CVC VAT Focus 26 January 2018


 Revenue and Customs Brief 1 (2018): VAT – treatment of affiliation fees for sports clubs

This brief is about the withdrawal of the concession that allows sports clubs treat affiliation fees as exempt from VAT.

Revenue and Customs Brief 2 (2018): VAT – treatment of Advanced Learner Loans

This brief explains HMRC’s view on the tax treatment of receipts of payments of Advanced Learner Loans from Student Finance England by educational bodies.

Serial Tax Avoidance Regime guidance

HMRC has issued guidance about the Serial Tax Avoidance Regime (STAR) legislation.

VAT partial exemption

HMRC has published research which explores the knowledge and use of VAT partial exemption among businesses in 17 industry sectors.

Notice 143: a guide for international post users

This notice explains what happens when you import or export goods by post using Royal Mail or Parcelforce Worldwide. The Customs Duty waiver and VAT relief on multi-gift packages has been updated. The section 4.5 link to Notice 203a has also been replaced with Notice 204b.

VAT Mini One Stop Shop: register and use the service

HMRC has updated guidance on how to register and use the VAT Mini One Stop Shop (VAT MOSS) to report and pay VAT due on sales of digital services to consumers in the EU.

VAT Notice 744B: freight transport and associated services

VAT Notice 744B has been updated to take account of developments in policy and changes in the law since the December 2010 edition.


 Court of Justice of European Union (CJEU)

1. Combined stadium and football museum tours

Stadion Amsterdam CV operates the Amsterdam Arena, home to AFC Ajax and The AFC Ajax Football Club Museum. Stadion Amsterdam rents the stadium to third parties for sports competitions and performances. When events are not held at the arena, it operates guided tours of the stadium and its facilities as well as a guided tour of the AFC Museum, called “World of Ajax”.

In the Netherlands, museum admissions are taxed at a reduced rate of 6%, whereas stadium tours are taxed at the standard rate of 21%. During the period at issue it was not possible to visit the AFC Museum without taking part in the guided tour of the stadium. It had already been established that Stadion Amsterdam provided a single supply of admission, the question for the CJEU was whether this composite supply was subject to the reduced or standard rate of rate. The CJEU held that access to the museum was ancillary to the main supply of the arena tour, as such the whole ticket price was subject to VAT at the standard rate.

CVC comment: This case provides interesting narrative surrounding the issue of taxation of composite supplies and may have implications for other operators of similar venues throughout the EU.

Court of Appeal

2. VAT recovery position of a retail bank

ING Intermediate Holdings Limited (ING) carried on a retail banking trade, receiving deposits from private individuals and acquiring bonds and securities with this money, in exchange for higher interest rates than many competitors. ING achieved this by offering only deposit accounts and not having any walk-in branches. Customers did not receive a cheque book, overdraft or debit card and could not make payments to third parties. Based on this, ING sought to argue it was making no primary supplies and that the relationship with the customer was one of lender/borrower, the customer being the lender.

This contention was dismissed by both Tribunals and the Court of Appeal as ING could not demonstrate that it merely took deposits without providing reciprocal banking services and could not show that transactions should be ignored for VAT purposes. ING also argued that any services they did provide were for no fee. Whilst the FTT found that there was indeed no express fee, it also found that the interest rate on the deposit accounts contained some deduction for services provided by IDUK. This indicated that there was a supply of services for a consideration. ING argued that this consideration could not be expressed in a monetary form, an argument dismissed by UT and Court of Appeal.

The Court of Appeal upheld the decisions of the FTT and the UT – that ING provided exempt banking services and was therefore not permitted to recover associated input tax.

CVC comment: Whilst ING’s business model is notably different than traditional banks, HMRC argued successfully that ING does supply the provision of banking services.

 First Tier Tribunal

3. Are funds raised via Kickstarter payment for services in advance?

Lunar Missions Ltd raised funds through crowdfunding platform, Kickstarter, which amounted to £672,447 and were paid on 6 January 2015. Lunar Missions’ plan was to send an unmanned robotic landing module to the moon. A £60 pledge will reserve backers a digital memory box that will be buried on the moon during the mission.

The issues in this case were whether the sums received were prepayments of consideration or consideration for supplies of face-value vouchers. If they are prepayments then the tax point is the date of receipt. If they are face-value vouchers, the tax point will depend on whether the vouchers are ‘single purpose vouchers’ (SPV). Whilst the default position for vouchers is that the tax point is the date of redemption, for SPVs, the tax point is the date consideration is received on issue of the vouchers.

The Tribunal considered the terms and conditions on Kickstarter’s website and the benefits associated with pledges. The Tribunal held that backers are supplied with face-value vouchers which are redeemable for one type of service, namely space in a time capsule. As such, the vouchers supplied were SPVs and taxable at the time of issue. The Tribunal upheld HMRC’s decision to VAT register Lunar Missions with effect from 16 December 2014.

CVC comment: With crowdfunding sites proving increasingly popular for start up businesses, this case highlights the need for businesses to consider the potential requirement for VAT registration from the outset.

 4. Default surcharge – Reasonable excuse?

Jonathan Skuce received a default surcharge to the sum of £5,922.10 at the 15% rate for VAT period 03/17. The VAT liability for the period was uncommonly large, being over three times the average VAT return liability for the business. During the period the business was due payments from a major customer for a contract with a net value of £174,000. The customer was in financial difficulty and Mr Skuce was unable to secure payment. To meet the forthcoming liability Mr Skuce mobilised all of his workforce to bring forward another contract in order to obtain payment. On completion of this job a cheque of £72,000 was lodged; however, Mr Skuce incorrectly believed the cheque would fall within his banks new faster clearing regime. On 11 May Mr Skuce became aware of the late payment and reauthorised another payment. The Tribunal ruled Mr Skuce had a reasonable excuse and allowed the appeal. The Tribunal considered that “what Mr Skuce did was a reasonable thing for a responsible trader, conscious of and intending to comply with his obligations regarding tax, to have done”.

Design Rationale received a default surcharge in the sum of £1,345.08 at the 2% rate for the VAT period 02/17. Design Rationale carries on a business of design and manufacture of interior fittings and is also a sub-contractor within the Construction Industry Scheme (“CIS”). The 02/17 VAT return was submitted on time; however, the return was unpaid until it was credited by HMRC by way of an offset of a CIS repayment due to Design Rationale. A similar situation occurred with the 11/16 VAT return which lead to Design Rationale entering the default surcharge regime. HMRC imposed the surcharge advising that the business should not withhold a payment of a return, even if it is anticipating a refund from HMRC, as such an offset is a discretionary action by HMRC. Design Rational contended it had a reasonable excuse as it could not pay the VAT due because of the huge overpayment held by HMRC. They had paid VAT on time for as long as they could, borrowing heavily to do so. The Tribunal had no difficulty in finding that Design Rationale had a reasonable excuse, it held that the circumstances were undoubtedly something that stopped the business from meeting a tax obligation that it took reasonable care to meet. The surcharge notices for both 11/16 and 02/17 were deemed not to have been served.

CVC comment: The tribunal in both cases referred to the Court of Appeal decision in Steptoe which established the principle that insufficiency of funds can never of itself constitute a reasonable excuse, but that the cause of that insufficiency, i.e. the underlying cause of the default, might do so.

 5. Whether novation of a contract amounted to a VAT exempt supply of land

Hanuman Commercial Limited (HCL) intended to purchase a commercial property and convert it into residential flats. HCL entered into a contract with Sabre Insurance Company Limited (Sabre) to purchase the property for £2.8 million (the “Sabre contract”). Sabre had opted to tax the property so the sale would be subject to VAT. The Sabre contract was conditional on Sabre securing that two of the tenants  vacated the property and on HCL obtaining satisfactory planning permission. Prior to completion of the Sabre contract, HCL entered into a contract to sell the property to Connect Centre Limited (CCL) for £5.5 million (the “CCL contract”).

On 16 May 2014, a number of additional agreements were entered into. The net effect of these agreements was that instead of Sabre selling the property to HCL for £2.8 million and HCL selling the property to CCL for £5.5 million, Sabre would sell the property to CCL for £2.8 million (less the deposit already paid by HCL) and CCL would make a separate payment to HCL for £2.7 million less the deposit already paid by CCL.

HCL issued CCL with two VAT invoices. The first being for the sale of the interest in the contract for £2.7 million plus VAT. The second was for varying the contract and was for £25,400 plus VAT. HCL failed to submit a VAT return for the relevant period and also did not seek to recover any VAT incurred in relation to the transactions. HCL decided that VAT had been charged in error and issued credit notes. HCL argued that it acquired an interest in the property which it then sold to CCL, which would be a VAT exempt supply as it had not opted to tax. HMRC contend that HCL did not supply a freehold interest in the property, instead it supplied an unexercised contractual right to purchase the property which is standard rated. The Tribunal agreed with HMRC that HCL had supplied services which were subject to VAT.

CVC comment: This case highlights the need to seek advice when contracts are drafted to ensure such amendments do not have adverse tax implications.

 6. Is bicarbonate of soda zero-rated?

Phoenix Foods Ltd (Phoenix) appealed HMRC’s decision that its supplies of bicarbonate of soda attract VAT at the standard rate of 20%. Phoenix contended its supplies were “food of a kind used for human consumption” and therefore zero-rated.

The Tribunal allowed the appeal, holding that the bicarbonate of soda supplied by Phoenix is in a form which is primarily intended for use as a baking ingredient is a supply of food and therefore subject to the zero-rate. The Tribunal accepted that bicarbonate of soda had many uses; however, this can also be said of other food products, such as vinegar.

CVC comment: In this case the supplies made by Phoenix were clearly intended to be used primarily as a baking ingredient, they were packaged in small tubs, consistent with the principal use being home baking and it was sold to retailers for sale in their home baking section.

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