CVC VAT Focus 2 November 2017

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VAT Notice 707: Personal Export Scheme
This Notice has updated the telephone and fax numbers for the Personal Transport Unit

VAT Notice 714: Zero-rating young children’s clothing and footwear
The guidance in paragraph 4.2.1. has been changed to clarify that both bullet points need to be met for zero rate to apply where measurements are exceeded.

VAT Notice 747: VAT Notices having the force of the law
This notice updates and replaces the June 2003 edition. The contact information for comments and suggestions has been updated.

VAT Notice 998: refund scheme for museums and galleries
The list of museums and galleries eligible for VAT refunds has been updated due to an amendment to the VAT (Refund of Tax to Museums and Galleries) Order 2001

VAT Notice 741A: place of supply of services
This notice has been updated to reflect legislative changes coming into force on 1 November 2017.


Amazon and eBay traders may be targeted by HMRC

In CVC’s latest blog Helen Carey considers recent reports that MPs on the Public Accounts Committee (PAC) have criticised HMRC for being ‘too cautious’ in pursuing tax lost because a large number of third party sellers on Amazon and eBay are allegedly not charging VAT on sales they make in the UK.


Supreme Court

1. The Supreme Court dismisses Littlewoods’ claim for compound interest

The Supreme Court has ruled in favour of HMRC confirming that it should not have to pay Littlewoods’ compound interest worth £1.25 billion on overpaid VAT. In the period 1973 to 2005  Littlewoods overpaid £204 million in VAT to HMRC. HMRC repaid this sum, plus simple interest of £268 million. Littlewoods sought the additional interest calculated on a compound basis.

The Court of Appeal had previously upheld an earlier decision of the High Court in finding that simple interest is not adequate indemnity for losses incurred by incorrect over payments of VAT. However, the Supreme Court has held that the payment of simple interest “cannot realistically be regarded as having deprived Littlewoods of an adequate indemnity”. 

CVC comment: This was the lead case on the issue of compound interest. A further 5,000 claims for compound interest in connection with VAT and other taxes were stayed pending the resolution of this claim. The total amount involved in relation to VAT claim is estimated by HMRC at £17 billion.

 Court of Justice of European Union (CJEU)

2. Exemption for supplies of services closely linked to sport – definition of sport

In the case of The English Bridge Union Limited the CJEU has found that ‘Duplicate Bridge’ (a card game) is not covered by the concept of ‘sport’ for the purposes of the VAT exemption for supplies of services closely linked to sport.

CVC comment: the CJEU said that the concept of ‘sport’ must be determined by considering its usual meaning in everyday language. The Advocate General observed that ‘sport’ in everyday language refers to an activity of a physical nature. VAT exemptions must be interpreted strictly.

Upper Tribunal

3. Sale and lease back – Is this a disposal? 

We previously reported the FTT decision in the case of Balhousie Holdings Limited (Balhousie). Balhousie operates 25 care homes and forms part of a VAT group registration with Balhousie Care (BC) and three other subsidiaries.

The issue was whether Balhousie was liable to account for VAT on a self-supply that arose as a consequence of BC’s sale of the Huntly care home to a third party Target and the immediate leaseback from Target to BC. Huntly care home had been acquired by BC from a subsidiary of Balhousie not forming part of the BC VAT group. This purchase by BC had been treated as a VAT zero-rated first grant of a major interest in a relevant residential property. BC had entered into the sale and leaseback arrangement as a means of raising finance and HMRC considered that the onward sale had triggered a liability to a self-supply charge to VAT as a result of the change of use. BC argued that the transaction had not involved a disposal of its entire interest in the property and as such there was no VAT charge due.

The UT held that the FTT erred in law in its application of the relevant statutory provisions to the facts and a change of use VAT charge was triggered as a result of the sale and leaseback.

CVC comment: Whilst the FTT had decided that the sale and leaseback had not impacted on the actual use of the building, the UT concluded that this was not the case. BC no longer enjoys any rights flowing from the original zero-rated supply. BC may have a right of occupation but this flows from the lease not the original disposition.