Constable VAT Focus 5 September 2019


Revenue & Customs Brief 8/2019
HMRC has issued a new Brief following its recent review of the VAT Cost-Sharing exemption. It clarifies that HMRC will continue to apply the exemption to groups established by social housing associations but with certain new conditions.

Notice 701/7: VAT reliefs for disabled and older people
HMRC has updated its guidance to reinstate guidance relating to the restoration of lost space after bathrooms or washrooms have been installed, extended or adapted in a disabled person’s private residence.

Notice 708/6: Energy saving materials and heating equipment
This notice has been updated to reflect the changes taking effect from 1 October including restrictions and confirmations on the applicability of the reduced rate and the introduction of a new test for applying the reduced rate in line with social policy objectives.

No-Deal Brexit Planning
The guidance around importing for UK businesses who move goods from Ireland to Northern Ireland following a no-deal Brexit has been updated to clarify points of confusion around the registration of new vehicles.


We have recently published a new VAT & Charities Newsletter which is available to read here. In this edition we cover the following recent VAT developments in the Courts and Tribunals:

  1. VAT Welfare Exemption: Supplies Closely Connected
  2. University of Cambridge
  3. Partial Exemption “Direct and Immediate Link”
  4. Zero-Rating Construction: Relevant Charitable Purpose, Business or Non-Business
  5. Glasgow School of Art
  6. Call for Evidence: Simplification of Partial Exemption and the Capital Goods Scheme




1. Exemption for Insurance Intermediaries

This is an appeal against decisions made by HMRC that supplies made by Claims Advisory Group Limited (CAG) were taxable at the standard rate of VAT. CAG describes itself as in the business of “…recovery, on behalf of consumers, of overcharged fees levied by banks and other financial institutions.” The fees being pursued related to mis-sold PPI, the issue at hand was whether, as CAG contended, this could constitute either an insurance transaction or a service performed by an insurance broker or, as HMRC argued, that it is a standard rated transaction.

The Tribunal primarily addressed the question of whether the supplies made were insurance transactions. In order to conclude on this topic, the characteristics of insurance transactions were assessed. Drawing on the judgment in Card Protection Plan, the Tribunal observed that an insurance transaction is where “… the insurer undertakes to indemnify another, the insured, against the risk of loss (including liability for losses for which the insured may become liable to a third party) in consideration of the payment of a sum of money called a premium.” The Tribunal observed that the supplies made by CAG clearly did not fall within this description so the ruling focusses on whether CAG could be correctly characterised as an insurance intermediary.

The Tribunal analysed the idea that CAG could be an insurance intermediary and in so doing reflected on the judgment in It was observed that “It is an essential characteristic of an insurance broker or an insurance agent […] that they are engaged in the business of putting insurance companies in touch with potential clients or, more generally, acting as intermediaries between insurance companies and clients or potential clients.” CAG argued that it terminates insurance contracts (PPI contracts) on behalf of its clients and that, therefore, it acts in the capacity of an insurance agent as it is assessing the suitability of and terminating insurance contracts.

This argument was dismissed as, according to case law, the termination of contracts as a service on its own does not mean that the agent terminating the contract is carrying out the business to which to contracts relate. For completeness the Tribunal discussed what constitutes an insurance broker but the conclusion became quite clear before the end of the Tribunal’s deliberations: the appeal was dismissed.

Constable Comment: Whilst after significant reflection the outcome of this hearing seems simple, the case itself was detailed and considered a lot of previous caselaw. What is interesting is that both parties have been given the right to appeal, we would anticipate a ruling in the Upper Tribunal as this decision could have wide ranging ramifications for a number of businesses.


2. Botox and Nail Fungus treatment: VAT Exempt?

This is an appeal by Skin Rich Limited (SRL) against decisions by HMRC to the effect that botox injections and laser nail fungus treatment are standard rated for VAT; SRL had treated the supplies as exempt. HMRC raised assessments against SRL in excess of £20,000, against which it also appeals. SRL operates a skin culture and aesthetics clinic in Richmond which offers a range of specialist skin treatments. Among these services are inter alia botox injections and nail fungus treatments.

For UK VAT purposes, services consisting in the provision of medical care by a person registered on enrolled in the register of medical practitioners are exempt, as is the provision of “care” or medical or surgical treatment in any hospital or state-regulated institution. The dispute before the Tribunal in this instance was whether the supplies made by SRL fit within the exemptions.

The Tribunal considered that the botox injections, despite submissions by SRL that they benefit the overall wellbeing of the patient, were cosmetic is nature and could not benefit from the exemption for medical care provided by doctors. It was also highlighted that the nail treatments were not medical care. The question then turned to whether the botox treatments and the nail fungus treatment were capable of being regarded as “care” provided in a hospital or state regulated institution. It was observed, correctly, that this exemption had a wider application.

In concluding, the Tribunal drew on the judgment in Kingscrest Associated Ltd and observed that, despite its wider application, “care” must be construed for VAT purposes as being restricted to care of a medical or surgical nature. Again considering, at length, previous judgments, the Tribunal asserted that services may fall within the concept of “care” when they are actually supplied as a service ancillary to the hospital or medical care received. It was also noted that the provision of services which are aimed at improving comfort and well-being as opposed to health, as a general rule, will not be capable of benefiting from a VAT exemption aimed at the provision of medical or surgical care. Accordingly, the appeal was dismissed.

Constable Comment: We would expect to see this decision appealed as it represents a significant set back for many clinics offering vanity treatments such as botox injections. Given the significance for the cosmetic and beauty sector, this ruling has attracted quite a lot of media attention. Whilst botox has been available for decades in the UK, it seems that it has been treated incorrectly for VAT purposes by many and this has previously gone unchallenged by HMRC.


3. Recovering VAT on Cars

This case concerned the refusal of VAT credit on the purchase of three cars by Mr Graham, a specialist in mainframe computers who runs his own business. Given the nature of his work, he often has to travel to visit clients and, given his significant fees, he felt that the vehicles he used for work should reflect his success and to instil faith in the business. He sought to recover the VAT on the purchase of three expensive cars which were provided to him, his wife and his daughter for business purposes, but never for personal use.

HMRC denied the claim for repayment of input VAT as the cars were parked at the driver’s home addresses and, therefore, that there was no physical barrier to prevent the personal use of the cars; HMRC reminded the Tribunal that the question is not whether private use takes place, but whether the cars are available for private use. HMRC also noted that there was also a period for which the cars were insured for only social, rather than business use and that this constituted the cars being made available for private use.

Drawing on the previous ruling in Elm Milk, the Tribunal observed that “Unavailability for private use could be achieved by appropriate restrictions.” It went on to assess the contracts between Mr Barry and his family members with access to the cars; the contracts clearly prohibited private use of the cars. The Tribunal then turned to the question of the social-only insurance. Mr Graham answered this by stating that his wife had been responsible for the insuring of the cars and that at the time, although they did not know this, she was suffering from brain cancer and this was the start of many uncharacteristic mistakes that she made.

In concluding, the Tribunal commented that HMRC had produced no evidence at all that the cars had been used privately and went on to clarify that even though for a brief period the cars were available for only social use, it was never the intent to make the cars available for private purposes and, therefore, that the input VAT was recoverable.

Constable Comment: This case is a useful reminder that, despite the blocking order, input VAT recovery on cars is, occasionally, possible where they are only available for business purposes. However, businesses should tread carefully when recovering VAT on cars and ensure that use is restricted entirely to business use and that private use is expressly prohibited.