Tag Archives: fortyseven Park street

Constable VAT Focus 30 May 2019

30th May 2019

This VAT Focus provides the usual updates of HMRC news as well as coverage of some of the more recent developments in the Courts including judgments in relation to the liability of the provision of fuel cards to subsidiaries, the exemption for the leasing of immovable property and the VAT liability of non-refundable overpayments.

HMRC NEWS

Notice 742A: Opting to Tax Land and Buildings

HMRC has updated the list of authorised signatories in section 7 to include corporate bodies, overseas entities and powers of attorney.

Notice 701/41: Sponsorship

HMRC has updated this notice with clarification on the treatment of mixed sponsorship and donations.

Help and Support for VAT

HMRC has updated its selection of webinars and online courses.

Making Tax Digital for VAT

The list of software packages which are compatible with Making Tax Digital for VAT has been updated. Make sure you remember your obligations under the new MTD regime. Making Tax Digital is now obligatory for most businesses on monthly VAT returns or calendar quarterly returns VAT returns should be preparing to be MTD ready for submission of the June 2019 VAT returns, unless they have been notified by HMRC that they will benefit from a delayed start of 1 October 2019.

CONSTABLE VAT NEWS

HMRC sees the construction industry as a sector that presents a significant risk to the Exchequer. As a result a reverse charge for building work is due to be introduced, to combat fraud. We have a new blog covering some of the important issues, which can be read here.

The rules will come into place on 1 October 2019, are you ready? If you feel like you will be impacted and require assistance in ensuring compliance from day one of the new rules being in place, do not hesitate to contact Constable VAT.

CASE REVIEW

CJEU

1. The Provision of Fuel Cards: Exempt Supply of Credit

This Polish referral concerned a Polish subsidiary of Vega International (VI), a company which provides transportation services for commercial vehicles, taking them from the factory and delivering them to the customer. To perform these services, VI operated various subsidiaries in different countries including Vega Poland (VP).

VI provides the subsidiaries with fuel cards issued by fuel suppliers, the subsidiaries provide these to drivers in order to get fuel to make the deliveries. The purchases are dealt with centrally by VI who invoice the subsidiaries for their fuel costs with a 2% surcharge for the service.

The question which arose before the Court was whether the service being provided by VI was an exempt provision of credit or a more complex transaction, the main objective of which was the supply of fuel; a supply of standard rated goods.

The Court considered a previous case, Auto Lease Holland in which similar fuel provision agreements had been discussed. The conclusion in this case was that such a fuel management agreement concluded between a leasing company and a lessee is not a contract for the supply of goods but a contract for the lessor to finance fuel purchases; at no point does fuel ownership really pass to the lessor as they do not interact with or choose the use of the fuel.

In concluding, the Court considered that by applying the surcharge, VI was receiving payment for the services provided to VP. These services were described as “financing in advance the purchase of fuel” and it was observed that VI was acting as a credit institute or bank would. The Court therefore held that the supplies by VI to VP were exempt.

Constable Comment: Given the decision in the Auto Lease Holland case, this outcome was not a surprise. Whilst the result does not entirely fit with the way in which fuel management contracts usually operate it provides a more plausible solution to the issue that assuming that VI bought and then resupplied fuel in a complex chain of goods when, in reality, they merely pay up front for fuel and charge for this service.

Court of Appeal

2. The Exemption for the Letting of Immovable Property

This case concerned the VAT liability of supplies of residences made by Fortyseven Park Street Limited (FSPL). FSPL argued their supplies were exempt and HMRC argued they were taxable.

In essence, individuals could purchase a “share” in the property in exchange for the ability to use the rooms and other facilities offered by FSPL; this is referred to as “fractional ownership”. The ownership of such a share confers on the owner the right to occupy the property for 21 nights of Primary Use Time and 14 nights of Extended Occupancy Time. In order to occupy a residence on a particular date the “member” (owner of a fractional share) must reserve a space in advance.

FSPL contended that their supplies were exempt as the letting of immovable property, HMRC sought to argue against this on two grounds; the first that the members were not entitled to occupy the property as if they were the owner and they were not entitled to exclude others, the second being that FPSL were adding significant value to the supplies of hotel-like services and were, therefore, supplying more than merely leases over immovable property.

The Court considered, in relation to the first point, that the underlying supply is of a license to occupy the property; the condition that a reservation is made is not an impediment to access or use a residence but facilitative as a mechanism for exercising the right provided by the licence to occupy. On this point they held in favour of FSPL.

With regard to the second issue, the Court considered the nature of the supplies offered by FSPL. It was observed that the letting of immovable property is a “passive” activity, whereas there was much more active involvement from FSPL. It was stated that significant value is added to the supplies by “hotel-like services” which go beyond the mere leasing of property.

With this in mind it was held that the fractional interest purchased by members was to be seen as a prepayment for such hotel-like services, to be received over a number of years. Therefore the Court held in favour of HMRC; the supplies made by FSPL were taxable at the standard rate.

Constable Comment: This decision overturns the Upper Tribunal which ruled that the supply was an exempt lease of immovable property. It highlights the importance of seeking the highest degree of clarity when seeking to apply a VAT exemption. Exemptions are applied very strictly and in any case, especially where large amounts are involved, it is advisable to seek advice for clarity.

3. No Change Given: Treatment of Excess Payment for Parking

This appeal concerned the VAT treatment of overpayments made by people wishing to park in an NCP car park; HMRC argued they were taxable and NCP contended the excess payment to be outside the scope as an ex gratia payment.

NCP operates pay & display car parks, to make use of one of the spaces a motorist must find a ticket machine and use change to pay, in accordance with the advertised prices, by the hour for parking. The machines state that overpayments are accepted but no change will be given. In essence, the advertised rates are the minimum payment which can be made to park for the corresponding amount of hours. For example, if one hour’s parking is £1.40 and 3 hours are £2.10, a payment of £2.09 will entitle the customer to one hour’s parking and no change; there is an overpayment of 69p.

NCP had accounted for VAT on these overpayments as part of the consideration for a standard rated supply of parking facilities. However, it later sought to recover these amounts as the overpayments were not, it contended, consideration for a supply but payments freely given.

The Court considered the nature of the contracts entered into by NCP and the customer each time a ticket is printed. It was observed that the customer was made aware of the price payable and was warned that no change would be given. The Court suggested that, taken together, the advertised rates and the warning that no change would be given indicated that NCP was willing to grant an hour’s parking for at least the advertised amount. It follows that the prices paid by customers will vary somewhat but ultimately that the money paid by the customer and received by the supplier represents the consideration for that supply.

Therefore the Court held in favour of HMRC and regarded the entire amount received by NCP as consideration for a taxable supply of parking facilities.

Constable Comment: This case was ultimately decided on what counted as consideration for a supply. It serves to highlight that what appears to be a simple, fundamental concept can actually generate complex questions around the nature of individual supplies. The contention that overpayments were ex gratia payments may have been a reach but there are certainly analogies to be drawn with other circumstances.

CVC VAT Focus 08 March 2018

8th March 2018

PARTIAL EXEMPTION

It is around this time of year that those businesses that are partially exempt are required to calculate their annual adjustment. This adjustment must be made in the VAT return period ending June/July or August but can be made in the prior period (March/April/May) if a business wishes. CVC is able to calculate or check these annual adjustments for businesses if required.

HMRC NEWS

VAT Notice 706/2: Capital Goods Scheme

Paragraph 4.12 of this Notice has been updated for styling purposes. There have been no factual changes.

VAT: Fulfilment Business Approval Regulations

HMRC has issued this Tax Information and Impact Note is about fulfilment and storage businesses that handle imported goods on behalf of third parties located outside the EU.

Genuine HMRC contact and recognising phishing emails and texts

HMRC has updated its guidance on how to recognise when a contact from HMRC is genuine, and how to recognise phishing or bogus emails and text messages.

CVC BLOG

Sale of donated goods by a charity – an opportunity to reclaim VAT incurred

In CVC’s latest blog Stewart Henry considers sales of donated goods by charities.

CASE REVIEW

Court of Justice of European Union (CJEU)

1. Whether local authority received services from its wholly owned not-for-profit company

A recent Hungarian case (Nagyszénás Településszolgáltatási Nonprofit Kft., C-182/17) before the CJEU concerned supplies between a local government (municipality) and its wholly owned non-profit making organisation (NFP). The NFP, under contract with the municipality, undertook to carry out certain public tasks such as management of housing and other property, management of local public roads etc. The NFP did not issue invoices to the municipality for the services nor did it charge VAT. The NFP argued that the contract did not constitute a contract for the provision of services; furthermore, the NFP argued it was a “body governed by public law” and as such if it is supplying services those services are VAT exempt.

The CJEU found that where a company performs public tasks under a contract with a municipality this constitutes a taxable supply of services subject to VAT. In addition, the NFP did not meet the conditions to be classified as a “body governed by public law”, it has none of the rights and powers of local authority and therefore the services provided do not fall within the VAT exemption for bodies governed by public law.

CVC comment: many local authorities sub-contract various responsibilities to charities and not-for profit organisations. Increasingly, charities enter into service agreements as oppose to receiving grant funding. It is important to consider the VAT implications of such contracts and agreements.

Upper Tribunal

2. VAT liability of timeshare

Fortyseven Park Street Limited (FPS) acquired a property, formerly a hotel, and refurbished it in 2002. The property now contains 49 self-contained apartments. FPS sold fractional interests in the property. The agreement under which fractional interests are sold is the Membership Agreement. Members are granted certain occupancy rights and access to exchange programmes. There are three types of occupancy rights: primary use time (up to 21 days in a calendar year) for no rental fee, extended occupancy time (once primary use time has been used, the member can occupy a residence for up to 14 days for a fee), and space available programme.

FPS argued that it supplied VAT exempt licences to occupy land. HMRC argued that members did not acquire the right to occupy property as owner, therefore VAT exemption did not apply. If HMRC failed on its first argument, it contended that the services provided went beyond a licence to occupy land and were therefore standard rated for VAT purposes.

The UT found that the grant of the fractional interest was the grant of a right to occupy a residence and to exclude others from enjoying such a right with no significant added value; therefore, the grant was VAT exempt. The UT also considered whether the licences to occupy were akin to hotel accommodation and standard rated. The UT set aside the FTT’s decision, finding that FPS did not supply accommodation similar to a hotel. FPS’ appeal was allowed.

CVC comment: the UT found that the FTT had erred in law. The FTT focused on the length of the stays, concluding that FPS’ supply was similar to a hotel, rather than on the nature of the right acquired by the members.

First Tier Tribunal

3. Permission to appeal out of time

Newcastle Under Lyme College (NULC) applied to the Tribunal for permission to bring a late appeal against a decision of HMRC to deny that construction supplies received during 2009 and 2010 should be treated as zero-rated.

NULC seeks to appeal HMRC’s decision dated 23 September 2014. NULC’s notice of appeal was filed on 6 February 2017, over two years out of time. NULC contends that a portion of the construction services supplied and received should be zero-rated on the basis that a portion of the building was intended for use solely for a relevant charitable purpose (RCP), namely, use by a charity otherwise than in the course or furtherance of business. This is on the basis that income received from ‘part-funded’ students is a non-business activity. There is litigation pending in this area in a number of cases, including Wakefield College which is the subject of an appeal to the Court of Appeal. Both NULC and HMRC agree that the case will be unarguable if the Court of Appeal upholds the Upper Tribunal’s decision in Wakefield College.

The Tribunal took into account the amount of VAT at stake in this appeal, why the delay in appealing occurred, as well as the fact that NULC has not presented a consistent case. The Tribunal made the point that permission to appeal out of time should only be granted exceptionally and it should not be granted routinely. Nevertheless, the Tribunal granted permission to NULC to bring a late appeal. The Tribunal considered this appropriate in order to deal justly with this case.

CVC comment: as the Tribunal has granted permission to bring a late appeal, NULC’s appeal will be stood behind the Court of Appeal’s judgment in Wakefield College. We will keep subscribers updated on the progress of this case.

4. Whether partial exemption special method fair and reasonable

Dynamic People Limited (DPL) provides domiciliary care to patients in their own home (VAT exempt welfare service) and training (subject to VAT at the standard rate). In 2011 DPL incurred costs associated with the purchase and refurbishment of two properties (Unit 1 and Unit 3). In 2012 DPL applied to HMRC for a Partial Exemption Special Method (PESM). The proposed method was a sectorised method which provided that the VAT recovery of costs associated with Unit 1 and Unit 3 be determined by reference to floor area. The VAT recovery of general (residual) costs would be recoverable according to a turnover calculation akin to the standard partial exemption method. Following a visit to the properties HMRC approved this method as giving rise to a fair and reasonable input VAT recovery.

With effect from 1 April 2014 DPL formed a VAT group registration. The other companies in the VAT group being non-trading companies which did not use Units 1 and 3. DPL, as representative member of the VAT group, was required to submit a new PESM proposal. HMRC rejected the proposed method on the basis that the method must be auditable by HMRC. DPL must be able to evidence the use of the various areas of the property.

The Tribunal found that VAT grouping with non-trading businesses did not result in the method not being fair and reasonable in this case. In addition, the Tribunal considered the proposed PESM to provide a fairer outcome than the standard partial exemption method (despite HMRC’s perceived difficulties in auditing the method).

CVC comment: the Tribunal accepted that the operation and audit of a PESM is relevant to the fairness and reasonableness of the method; however, the Tribunal commented that as the new method was identical to the method accepted by HMRC in 2012 to conclude that VAT grouping with non-trading entities that do not use the properties renders the method unfair and unreasonable is perverse.

5. Essex International College – VAT liability of supplies to students

Essex International College appeals an assessment for VAT in the sum of £275k. The College is a private limited company that provides tertiary level education courses accredited by Edexcel. The supplies made by the College to students included tuition and books. Students are charged a single fee. The College treated two-thirds of the fees charged to students as standard rated and one-third as attributed to the zero-rated supply of books. HMRC argued that the supplies made by the College constituted a single standard rated supply for VAT purposes.

The Tribunal felt there was insufficient evidence presented before it to reach a firm conclusion. However, based on the fact that students are charged a single fee and there is no opportunity for the student to receive one part of the supply and not the other, the Tribunal found in favour of HMRC that the College made a single taxable supply.

The College put forward additional grounds of appeal. First, that the College’s supplies are VAT exempt on the basis that the College is a university. Second, if the College’s supplies are not exempt under UK law they are exempt under EU law. Finally, the introduction of VAT in 1972 was a breach of the UK’s obligation to provide free education. The Tribunal dismissed all grounds of appeal.

CVC comment: the burden of proof was on the College to provide evidence that it made separate supplies of tuition and books. The College did not provide the Tribunal with evidence of the supplies it made or any marketing materials. The Tribunal was therefore unable to fully consider the issue of whether the College made single or separate supplies. Based on the agreed facts the FTT could only conclude that the College made a single supply.

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