Constable VAT Focus 9 February 2016


VAT MOSS: VAT on sales of digital services in the EU

This collection brings together the forms, online services, rules and guidance relating to VAT on the supply of digital services and the VAT Mini One Stop Shop.

Reminder of withdrawal of the VAT Misdirection Extra Statutory Concession 3.5 in cases of VAT liability change

Revenue and Customs Brief 07/16 is a reminder that the Misdirection Extra Statutory Concession where there has been a VAT liability change has been withdrawn and that HMRC will no longer consider refunds of tax due as a matter of routine.

Alcohol Wholesaler Registration Scheme (AWRS)

In VAT Notes 3 2015 HMRC outlined that businesses involved in the wholesale of alcohol have until 31 March 2016 to apply to register for AWRS or risk trading illegally.

The VAT Margin Scheme on second-hand cars and other vehicles

VAT Notice 718/1: This explains when to use the second hand margin scheme to account for VAT on sales of second-hand vehicles and has been updated to make it suitable for publication on and reflect the new address for commenting on the Notice.

VAT liability of imports

VAT Notice 702 Imports: This explains the VAT liability of imports from outside the VAT territory of the EU and has been updated to reflect that the C18 team have moved from Grimsby to National Clearance Hub (NCH) Salford and the paragraph relating to the Isle of Man VAT registered importers has been deleted.


Upper Tribunal

Construction of building for educational use – supplies of education to students paying less than cost of provision of course – standard rated supply.

In the case of HMRC and Wakefield College HMRC refused to authorise the College to issue a Certificate allowing its building contractor to zero-rate a supply of constructing a new building to the College, which was a charity, because it contended that some of the fees paid by overseas students amounted to consideration for a business supply.  The Tribunal agreed and dismissed the appeal determining that there was a direct link between the fees paid by the students and the supply.  As only a part of the fees were met by public funds, the College was forced to seek other sources of income.  The only way it could escape a tax burden on a building intended for a charitable purpose was if it could keep the extent of its business income below the 5% threshold.

DIY House Builder’s Scheme – condition as to occupation of dwelling in planning consent prohibited separate use or disposal – building not designed as a dwelling.

In the case of HMRC and Richard Burton, HMRC refused the appellant’s VAT refund claim under the DIY housebuilder’s scheme claiming that the building was not designed as a dwelling because a condition of the planning consent restricted occupation of the dwelling to a person employed in the fishery business on the premises.  The Upper Tribunal upheld the appeal in favour of HMRC, holding that the condition gave rise to a prohibition on the separate use of the building.  This is because each occupant of the dwelling had to have a specific link with the fishery business.

Online Genealogy business – PAYG credits used to download information were face value vouchers in electronic form –  pre May 2012 backdated claim for overpaid output tax allowed.

Findmypast Ltd sought repayment of VAT accounted for on unredeemed vouchers from September 2008 to 10 May 2012 arguing that where the vouchers had not been used, there was no taxable supply.  In May 2012, the law was changed to make VAT due on single purpose face-value vouchers at the time of their issue and so the claim did not extend beyond this date.  The appellant’s claim was rejected by HMRC and dismissed by the FTT.  HMRC contended that the nature of the supply was the purchase of a “package” by the customer, which gave him the ability to search the website, access the work done by the appellant, and download and print particular items if he so desired.  The Upper Tribunal overturned the decision, holding that the supply consisted of records downloaded by the customer and not a “package” including a search facility.  This was because the search facility was provided free of charge to everyone, regardless of whether or not they purchased PAYG credits.

First Tier Tribunal

Supply of herbal teas accounted for at standard rate – claim for interest on overpaid VAT under section 78(1)(a) VATA 1994 – entitlement arising from reliance on incorrect advice given by HMRC

The Avicenna Centre for Chinese Medicine Ltd (Avicenna) carried on a business of supplying herbal teas to customers and accounted for VAT on these supplies at standard rate until 2014.  Following a Tribunal decision that these teas could be zero-rated, Avicenna successfully reclaimed the overpaid VAT. However, its claim for interest on the overpaid amount was rejected by HMRC.  Avicenna argued that the overpayments were due to incorrect advice received by HMRC on three separate occasions.  HMRC claimed that it was up to individual traders to determine the VAT liability of their own supplies and that it had no duty to inform them of the contents of the VAT Acts.  The Tribunal allowed the appeal, holding that whilst HMRC did not have a duty to advise a taxpayer of their liability to pay VAT, this position changed if a taxpayer specifically asked them for advice on VAT liability.  Avicenna had specifically asked HMRC during an assurance visit and the HMRC Officer had erred in advising that the supplies were standard rated.  The appellant acted in reliance on this incorrect advice and was entitled to interest.

Frozen fruit product similar to water ice – standard rated supply

The Frozen Fruit Company Ltd made supplies of a frozen fruit product, which consisted overwhelmingly of fruit.  It contended that the supply should be zero-rated as it was similar to frozen fruit.  HMRC argued that the product was a “similar frozen product” to “ice cream, ice lollies, frozen yoghurt and water ices”.  The Tribunal dismissed the appeal, holding that the product was a standard rated supply similar to a water ice because it was a frozen dessert containing water and sugar.  The fact that the water and sugar came from the fruit itself did not alter this.  It was also packaged similarly to an ice cream and was designed to be eaten frozen, whereas frozen fruit could be defrosted and eaten.

Penalties – Default surcharge – late payment of VAT – reasonable excuse established – unexpected decrease in overdraft – tentative time to pay arrangement had been agreed with HMRC.

Ripon Farm Services Ltd  (RFSL) appealed against a default surcharge in respect of late payment of VAT claiming it had a reasonable excuse as it had relied on a provisional “Time to Pay” (TTP) arrangement agreed with HMRC.  Cash flow had been negatively influenced by fluctuations in seasonal trading and the bank had unexpectedly reduced RPSL’s overdraft.  HMRC contended that insufficiency of funds was not a reasonable excuse and that there was no TTP arrangement in place.  The Tribunal held that although insufficiency of funds was not a reasonable excuse, if the underlying cause of insufficiency of funds was unforeseen and out of control of the taxpayer, this could constitute a reasonable excuse.  Furthermore, the Tribunal found that a tentative TTP arrangement had been agreed with HMRC.  As HMRC asked the appellant to call back 7 days later for a formal decision, this took the appellant one day past its payment due date and so did not leave it any time to make alternative arrangements once HMRC  refused.  The appellant was able to establish a reasonable excuse and the appeal was allowed.

Charity – zero-rating of construction works for a relevant residential purpose  –  workshop and residential flats used together as a unit along with other existing buildings – workshop qualified for zero-rating

TGH (Commercial) Ltd was a wholly owned subsidiary of the charity, “The Great Hospital” in Norwich.  It undertook various construction works in the grounds of the hospital, including residential flats for the elderly and a workshop.  The workshop was used by the maintenance team to service the flats and other buildings, which ensured the comfort and well-being of the residents.  HMRC contended that the workshop did not qualify for zero-rating under Note 5 to Group 5 of Schedule 8 as it was not used as a unit solely with the residential flats, which were constructed at the same time, but with other buildings on the site which were already in existence. The Tribunal held that the fact that those buildings, which together formed a separate unit, may have also been used to support an existing building, did not prevent them being a unit as between themselves.  As the income received from the other activities on the site was de minimis, the Tribunal decided that all use of the workshop was intended for use solely for a relevant residential purpose and fell to be zero-rated.