VAT on antiques or art from historic houses (Notice 701/12)
This explains which disposals of assets from historic houses are within the scope of VAT.
HMRC and online marketplaces agreement to promote VAT compliance
HMRC has committed to working with online marketplaces to set out a cooperation agreement to promote VAT compliance.
Find out how to spot VAT missing trader fraud and how to protect yourself or your business from organised criminals.
Revoke an option to tax after 20 years have passed
Form VAT1614J has been updated.
OTHER VAT NEWS
We understand that HMRC has begun to contact firms directly regarding the VAT treatment of electronic searches following the Brabners LLP VAT case summarised on our website. The Law Society has issued guidance which can be viewed here.
VAT recovery, supplying insurance and the benefits of customer location
Exempt supplies do not normally provide a right to reclaim VAT on costs incurred in making such supplies. However, certain supplies that would ordinarily give no right to VAT recovery may be ‘specified’ to do so when the customer is located outside the EU. Follow the link to read our most recent blog, by Robert Thorpe, which explains this further.
1. Right of deduction after a tax inspection
This request for a preliminary ruling concerns the interpretation of EU law and the principles of fiscal neutrality, effectiveness and proportionality. In the main proceedings, Zabrus Siret filed VAT returns following tax inspections requesting repayment of VAT. The national tax authorities refused to reimburse this tax as the amounts being claimed related to a tax period which had already been subject to an inspection by the domestic tax authority. Zabrus Siret appealed this decision.
There were two questions before the court in this instance, amounting to one main question, being whether EU law precluded national legislation which the right to reclaim VAT in respect of a tax period which had previously been subject to a tax inspection.
As the Court has held previously, the right of deduction is an integral part of the VAT system and may not, in general, be limited. The right to deduct VAT in Romania is subject to a five year limitation period which is shortened in the event of a tax inspection. The effect of this is that the taxpayer cannot correct VAT returns for tax periods which have been subject to an inspection. Whilst the Romanian authorities argued that this was a legitimate practice, the Court held that the EU law principles does preclude national legislation which prevent, in circumstances such as those in the main proceedings, a taxable person from claiming his right of deduction following a tax inspection.
CVC Comment: The right of deduction is fundamental and can only be limited in very specific circumstances. This ruling demonstrates that even where domestic laws seem to preclude this right in line with EU law, the CJEU are prepared to rule in favour of the taxpayer in matters such as those at hand. In practice this decision will have no impact on UK taxpayers as the UK rule preventing recovery of VAT once a VAT period is more than four years old is considered proportionate to the needs of the State to have certainty on its fiscal position.
2. Deductibility of VAT in a failed takeover
This case concerns Ryanair’s bid to take over Aer Lingus. Despite failing with its bid, Ryanair incurred significant VAT costs. Ryanair claimed a deduction of this VAT, which was denied by the Irish tax authorities on the grounds that acquisition and holding of shares does not constitute an economic activity within EU law.
Two questions are before the CJEU in this instance; whether an intention to provide management services to a takeover target is sufficient to establish that the acquirer is involved in an economic activity and if there can be a direct and immediate link between professional services rendered in the context of such a potential takeover and the potential provision of management services.
The Court has yet to issue a judgment but the Advocate General has issued a preliminary opinion, that input tax recovery was justified by Ryanair, not as a holding company, but because it was seeking to take over Aer Lingus in order to extend an operating business.
CVC Comment: We await a CJEU decision but if this follows the AG’s opinion then this would suggest that HMRC’s policies on input tax recovery are, in some cases, too restrictive.
Court of Appeal
3. VAT recovery: VAT incurred in relation to investment activity
The Court of Appeal has referred matters raised in The Chancellor, Master and Scholars of the University of Cambridge case to the CJEU for guidance. The Court of Appeal proposes to ask the CJEU for guidance on the following:
- Where management fees are incurred in relation to a non-taxable investment activity is it possible to make the necessary link between those costs and the economic activities which are subsidised with the investment income.
- The Court of Appeal also seeks confirmation that its reading of the Sveda decision is correct and that no distinction is to be made between exempt and non-taxable transactions for deciding whether input tax is deductible.
CVC comment: the First Tier and Upper Tribunal previously ruled that the input tax incurred in relation to investment management fees could be treated as residual input tax and is recoverable to the extent that income derived supports taxable business activities. Taxpayers must hope that the CJEU agree.
4. Zero-rating the construction of a relevant charitable purpose building
Wakefield College, a charity, appealed against the Upper Tribunal’s decision that construction services provided to it in the course of constructing a new building were not zero-rated for VAT purposes. The supply in the course of construction of a building intended for use for a relevant charitable purpose i.e. a non-business activity, may be zero-rated.
The issue in this case was whether subsidised fees charged to students prevents the zero-rate from applying because it renders the education a business activity.
The Court of Appeal found that the supply of courses by Wakefield College to students paying subsidised fees is a business activity. The Court of Appeal provided the following reasons for its decisions:
- The sole activity of the College is the provision of educational courses, this is not an ancillary activity.
- The provision of courses to students paying subsidised fees is significant.
- The fees paid by subsidised students are significant in amount.
- The subsidised fees made a significant contribution to the cost of providing courses.
- The level of course fees was fixed by reference to the cost of the courses.
- The fees were not fixed by reference to the means of the student.
The College’s appeal was dismissed.
CVC comment: Wakefield College previously won its case before the First Tier Tribunal; however, HMRC succeeded in appealing the FTT’s decision to the Upper Tribunal. This decision provides further clarification of ‘non-business’ for VAT purposes. The Court of Appeal considered the CJEU decisions in Borsele and Finland, as well as the decision in Longridge on the Thames.
5. Third party consideration in a points reward scheme
This appeal by Marriot Rewards LLC & Whitbread Group PLC concerned whether payments made by Marriot Rewards (MR) to hotels participating in the loyalty scheme were consideration as a supply to MR or, alternatively, represented third party consideration paid by MR for supplies to customers redeeming points earned on the scheme, the reward being a “free” stay in a hotel. MR had submitted a reclaim of input VAT on the basis that payments made to participating hotels were consideration for services supplied.
A further issue arose; if payments were not third party consideration then were they payments for services relating to immovable property or advertising. This was relevant to the issue of where the supplies arose under VAT place of supply rules.
Upholding the decision of the FTT, the UT held that payments made by MR to hotels participating in the scheme were for supplies of services to MR. As regards the question of whether the supplies were related to land (immovable property) or advertising, the UT held that the supplies fell into neither description. This was relevant because for periods prior to 2010 Whitbread had sought to recover overpaid output VAT on the basis that it was, as a participating hotel operator, supplying services that fell outside the scope of VAT. Conversely, for periods after 2010, HMRC argued that the supplies should not have attracted VAT under the general place of supply rule, such that MR was ineligible to reclaim that VAT under the 13th Directive (MR wanted the services to be land related such that UK VAT charged could be reclaimed.
CVC Comment: This was a complex case involving three parties with different interests in the outcome. However, as far as the fundamental question of who redeems supplied services to it further undermines HMRC’s attempts to view the beneficiary of business promotion schemes as the recipient of supplies, a preferred analysis if HMRC in seeking to block VAT refunds. Whilst there are aspects of this case and appeal which are unique, those operating points rewards schemes should consider and clarify the VAT position in relation to any supplies made between parent groups and “redeeming” participating parties. It is also important to consider carefully exactly what supplies are being made and where they are being made for tax purposes.
First Tier Tribunal
6. Requirement to provide security for VAT
This appeal concerns a requirement to provide security to HMRC in respect of, amongst other taxes, VAT. Owing to historic non-compliance by the appellant and on-going non-compliance following entering into a “Time to Pay” arrangement with HMRC for substantial arrears, HMRC served a Notice to Derby Access Scaffolding (DAS), the appellant, requiring security for future VAT.
It was submitted by the appellant that the Notices requiring security to be provided were flawed and unreasonable. HMRC had failed to enter into dialogue with the appellant and had therefore made unreasonable projections of profit for DAS. It was also submitted that HMRC’s internal reviews could not be fair as they were internal and that the principle that decisions be made in a fair and reasonable manner had not been followed in this case. HMRC contended that it was reasonable to require security in the given circumstances, especially when considering historic non-compliance.
The Tribunal gave very little consideration to the notion that HMRC’s internal reviews were not partial. It also held that there is no obligation on HMRC to enter into dialogue with those to whom it serves notices of requirement of security and that for the purposes of protection of the revenue the amounts required in security were not unreasonable. Ultimately DAS failed to satisfy the Tribunal on any aspect of its appeal and the appeal was therefore dismissed.
CVC Comment: In cases of serious non-compliance, HMRC will seek security against not only VAT but all other taxes. This case illustrates that when the obstacles to challenging such a judgment are exceedingly high and the Tribunal has shown no enthusiasm for involving itself in matters of detail and respects HMRC’s discretion.