal.  HMRC invited the UT to remake the decision in such way that the appeal against the PLN is dismissed. However, the UT concluded it did not hear sufficient evidence to do so, therefore the most appropriate course was to remit the case back to the panel of the FTT.

Constable Comment:  It can be difficult in cases like this to unpick the position and establish rights of appeal.  The underlying tax liability will rest with the company (which should usually lodge an appeal if it is wrong) and there can be no issue of a PLN if there is no underlying tax liability.  Once a PLN has been issued this does not shift the burden to prove that an underlying tax liability exists to HMRC.  The burden of proof only sits with HMRC insofar as it must show that the actions of the director allow HMRC to hold the director liable (in effect) for the actions of the company. 

First Tier Tribunal

3. VAT exemption: payment service provider

The appellant EMPL and EMPO are in the same corporate group called eMerchantPay Group. EMPO makes supplies to EMPL. HMRC ruled that these services are subject to VAT at the standard rate, therefore raised an assessment in the sum of £64,618. EMPL claimed that the supplies made by EMPO are VAT exempt financial services.

EMPL is a payment service provider (PSP) which provides businesses with the ability to accept card payments. EMPL agrees to market the PSP’s card acquiring services to merchants, guarantee the PSP’s debts to merchants, carry out due diligence and ongoing monitoring, provide payment processing, support and customer service. However, most of the underlying work in relation to these activities is undertaken by EMPO as a subcontractor.

HMRC argued that EMPO’s services were merely clerical or administrative services and therefore subject to VAT at the standard rate.

The FTT considered the evidence before it and stated that the ‘economic reality’ is that EMPO’s service consists of bringing together merchant acquirers and merchants with a view to the former providing financial services to the latter. This is because from a merchant’s perspective, the end goal was to enter into a contract with one or more merchant acquirers to enable card payments to be taken.  The FTT concluded that EMPO’s supply is the provision of intermediary services and therefore exempt from VAT. The appeal was allowed.

Constable Comment: As a FTT decision, this judgment is only binding on the parties concerned and the summary of facts provides insufficient detail to gauge its wider relevance.  The main point we took from this case is that it seems that it was recognised that EMPO was operating on the boundary of exemption EMPL took steps to seek a ruling and manage any risk proactively.  Many businesses prefer not to confront arguable points of law in this way. 

How much EMPL’s proactive approach influenced the outcome of the Tribunal is impossible to know.  However, this seems to us a case that could have gone either way and EMPL won.  Being prepared in advance and having all the legal and factual arguments ready may have made the difference between success and failure.  

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.