Constable VAT Focus 8 October 2021


Pay the VAT due on your One Stop Shop VAT Return
HMRC has released new guidance on how to pay the VAT due on your One Stop Shop (OSS) VAT Return including details on when to pay, different methods of payments available, how to pay later and what to expect after you have paid. For more information view the guidance in full.

Tell HMRC you’re registered for the VAT Import One Stop Shop in the EU
HMRC has also updated guidance on how to tell HMRC you’re registered for the VAT Import One Stop Shop (IOSS) in the EU, specifically including more information about intermediaries, who can now enter details for multiple businesses on the same form.


Update on the option to tax (OTT) unit

We recently shared that we had been advised by HMRC’s OTT unit that they were working to a ‘target’ of 120 working days to process OTT notifications. Following this we have now been advised by HMRC staff that the delay is 6 months to process OTT notifications.

HMRC has advised that it aims to improve this situation by the end of the financial year (31 March 2022) and also stated that they will be prioritising applications where evidence of commercial need is also provided.

We continue to recommend that any option to tax is notified by email as this will result in a receipt of that email, which may be accepted as evidence by a party who requires this.  However, if other evidence is available to show a sale or rental is imminent and that formal acknowledgement is required to complete the transaction this should also be forwarded to HMRC and emphasis should be given to this in the covering email.

Website Update

We have updated our website this week with pages covering the New Penalty Regime being introduced on 1 April 2022 and the introduction of rules in 2022 regarding notification of Uncertain Tax Treatments. We hope you find these informative.


Since the end of the transitional period on 31 December 2020 European Court judgments 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. If you are concerned about the impact of any matters raised in the following cases please contact us.


1. Supply of services for consideration and input tax deduction

Bulgarian National Television (BNT) is a national public provider of audiovisual media services. BNT does not receive any remuneration from its viewers and its activities are financed by a subsidy from the state budget. BNT’s activity is also financed by self-generated income from advertising and sponsorship, income from additional activities linked to the broadcasting activity, donations and legacies, interest, and other income linked to the broadcasting activity.

Since 2015, BNT has been applying a direct allocation method by examining, in isolation, for each purchase that it made, whether it was used or was capable of being used for an activity of a ‘commercial’ nature, such as entertainment programmes. It reclaimed all of the input tax directly attributable to activities of a commercial nature and made partial input tax deductions in respect of purchases used for both commercial and non-commercial purposes.

The Bulgarian tax authorities refused to recognise a right to a full deduction in respect of purchases made by BNT and found that it owed VAT amounting to EUR 801,455 together with interest. The authorities claimed that BNT’s programme broadcasting activity was an exempt transaction. The case was referred to the CJEU.

The first question the CJEU considered was whether the VAT Directive must be interpreted as meaning that the activity of a public national television provider, consisting in the supply of audiovisual media services to viewers, which is financed by the State in the form of subsidies and for which no fees for the broadcasting are payable by the viewers, constitutes a supply of services for consideration within the meaning of that provision.

The CJEU stated that the above does not constitute a service supplied for a consideration. Where audiovisual media services are supplied by a national public provider to viewers for free and it is financed by the state in the form of subsidiaries, there is no legal relationship between the supply of the service and the payment and therefore it is not a supply for consideration.

The CJEU then went on to consider whether the public national television provider is entitled to deduct, in whole or in part, input tax paid for purchases of goods and services used for the purposes of its activities which give rise to the right of deduction and its activities which do not fall within the scope of VAT.

It was stated that it is the use of the goods and services acquired that determines the input tax deduction and the way in which such purchases are financed, either by state budget or sponsorship income, is irrelevant for the purpose of determining the right of deduction. Therefore input VAT that is directly attributable to expenditure incurred in relation to non-economic activities cannot give rise to a right of deduction.

The CJEU stated that it is the Member States discretion to determine the apportionment of input VAT between economic and non-economic activities but they must provide for a method of calculation which objectively reflects the part of the input expenditure actually to be attributed, respectively, to those two types of activities.

Constable Comment: This decision clarifies the European Court’s view that a public entity whose services are offered to the general public and which are financed essentially through public subsidies cannot constitute an economic activity for VAT purposes. However, it offers less clarity on attributing VAT on costs incurred in providing that service.

First Tier Tribunal

2. DIY New build claim for repayment of VAT on goods

Mr Ellis and Ms Bromley appealed against a refusal by HMRC to allow a second claim for repayment of VAT under the DIY housebuilder scheme.

Mr Ellis and Ms Bromley bought a property in 2002. An application for planning permission was made and permission was granted for demolition of the property and construction of a replacement dwelling. Mr Ellis is a builder and carried out much of the work himself over a 5 year period.

The valuation office agency issued a notice of alteration of the valuation list on 27th December 2015, following a complaint from a local resident.  The valuation for council tax purposes does not refer to completion of the works and there was no suggestion that the works were completed but council tax was paid from 2015 onwards. The planning permission required more external works, including the erection of retaining garden walls, a balcony and appropriate access to the front door as well as substantial internal works. Mr Ellis and Ms Bromley made an interim claim for repayment of VAT under the DIY builder scheme in respect of £5,182.87 in April 2017 using the valuation notice to support the claim and the VAT was repaid in June 2017. In the 2017 claim, no claims were made for the construction of the garden walls, accessway to the property or kitchen and bathrooms. The second claim made on 2nd May 2019 was rejected on the grounds that only one claim can be made for a particular building under the DIY builder scheme and it must be made within 3 months of completion of the construction work.

Mr Ellis and Ms Bromley’s argued that it is not unreasonable to expect that more than one claim can be made when the period of construction is likely to be years. They pointed out that there is no mention of the fact that only one claim can be made on HMRC website or in the section concerning eligibility or in the VAT form VAT 341NB. Additionally, HMRC made an error in processing the first claim because the valuation was made at least 15 months earlier and the valuation could not have been taken to provide evidence of completion. The 2015 notice from the valuation agency dated 27th December 2015 is not evidence of completion. Furthermore, the works were not complete.

HMRC took the position that the claim for repayment of input tax must be disallowed because:

(a) s35 VATA 1994 provides that only a single claim for repayment of VAT by a DIY builder may be made under the VAT DIY builder scheme.

(b) s35(2) enables HMRC to prescribe by regulations the timing and evidence to support a claim.

Mr Ellis and Ms Bromley admit they made 2 claims and that they used the same evidence of being entitled to make the claim, a notice of council tax banding, dated December 2015 which was effective 1st September 2015. HMRC assert that even if a second claim may be made the second claim was made later than 3 months after the evidence of completion.

Discussion and Decision

The Tribunal considered the wording of Section 35 VATA 1994 and the Regulations relating to claims. It concluded that section 35 does permit more than one claim in respect of a building, the Regulations which aim to prevent this are ultra vires as a matter of UK law.  Although section 35 is drafted in the singular this is an established technique to assist in clarity. As there is no express indication to the contrary in section 35, section 6 of the Interpretation Act 1978 applies to confirm that the reference to “a claim” in section 35 must be read as including “claims”.  The Tribunal also found that Regulation 201 is ultra vires to the extent that it limits a self-builder to make a single claim following completion of the dwelling, since neither section 35 nor any of the other provisions of the VAT Act 1994 give authority to introduce regulations that alter the scope of section 35(1) and restrict a self-builder to make a single claim upon completion of the dwelling. Finally, it found that the 2015 council tax valuation notice was not evidence of completion in this case, it is merely evidence that some building works had been undertaken and that the dwelling was capable of being inhabited. As the regulations are ultra vires in restricting the number of claims, the 2017 claim was a valid claim. The Tribunal also considered the position if HMRC were correct in their view of the meaning and application of section 35 and the regulations, which would be as follows:

(1) The re-banding of ‘Fox Way’ for council tax purposes in 2015 was not evidence of completion in this case. It is merely evidence that the building was capable of being inhabited. The 2017 claim was not a ‘valid’ claim within the meaning of section 35 and the regulations, and so would not prevent a subsequent claim.

(2) As the property was still not complete at the date of the hearing, and as the 2015 notice regarding council tax banding cannot be accepted as evidence of completion, the 2019 claim would be an invalid claim also.

(3) A further claim would be possible once the building is complete.

The tribunal allowed the appeal.

Constable Comment: This is a helpful case as it appears to offer scope for DIY housebuilders to make multiple claims during the course of a build. It will be interesting to see if HMRC appeal this decision or make any comment on it. If there is no appeal the case is only binding on the parties involved, so HMRC may be inclined to let it lie.

3. Rada In Business Limited (RIBL)

This is an appeal against a 5% VAT default surcharge, amounting to £2,281.13, imposed on 12th March 2021 in relation to the late payment of VAT for the period 01/21. We have included this case as it considers the impact of a Covid-19 related factor on VAT return submission and payment.

RIBL has been in the VAT default surcharge regime since the period 07/20 following late filing of the 07/20 VAT return and the late payment of the VAT due.  No penalty arose on this first default.

There was a further default in the next period, 10/20, attracting a surcharge at the rate of 2% but charged at £0 because of HMRC policy relating to the collection of small sums.

The due date for filing of the VAT return and payment of any VAT due for the period 01/21 was 7th March 2021. The return was received by HMRC on 1st March 2021 but the payment wasn’t received by HMRC until 8th March 2021 and, as a result, a 5% surcharge of £2,281.13 was added.

RIBL argued that the return was submitted on time and the payment was processed on 5th March 2021, due to a staff member being away on furlough and only returning that day. The payment cleared RIBL’s bank account on 8th March. RIBL stated that it always aimed to submit and pay its tax on time but due to the current pandemic had to adjust the way employees work.

The Tribunal dismissed that appeal noting that the penalty was lawfully imposed. The taxpayer was in the surcharge regime and there had been two previous defaults. The payment was not received until 8th March 2021, which is a day late. The tribunal was not satisfied that the taxpayer did in fact dispatch a payment by faster payment on Friday 5th March and the fact that the employee tasked to pay the VAT was on furlough and did not return to work until Friday 5th March was not a reasonable excuse.

Constable Comment: This case indicates that the Tribunal will not accept staff shortages due to furlough as a reasonable excuse for late payment of VAT returns.

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.