Tag Archives: HMRC

Constable VAT Focus 16 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 deductibility of input VAT in different situations, where a tax point arises in relation to certain types of services and what constitutes “school or university education”.


Update to Public Notice 701/41: How VAT applies if you give or get sponsorship.

This notice explains how VAT applies if you give or receive sponsorship. A new section on crowdfunding has been added.

Update to Compliance Checks for VAT

This factsheet contains information about the penalties HMRC may charge you for a VAT or excise wrongdoing.

Update to Public Notice 700/22: making Tax Digital for VAT

This notice explains the rules for Making Tax Digital for VAT and about the digital information you must keep if they apply to you.

VAT Single Entity and Disaggregation

HMRC has updated its list of useful legal decisions in its internal guidance for single entities and the rules around disaggregation.




1. When a Tax Point Arises for a Supply of Services

This case concerned Budimex S.A., a Polish company engaged in the provision of construction services. The question which arose was when a tax point arises for a supply of services under which payment only becomes due when the customer is satisfied with the works; when the services are “performed” or when the customer certifies their satisfaction. Polish law dictates that where an invoice has not been issued within 30 days after the completion of work then the tax point arises on this date. Budimex had not issued an invoice for the supplies it made to a customer as they had not yet certified their satisfaction so had not paid any money over, the Polish authorities sought to recover the output VAT as a de facto tax point had arisen after the passing of 30 days from the completion of the services.

In considering this question, the Court highlighted that, according to EU law, VAT is to become chargeable when the goods or services are supplied. However, it was also considered that, taking into account the economic and commercial realities of the industry, that the contractual term may incorporate part of the service offered.

That is to say that Budimex was supplying construction services which, contractually, would only be “performed” when the customer was satisfied with the work, a contractual term specifically allowed for by the Federation of Consulting Engineers. Therefore it was held that the requirement for the customer to be entirely satisfied is a part of the service being offered.

The Court held in favour of Budimex.

Constable Comment: The type of rule in question stating that a de facto tax point must arise at some stage seeks to combat avoidance by companies who deliberately do not create a tax point in order to defer VAT liabilities. However this case shows that it is possible for these rules to be circumvented where “customer satisfaction” is a specific provision of the supply made.

2. Fictitious Transactions: A Right to Deduct?

This Italian referral considered whether supplies which were fictional but created no loss to the Revenue bear a right to deduct input VAT.

EN.SA is an Italian company which produces and distributes electricity, the Italian tax authorities denied recovery of input VAT in relation to certain supplies as there was no actual transmission of energy. The question arose before the Court whether this refusal breached the principle of fiscal neutrality.

Whilst accepting that it was not the case in the current circumstances, the Court considered a situation in which the customer had acted in good faith in which case, it was hypothesized, that the right to deduct would have to arise owing to the underlying principles of the EU law. Therefore it was found that the Italian law which gave the Italian authorities the right to refuse the repayment of input VAT was not contrary to EU law.

However, in considering the question, the Court also pondered whether a fine may be levied equal to an amount of the deduction made. It was found that a fine of this amount would go against the EU principle of proportionality and, therefore, that domestic tax authorities are precluded from issuing this type of fine.

Constable Comment: this was an interesting case as, on the surface, a fictional transaction should clearly not give rise to a right to deduct VAT. However, the Court was forced to consider a situation in which a customer had acted in good faith in which it stated that the right to deduct must arise. Therefore this judgment applies to very specific facts and national legislation which prevents the right to recover more broadly may be incompatible with EU law.

3. The Exemption for Private Tuition

This case concerned whether the provision of driving tuition by a private company benefits from the exemption found in EU law for the provision of education in the public interest, typically provided by schools and universities, when provided by certain private bodies.

A&G Fahrschul-Akademie GmbH (A&G) is a German company which provides private driving tuition to students with an aim of ultimately earning a driving license. It applied to have its VAT debt cleared as it believed it was exempt from VAT but the German tax authorities refused on the grounds that the tuition provided is not normally taught by schools and universities. A&G appealed this point and the question was referred to the CJEU; does the concept of school or university education cover driving schools?

In considering this point at length the Court suggested a broad definition of what does constitute “school or university education” for the purposes of the exemptions:

“…an integrated system for the transfer of knowledge and skills covering a wide and diversified set of subjects, and to the furthering and development of that knowledge and those skills by the pupils and students in the course of their progress and their specialisation in the various constituent stages of that system.”

The Court then posited, in the light of this consideration, that driving tuition provided by a private body would be specialised tuition rather than a transfer of knowledge and skills covering a wide set of subjects.

Constable Comment: This judgment will be important in the future as it provides a reasonably solid framework for what constitutes a school or university education, a part of the legislation which comes without a definition. However, whilst a good starting point, this is a broad definition with plenty of constructive ambiguity meaning the issue is likely to surface in the Courts again.

4. Incorrectly Charged VAT: Recoverable?

This case concerned whether PORR, a Hungarian company involved in construction, was entitled to deduct input VAT on certain transactions in relation to which VAT had been incorrectly charged under the normal VAT system where the reverse charge mechanism should have been applied by the supplier.

PORR sought to argue that the supplies were not subject to the reverse charge mechanism and, in any case, the tax authority had denied it the fundamental right in the VAT system to deduct input VAT. The tax authorities contended that such a right had not been denied, indeed that it had been expressly provided for under the reverse charge procedure. PORR also put forward that the tax authorities had failed to ascertain if the suppliers could correct this mistake at no expense to PORR.

The Court considered the relevant EU law and concluded both that the tax authority had no obligation to seek corrections from the supplier and that PORR has failed, in a substantive way, to fulfil its obligations under the reverse charge mechanism. The VAT charged was, therefore, not deductible by PORR.

Constable Comment: Different to the EN.SA case which dealt with fictional transactions, the transactions in this instance took place but had been classified incorrectly as normal supplies rather than reverse charge supplies. This outcome may appear harsh to a customer who has acted in good faith but it is vital to ensure that input tax cannot be deducted twice; once by the supplier and once by the customer.

5. Restrictions on Recovery of Input VAT

This case concerned Grupa Lotos S.A., a parent company to a group of companies in Poland, operating in the fuel and lubricants sector. Polish law excludes the recovery of input VAT incurred on overnight accommodation and catering services with limited exceptions where the cost relates to a supply of tourism services or, in the case of food, the provision of microwave meals to passengers. This provision in domestic law predates Poland’s accession to the EU however it was extended in 2008 to further exclude all overnight accommodation.

The dispute in the domestic court concerned whether Grupa Lotos could deduct VAT incurred on accommodation and catering services purchased, in part, for its own use and part for its subsidiaries. Grupa believed it should be entitled to recover a portion as it was not the consumer of the services and VAT is a tax on the consumption of goods or services. The Polish tax authorities disagreed and claimed that the Polish law made no distinction between the consumption and purchase for resupply of these services.

The matter was referred to the CJEU, the question being whether EU law must be deemed to preclude legislation such as the Polish law in question after its accession to the EU and whether domestic law can extend pre-existing exclusions after accession to the EU.

Giving consideration to the nature of the VAT system and relevant case law such as Iberdrola, the Court turned to look to Article 176 which provides that Member States may maintain restrictions on recovery which were in force before their accession to the EU. It was held that the Polish law, as it was in place prior to Poland’s joining the EU, was valid but that EU law would preclude the introduction of legislation akin to this were it to be introduced whilst any given Member State was within the EU. Therefore the extension to the exclusion in 2008 was invalid.

The question of VAT recovery in this particular case has been referred back to the domestic courts to determine if the supplies involved are ‘tourism services’.

Constable Comment: This case serves as a reminder of how EU law works. Whilst “direct effect” means EU law takes precedence where domestic law is incompatible with new EU laws, where a country joins the EU and becomes a member state, direct effect does not apply retrospectively. This is interesting given the current climate with five nations seeking to join the EU; they may be allowed to keep certain restrictions but will not be allowed to extend them if they successfully enter the EU.


Constable VAT Focus 28 February 2019


Find Software that is Compatible with Making Tax Digital for VAT

Check which software packages are compatible with Making Tax Digital for VAT.

HMRC Impact Assessment for the Movement of Goods if the UK leaves the EU without A Deal

The impact assessment originally published on 4 December 2018 has been updated to include the impacts on the customs, VAT and excise regulations laid before Parliament in January 2019.

HMRC Impact Assessment for the VAT Treatment of Low Value Parcels

Again, the original impact assessment has been updated.



As the 29 March Brexit date approaches there is still uncertainty around whether there will be any deal in place by then. It is essential that any traders or businesses which may be affected by changes in VAT procedures make plans to ensure a smooth transition.

Businesses trading with the EU need to consider the following:

If goods are moved

  • Getting an EORI number
  • Registering for simplified import procedures

If electronic services are supplied

  • Registering for non-Union MOSS in an EU member state as soon as possible after 29 March if there is no deal.

If goods are supplied to consumers in the EU under distance selling rules

  • Maybe VAT registrations are required in other EU countries?

If VAT is paid in other EU member states

  • Claims for 2018 must be submitted before 29 March 2019
  • How will this VAT be claimed after Brexit?

HMRC has updated its online guidance on the above, which can be viewed here.

Contact Constable VAT if any of the above will affect you or your business, we are happy to advise on any VAT related matter.



Remember to enrol for Making Tax Digital on time and during the right enrolment window for your VAT accounting periods. Constable VAT have analysed the enrolment windows and our summary can be found here.





1. The Exemption for Goods Imported to be dispatched to Another EU Member State

This case concerned whether the exemption for import VAT on goods arriving in an EU member state to be dispatched immediately to another EU member state and whether domestic tax authorities can disapply the exemption where tax evasion is involved.

Vetsch is an Austrian company which acted as a tax representative for two Bulgarian companies, “K” and “B”. Vetsch submitted declarations stating that goods imported from Switzerland, by K and B, benefited from the exemption for goods imported for subsequent dispatch. However, the subsequent dispatch did not occur and Vetsch became liable under Austrian law, as representative, for the import VAT which should have been paid.

Vetsch appealed against a decision from the domestic tax authorities to that effect but the appeal was refused. Vetsch brought an appeal on a point of law before the domestic Courts which led to the CJEU referral.

The Court came to the conclusion that, as Vetsch was unaware and there was no evidence to support the idea that it knew or ought to have known about the subsequent evasion that the exemption could not be refused.

Constable Comment: This case shows how at an EU level, the strict interpretation of the law is not always adhered to if it creates inequitable results. In finding that Vetsch did not know and would not have known if carrying on business as a reasonable person would, the Court has upheld the idea of equity.


2. Retroactive Application of Implementing Decisions

This case concerned the application of the Decision authorising the Hungarian Government to apply the reverse charge procedure enshrined in EU law. The Hungarian tax authorities were notified of their authorisation in December 2015 but sought to rely on the implemented provision to retroactively assess Human Operator Zrt. for the January 2015 VAT return.

The question before the Court in this instance was whether EU law precludes national legislation from retroactively applying measures authorised in an Implementing Decision where that Decision does not make a comment on the retroactive applicability of that Decision or give a date on which it comes into effect.

The Court gave consideration to the principles of legal certainty and the protection of legitimate interests. They concluded that the requirement of legal certainty must be observed very strictly when it comes to rules liable to entail financial consequences, in order that those concerned may know precisely the extent of the obligations which the rules impose on them. It was also held that these principles must mean that EU law can only apply to situations after they have explicitly come into force.

In the absence of a provision in the Decision suggesting a different date for it to bite, the Court considered that it must be taken to be effective from the date on which it was published.

Constable Comment: This case is a good demonstration of how the CJEU seeks to protect the rights of individuals and businesses against the State. The fundamental principles of the EU and the spirit of the law are given a great degree of influence in the European Courts. This decision has prevented a seemingly unconscionable result.


First Tier Tribunal

3. Electric Blinds in a DIY Build

This case concerned the right to deduct input VAT incurred in relation to a DIY house build by Mr David Cosham. Mr Cosham designed an “eco-build” property and sought to recover input VAT on building materials used under the DIY housebuilders scheme. HMRC accepted certain elements of the claim but rejected the element which related to electric blinds installed at the property, asserting that electric blinds are not within the definition of “building materials” for VAT purposes associated with the scheme.

Appealing HMRC’s decision, Mr Cosham claimed that the blinds did fall within the definition as they are “ordinarily incorporated by builders in a building of that description”. He contended that “buildings of that description” should, in this case, be taken to mean “eco-builds”.

Giving some consideration to relevant case law, the Tribunal found that “eco-builds” were a well-established market sector and could be recognised as a distinct type of property. The onus was put on Mr Cosham to show that blinds such as those in question were “ordinarily incorporated” into properties of this description. Mr Cosham could produce no such evidence so his appeal was denied, the Tribunal holding HMRC’s decision to be correct.

Constable Comment: This conclusion drew on previous case law such as Taylor Wimpey and came to the conclusion that “eco-builds” are to be treated as a class of property in themselves. This is interesting as it could be argued that, compared to older housebuilding practices, the vast majority of new build homes are definable as “eco”. This case has opened up the question of what exactly is ordinarily incorporated into an “eco-build”. It is unsurprising that HMRC pursued this point. Blinds more generally are objected to by HMRC despite losing a previous case at the First Tier Tribunal on a related point.


4. Deception: A Supply of Goods or Services?

This case concerned Mr Owen Saunders who had been found guilty of taking money in exchange for work he promised to perform but never had the intention of performing. He had been found guilty as a criminal and been sentenced to time in prison as well as having been served a confiscation order for in excess of £60,000. The confiscated funds had been divided equally amongst his victims by way of compensation for their loss.

HMRC contended that Mr Saunders was engaged in a business activity and should have been registered for VAT. The Tribunal believed that the crucial issue was whether or not there had been a supply for a consideration made in the furtherance of business. Giving consideration to the examples of drug dealers (who can pass title in goods) and fences (who cannot as they never gained title) as well as the definition of a supply in accordance with VAT law, the Tribunal held that there was no supply by Mr Saunders for the monies he received.

The assessment and associated penalties against Mr Saunders were quashed, it was held that his conduct had led to a “total failure of consideration” which was evidenced by the fact that 100% of the confiscated money was paid back to the victims.

Constable Comment: This was an interesting case in that it analysed Mr Saunders as akin to a drug dealer or someone fencing stolen goods. A particularly interesting point raised was the fact that a drug dealer can pass title to his goods and thus his turnover represents supplies and consideration so, in turn, could create an obligation to register for VAT. This illustrates the point that a lack of compliance with the law does not discount the supplies made from turnover for VAT purposes.


Post-Brexit VAT accounting legislation

New legislation has been laid before parliament in preparation for the UK’s exit from the EU. This takes the form of statutory instruments including 2019/59 and 2019/60.

The changes that these new Regulations will introduce will have effect once the Treasury brings them into force when the UK leaves the EU.


The commentary to the SI states that the Regulations are made to address failures of retained EU law to operate effectively, and other deficiencies arising from the withdrawal of the United Kingdom from the European Union.

The Regulations:

  • amend secondary legislation relating to VAT to reflect the fact that the United Kingdom will no longer be a member State of the EU and that EU member States are now treated in the same way as the rest of the world vis-à-vis the United Kingdom. Amendments are made as a consequence of the abolition of acquisition VAT and extension of import VAT to EU member States and to reflect the new definition of importation and other new terminology.
  • Amend the Value Added Tax (Payments on Account) Order take account of new accounting procedures for import VAT introduced 2019/60
  • revoke legislation relating to VAT which is inoperable as a result of the abolition of acquisition VAT by, and introduction of new customs procedures under, the Taxation (Cross-border Trade) Act 2018 (TCTA) . It also revokes legislation relating to VAT which is spent as a result of these revocations.


These Regulations  make provision in relation to accounting and payment for import VAT on the importation of goods by persons registered for VAT following the UK’s withdrawal from the European Union.

Among other things, the Regulations include provisions:

  • that will allow a person registered for VAT and liable to pay import VAT on relevant imported goods to have any such goods delivered or removed without payment of import VAT where that person accounts for the import VAT under the Regulations.
  • that provide that a person registered for VAT and choosing to account for import VAT under these Regulations may do so on the return that person is required to make for a prescribed accounting period.

CVC will be issuing a detailed commentary on these provision and other matters relating to Brexit planning in the next few days.

CVC VAT Focus 27 September 2018


Trading Goods Regulated Under the “New Approach” if There Is No Brexit

How trading in harmonised goods regulated under the New Approach would be affected if the UK leaves the EU with no deal.

Software Suppliers Supporting Making Tax Digital for VAT

Find out which software suppliers HMRC is working with to produce suitable Making Tax Digital for VAT software for businesses and their agents.

Customs Declaration Service

The Customs Handling of Import and Export Freight (CHIEF) process is being replaced by CDS, a modern and flexible system that can handle anticipated future import and export growth.



Constable VAT Consultancy is in the process of updating its website to make it easier to access information about our services and to keep you up to date all the upcoming changes in VAT. The first step in this process is a change in our website and email addresses from ukvatadvice.com to constablevat.com. You don’t need to do anything to continue to access our website or your usual contacts, all mail and website traffic will automatically be rerouted. However, you will notice that emails coming to you will show our new email addresses. If you are in any doubt at any time as to whether an email you receive from us is genuine please call our office on 01206 321029.




Upper Tier Tribunal


1. Splitting Single Supplies

This appeal concerns whether the VAT legislation allows application of a reduced rate of VAT to a component of what is, for VAT purposes, otherwise regarded as a single, standard rated supply. The Appellant had received assessments from HMRC for underpaid output VAT owing to the fact that single supplies were being split between standard and reduced rates of VAT.

A N Checker supplied and installed boilers along with energy-saving materials in domestic properties. The question before the Tribunal was whether the supplies were single supplies subject to either one or two rates of VAT. A N Checker did not argue that the whole supply should benefit from the reduced rate because of the reduced-rated component of the supply but that the reduced-rated component should benefit from the reduced rate despite being part of a single, standard rated supply of the installation of boilers.

The Tribunal found that, in the absence of a legislative provision for apportionment, a component of a single supply does not benefit from a reduced rate when forming part of a single, standard rated supply. It was asserted that, despite ambiguity in the construction of the legislation, there is no presumption in favour of a more liberal application or interpretation of the reduced rating provisions. The appeal was dismissed.

Constable Comment: Whilst certain supplies may be clearly defined and their treatment definitively described in VAT legislation, there are businesses which may make complex supplies of combined goods and services. In light of this decision, these businesses may wish to refresh existing practices and seek professional advice around the VAT treatment of their supplies.


First Tier Tribunal


2. Alteration or Annexe

This decision concerned the VAT liability of construction works undertaken at a church building, the Roman Catholic Diocese of Westminster sought to argue that the construction of a new hall attached to the old building after the remodelling of the church constituted an annexe to an existing building and should qualify for zero-rating. HMRC argued that the new hall constituted an alteration, enlargement or extension and was excluded from the zero-rate.

Prior to the construction, the Church had been separated into two areas, a worship area and a hall. The two were distinct from each other. The new hall had its own doors and was kept separate from the Churches area of worship; the hall being used for social events such as whist drives. The Tribunal considered that the construction work had been carried out in order to expand worship space for the Church and therefore, that the hall was a supplementary structure and an annexe to an already existing building.

The FTT also considered that the annexe could operate separately from the main Church with its own doors, toilet facilities, kitchen and radiators. It is held that the costs incurred were correctly treated as zero-rated by the Diocese.

Constable Comment: This case will be of interest to anyone carrying out construction works. It is prudent to seek professional advice before works begin as if the incorrect rate of VAT is applied throughout a lengthy and expensive project, it is possible that HMRC will seek to recover any input VAT incorrectly claimed or issue VAT penalty assessments if a certificate is issued to a contractor claiming zero-rating in error.


3. DIY Housebuilder’s Scheme

This appeal is against a decision by HMRC to refuse a refund of VAT incurred on the construction of a building as a DIY Housebuilder.

The Appellant received planning permission in 2011 for a proposed building to be used for tourism purposes only. This was an explicit term in the permission and it was specifically stated that the property “…shall not be occupied on a permanent basis.” Following completion of the construction, the DIY VAT refund claim was submitted to HMRC seeking to recover the VAT incurred on the costs of the build.

The VAT repayment was denied on the grounds that the property was only for business purposes; one of the covenants attached to the planning permission being that the property be used for tourism purposes only. HMRC contended that this meant that the property had been constructed in the course of business and so the DIY housebuilders scheme was inapplicable.

Giving a reasonable amount of time to the Appellant’s submissions, the Tribunal found in favour of HMRC and upheld its refusal to repay VAT incurred on the grounds that the intention and planning permission for the development was specifically for business purposes and prohibited domestic use.

Constable Comment: The DIY Housebuilder’s scheme enables people wishing to build their own homes to put themselves on a level playing field with property developers who can recover their input tax provided that they intend to make taxable supplies. It can be a complex process and standards of proof can be very high. If you are considering submitting a DIY Housebuilder’s claim or beginning a project then please do not hesitate to contact Constable VAT. In this case the appellant could have VAT registered voluntarily, supplies of holiday accommodation being standard rated, and reclaimed VAT incurred. VAT would have to have been accounted for on supplies of holiday accommodation moving forward.


4. Personal Export Scheme

This is an appeal against a decision by HMRC to refuse to allow the personal export scheme to apply to the Appellant’s export of a vehicle.

Hofmanns Henley Limited (HHL) is a car dealership which agreed the sale of a car to a customer resident in Jersey. It was intended that the Personal Export Scheme be applied to export the car at the zero-rate of VAT. Having agreed the sale and sent the appropriate paperwork to HMRC, the car was supplied to the customer.

HMRC refused the application to use the scheme claiming that HHL did not have the necessary pre-approval to zero-rate the car’s export; whilst the forms had been sent off, they had not been approved prior to the car’s removal from the UK.

HHL conceded that it had made a mistake but asserted that it was, at least in part, the fault of HMRC’s misdirection given over the telephone. HMRC also concede that the incorrect information was given to the Appellant over the ‘phone but state that the complaints in relation to this had been handled separately through the formal grievance procedure.

The Tribunal held in favour of HMRC as the criteria for the application of the Personal Export Scheme had not been met.

Constable Comment: Whilst this case revealed mistakes by both sides it serves to prove an important point. HMRC telephone conversations and Public Notices are not to be relied on as the law. For any high value purchase or acquisition with a potentially complex cross-border transaction and application of a special scheme it is vital to seek professional advice to ensure the highest degree of compliance. In circumstances such as these, HMRC often state “the law is the law” even in cases of official error. Where doubt or ambiguity exists, submitting a non-statutory clearance application to HMRC is the safest approach because HMRC will be bound by this, provided full facts have been presented.

CVC VAT Focus 23 August 2018


Local authorities and similar bodies

Decide which activities are business or non-business for VAT purposes if you’re a local authority or other public body.

Apply for the Fulfilment House Due Diligence Scheme (Notice FH1)

Find out if you need to be registered to store goods in the UK for sellers established outside the EU.

Administrative agreements with trade bodies (VAT Notice 700/57)

Details of administrative agreements relating to VAT on certain specific transactions between members of trade bodies and HMRC.

Software suppliers supporting Making Tax Digital

Find out which software suppliers HMRC is working with to produce suitable Making Tax Digital for VAT software for businesses and their agents.




1. Estonian Sales Tax Illegal?

The issue before the court in this instance was whether Article 401 of the VAT Directive must be interpreted as barring the maintenance or introduction of a local sales tax. The City of Tallinn introduced a 1% local sales tax which affected Viking Motors and other appellants, Viking Motors challenged the legality of this tax on the basis that the EU law on VAT only allows one turnover tax: VAT.

Giving consideration to the nature of VAT and how it is applied, it was concluded that there were sufficient differences between EU VAT and local sales tax for the two to run in tandem. It was held that Article 401 does prevent the introduction of another turnover tax but in this instance, as the cost could be absorbed by the business rather than being passed on to the consumer, the two taxes are sufficiently different to not breach EU law.

CVC Comment: There is a very high degree of scrutiny offered by the Courts when it comes to challenging the legality of domestic laws and taxes under EU law. In this case it was held that the nature of how the tax is applied, despite being materially the same, made the two taxes sufficiently different.


2. VAT on Joint Venture Costs


TGE Gas Engineering GmbH (TGE) is a company established in Germany which entered into a joint venture with a company called Somague Engenharia SA in Portugal in order to expand a gas terminal in Portugal on behalf of a utility company. TGE obtained a Portuguese tax ID number as a non-established person in that country in order to create an economic interest group to carry out the joint venture.

After this TGE set up a branch in Portugal and obtained another tax ID from the Portuguese authorities. This branch provided services to the joint venture which were charged on to the utility company and it was also invoiced for the costs to TGE in Germany.

The Portuguese tax authorities had previously denied recovery of the input VAT incurred on these costs based on special domestic rules applying to joint ventures. The Court held that Articles 167 and 168 of the VAT Directive and the EU principle of neutrality must be interpreted as preventing domestic tax authorities from regarding a company which has its headquarters in another Member State and the branch which it has in the first of those States as constituting two separate taxable persons. For that reason, they are also prevented from refusing that branch the right to deduct the VAT on the expenses incurred on behalf of the joint venture/parent company.

CVC Comment: The UK tax authorities may view joint ventures as a taxable person in its own right for VAT purposes. In that scenario, it is the joint venture that has the right to recover any VAT incurred, rather than the parties to the joint venture. This serves as a useful reminder that purchase invoices should be addressed to the correct taxable person. The business activities of a joint venture should be considered in its own right, and an obligation for a joint venture to VAT register may arise if the parties arrangements are considered to form a partnership. A joint venture may choose to VAT register voluntarily in order to recover VAT incurred (subject to the usual VAT recovery rules).


3. Municipalities: Entitled to deduct?


The Polish municipality of Ryjewo constructed a building in Poland and the made a “cultural centre” responsible for the management of the property, allowing them to use the building free of charge. This was allocated as a non-taxable activity for the taxation authorities, despite The Municipalities’ VAT registration, as there was no charge made.

Four years later a part of the building was rented out commercially, The Municipality sought to adjust the deduction of input VAT paid for the building, now attributing this part of the building to a taxable supply. The relevant Polish Minister had reached a decision that VAT was not deductible for The Municipality as the building was not used for an economic activity. This is appealed against.

The Court find in favour of The Municipality, concluding that at the time the building was constructed it was acting in its capacity as a taxable entity and not as a non-taxable Government body. VAT is deductible despite the building having initially been put to 100% non-taxable use by a public body.

CVC Comment: Even though no intention to later use the building to make taxable supplies was declared and there was an argument for no economic activity having previously taken place, the deduction was allowed by the CJEU. This is because the right to deduct input VAT is a fundamental aspect of the VAT system. Ultimately, the first use of the building did not matter as this only determines the initial reclaim, adjustments are to be made in line with changes in taxable/non-taxable use. This case may be of interest to organisations that have made an initial non-business use of capital expenditure on property.


First Tier Tribunal


4. Gaming Machines and Fixed Odds Betting Terminals


The issue before the Tribunal in this instance concerned revisiting the EU principle of fiscal neutrality. The Rank Group (Rank) made supplies of gambling through gaming machines including fixed odds betting terminals (FOBTS) and “casino jackpot machines”. The casino jackpot machines were specifically excluded from the exemption to VAT but FOBTS were exempt from VAT before 6 December 2005 when the definition of “gaming machine” was extended.

Rank made a claim for repayment of VAT which it had charged and accounted for in relation to the jackpot machines on the grounds that the two machines were similar and treating their supplies differently for VAT purposes was contrary to the principle of fiscal neutrality.

After a detailed consideration of relevant case-law and analysing the different types of machines to draw similarities and differences between the two, the Tribunal concluded that, despite certain differences, these differences did not have a significant influence on the average consumer’s decision to use one or the other. The Tribunal found in favour of Rank and allowed the appeal against a decision to deny VAT recovery.

CVC Comment: This case shows that the Tribunal will have regard to how the consumer interprets what he/she is purchasing and the material aspect of the supply. It was observed in the judgment itself that to try to draw distinctions within individual gaming machines and games could lead to absurdities of different rates of tax being applicable to one machine. HMRC will often apply similar tests to that of the Tribunal although when analysing transactions.



First-Tier Tribunal comments on HMRC’s treatment of disabled people


CVC advises many charities. Our clients include a number who offer support to vulnerable people and those with disabilities.  The recent decision in Sandpiper Car Hire Limited saw the Tribunal criticise HMRC’s approach to dealing with disabled people.


The facts can be summarised as follows:

  • Sandpiper appealed the decision of HMRC to issue VAT default surcharge liability notices in respect of VAT accounting periods 01/11 to 10/15. The surcharges totalled £9,643.81.
  • Sandpiper believed it had a reasonable excuse for its defaults and failure to pay VAT owed to HMRC by due dates.
  • Sandpiper evidenced the following facts in support of its position.
  • The 70 year old sole director of the business has suffered with Meniere’s disease for 20 years and finds it extremely difficult to hear.
  • The director was diagnosed with cancer. When removing a tumour the surgeon damaged a major nerve to the director’s spine which required a number of further operations.
  • Due to a combination of significant pain and severe mobility issues the director was prone to lengthy, frequent and unpredictable absences from the business. Further surgery nearly resulted in the director’s death.
  • Managers employed to run the business were unreliable. One set up a competitor business whilst employed by Sandpiper.  Another defrauded the business out of thousands of pounds.  The offence was reported to the Fraud Squad.
  • VAT payments made by the business to HMRC had been credited to the company’s PAYE account by HMRC in error.
  • The director wrote to HMRC numerous times advising he was deaf and unable to communicate via the phone. HMRC responded each time with a letter giving a contact telephone number to call to discuss the matter.
  • The director’s wife called the number given by HMRC; however, this was unobtainable. She traced another telephone number but HMRC refused to discuss the matter with her because she was not an officer of the company.
  • A letter to HMRC from the director dated 20 April 2017 was treated as a complaint by HMRC. On 12 May 2017 HMRC’s Complaints Team wrote to the director giving a telephone number to call.  HMRC also denied that it “had not considered your illness and constant hospital appointments” when pursuing default surcharges.
  • Incredibly, HMRC’s litigator commented in Tribunal that the taxpayer “has not provided anything to the Commissioners to the effect that the health of the director prevented the company from making payment of VAT by the due date”. When pushed on this point by the Tribunal HMRC’s litigator responded that the director should have “made alternative arrangements”.


The Tribunal considered whether the director’s actions were reasonable.  He suffered with a debilitating illness, was diagnosed with life-threatening cancer and an operation to remove a tumour resulted in unexpected and significant spinal damage.  The director put in place arrangements he believed would ensure the company met its VAT obligations.  Unfortunately, the company was subject to an £80k fraud (reported to the police) which resulted in the company defaulting on its VAT obligations.


The Tribunal referred to the Court of Appeal decision in Steptoe.  Lack of funds does not give taxpayers a reasonable excuse for non-payment of VAT; however, the cause of insufficiency of funds could provide a reasonable excuse.  The Tribunal commented “we have no hesitation in finding that the company has a reasonable excuse for its VAT defaults”.


The Tribunal gave its decision orally at the end of the hearing.  The Tribunal suggested a short decision might be sensible.   This is common in dealing with default surcharge appeals in respect of which a full written decision is unusual.  The director of Sandpiper agreed; however, HMRC refused and requested a full decision in case HMRC wishes to apply to lodge an appeal with the Upper-Tier Tribunal.


Given the position, the fact that HMRC even took the case let alone considered that it might then lodge an appeal might be viewed as surprising.  In issuing a full decision the Tribunal took the opportunity to comment on HMRC’s approach to dealing with taxpayers suffering serious medical conditions.


Although the director of Sandpiper advised HMRC in writing on numerous occasions that he had severe difficulty hearing and could not hold a telephone conversation, HMRC continually told him to call them.  It seems clear that the director has a number of long-term health conditions defined by the Equality Act.  HMRC Debt Management and Banking Manual guidance at DMBM585185 instructs HMRC officers to take account “in all cases” the “possible detrimental effect on the debtor” of taking recovery action.  Officers should also consider “the possibility of unreasonable distress” and “the likelihood of adverse publicity” if unsuitable action is taken.  The Tribunal also commented that, in this case, the director could (or should) have been referred to a HMRC Needs Extra Support (NES) Team.  The Tribunal decision concludes as follows.  “The Tribunal has no jurisdiction over how HMRC treats its disabled customers, and no jurisdiction over the collection of VAT debts or the allocation of tax payments.  Nevertheless, we hope that HMRC will take into account our comments”.


This case and HMRC’s behaviour, would probably not have been widely circulated and be in the public domain had HMRC’s litigator accepted a short decision.  HMRC’s insistence on a full decision gave the Tribunal an opportunity to lay out what, in our opinion, should be viewed as an embarrassing sequence of HMRC actions.  Nevertheless, this illustrates how HMRC behaves in certain cases.  It is hard to imagine the stress and anxiety caused to the taxpayer in this case by HMRC.  In his letter of 8 June 2017 to HMRC the director of the business concluded “…firstly, you discriminate against me because of my disability and secondly you hound me with daily texts/letters from Debt Management and I am the person who has had to fight to sort out your errors going back 2 years”.


It will be interesting to see if HMRC applies to the Upper-Tier to appeal this decision.  What is surprising is that at no point does HMRC express any sympathy for its treatment of the taxpayer or offer an apology for its actions.  HMRC has a difficult job to do and, in our view, it undermines the public support it needs to do that job when it shows such a total lack of empathy.  It would be interesting to know just how much taxpayer money HMRC invested in pursuing the £9,643.81 of surcharge assessments; however the reality that anyone dealing with this fact pattern thought that this was in the public interest and a good use of taxpayer’s money is mystifying to us.



CVC VAT Focus 12 April 2018


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 review these annual adjustments for clients if required.


VAT: road fuel scale charge tables

VAT Updated Valuation Table: Road Fuel Scale Charges effective from 1 May 2018 added to the page.

VAT Notice 700/11: cancelling your registration

This notice tells you when and how to cancel your VAT registration.

VAT Notice 700/1: should I be registered for VAT?

This notice cancels and replaces Notice 700/1 September 2016.

Apply for the Fulfilment House Due Diligence Scheme (Notice FH1)

Page updated with link to new application service and further information what information needed to apply to register.


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


Where certain conditions are satisfied, the sale of donated goods by a charity is zero-rated for VAT purposes. This can be beneficial because no output VAT is due on the income generated by these sales but a right to input VAT recovery on associated costs arises.


First Tier Tribunal


1. Reasonable Excuses?


In this instance the Tribunal heard an appeal from an individual, Mr. Phillip Ashley Legg against HMRC’s decision to impose various surcharges ranging from VAT accounting periods 12/05 to 12/14.
During this period, Mr Legg only made two payments from 14 September 2006 and 29 June 2012. Mr Legg sought to contend that he had a reasonable excuse for his behaviour in that he had contacted HMRC to establish a payment plan for the surcharges and by 2014 he had cleared all actual VAT arrears. Mr Legg relied heavily on the fact that his profits took a large drop in the period in question, owing to a rapid decline in his area of business.
Whilst the Tribunal accepted a sharp decline in the business had taken place, it still held that this was not a reasonable excuse as the down-turn took place over a number of years and Mr. Legg should have, as a prudent businessman, made adaptations to evolve and fortify himself against changing market conditions. The Tribunal were more sympathetic towards Mr Legg’s catastrophic hard drive errors which led to a severe loss of data. They also took into account that during the period in question, Mr Legg’s father was ill and Mr Legg played a large role in his care.
The important test in relation to a ‘reasonable excuse’ relates to whether or not the taxpayer has behaved reasonably in his or her circumstances. Whilst the Tribunal confirmed that a down-turn in business could not constitute a reasonable excuse, the death of a close relative and fatal computer crashes losing to loss of accounts can. For these reasons, the Tribunal allowed the appeal in half, cancelling a selection of those surcharges not relating to the decline in business activity.

2. Supply or unsolicited delivery


This appeal related to whether the applicant, Quality Engines Direct Ltd (QEDL), supplied silver ingots to Microring, a potential purchaser of the company. Whilst in the process of dealing with a transfer of his business, the proprietor (Mr. Rafiq) engaged with a purchaser (Mr. Healey) who immediately began treating the business as his own; making deposits and withdrawals and using the business address. HMRC questioned two invoices relating to the sale of silver from Mr. Rafiq to Mr. Healey which took place before the transfer of QEDL. The veracity of these invoices was denied by Mr. Rafiq, who denied any supply of silver was made to Microring or to Mr. Healey, or that QEDL makes supplies of silver at all, and that he owes no VAT on this alleged supply. He contended that the invoices raised by Microring are not genuine and there had been no silver trade activity with Microring at all.

Mr. Rafiq claimed that delivery of the silver to his business address was not sanctioned, the packages remained unopened as they were unsolicited and he informed Mr. Healey to remove the packages, which he did.

The Tribunal agreed on appeal with Mr. Rafiq that the delivery of silver was unsolicited, the invoices had been recreated by Mr. Healey on behalf of Microring. The Tribunal found that as the packages of silver were unsolicited, unopened and removed as a matter of urgency, that QEDL had not made a supply to Microring and Mr. Healey had in fact made the order.

3. Omitted sales and disallowed input tax


In this case, Mr. Paul Shore, trading as “DP Contractors”  disputed a decision by HMRC in relation to his 04/11 VAT return. Mr Shore submitted that in this period of trading he was owed a £3,025.60 VAT repayment. HMRC submitted that due to under-declared output VAT of £16,599.40 and over-declared input VAT, Mr. Shore in fact owed £14,605.52 to HMRC.

Mr. Shore traded as DP Contractors which he claimed HMRC had confused with D&P Contractors, a separate firm to which he was a partner alongside Mr. David MacMillan. D&P Contractors had tendered for a contract with Southern Electrical Contracting Limited (SEC) using Mr Macmillan’s VAT registration number as Mr. Shore was not, himself, registered for VAT. Whilst Mr Macmillan was taken ill, Mr. Shore continued to trade using the VAT number of D&P Contractors whilst establishing himself as a sole proprietor “DP Contractors”.

Mr MacMillan played no role in the business being done for SEC by Mr. Shore and ceased to trade with D&P Contractors owing to injury and received no payment from Mr. Shore for on-going work. D&P Contractors issued over 190 invoices to SEC without declaring these on VAT returns and could offer no reasonable explanation for this. Mr. Shore attempted to highlight some discrepancy between the names of the firms but, as the Tribunal found, the same VAT registration number and bank account were used in continuing the trade by Mr. Shore and that the suppressed sales were correctly assessed on Mr. Shore, despite his pleas that Mr. Macmillan was jointly responsible.

Irrecoverable input tax which had also been deducted by Mr. Shore for items such as power showers were also disallowed and a forgery was uncovered for the purchase of a lorry. The Tribunal dismissed all appeals by Mr. Shore and upholds the assessments in full in relation to the suppressed sales.

























CVC VAT Focus 17 November 2017

We also issue specialist Land & Property and VAT & Charities newsletters. If you wish to subscribe to the Land & Property newsletter please email laura.beckett@ukvatadvice.com. If you wish to subscribe to the VAT & Charities newsletter please email sophie.cox@ukvatadvice.com.


Autumn Budget 2017
The Chancellor will be presenting his Autumn Budget on Wednesday 22 November 2017. CVC will update readers on any VAT announcements in its CVC Budget VAT Focus.

Fulfilment House Due Diligence Scheme
HMRC has issued guidance on the Fulfilment House Due Diligence Scheme. If you store goods in the UK for sellers established outside the EU, you may need to apply for the Scheme.

EU VAT Refunds: service availability and issues
The latest updates on the availability and any issues affecting the EU VAT Refunds online service have been published.

VAT Notice 700/62: self billing
This Notice has been updated and guidance added to paragraphs 3.1, to clarify the requirements for self-billing agreements and 6.4 to confirm the self-billee is responsible for accounting for output tax.


Pension Fund update
In CVC’s latest blog Helen Carey considers the latest updates to VAT and pension schemes.

Office of Tax Simplification – Proposals for simplifying VAT
CVC has also commented on the Office of Tax Simplification (OTS) review of VAT and its proposals for simplifying VAT.


Upper Tribunal

1. Distance learning courses 

We have previously reported in the case of Metropolitan International Schools Limited, which found that supplies of distance learning services  to customers should be treated as a single zero-rated supply of books (“the principal issue”).

Following an agreement between HMRC and the School in 1999,  the supplies made by the School to its customers were treated as two separate supplies: one of books (zero-rated); and one of educational services (standard rated). In 2009, following a repayment claim relating to 2006 HMRC withdrew its agreement on the grounds that supplies made by the School should be treated as a single supply of standard rated services. HMRC initially sought to withdraw the agreement retrospectively, although HMRC later conceded that point.

During the FTT hearing the FTT also set out views on two issues that would be relevant if the School’s appeal had failed on the principal issue. Firstly, that the School had a legitimate expectation in respect of the withdrawn agreement with HMRC and secondly, the School was entitled to repayment supplement in relation to payments of VAT for periods prior to 2009 that had been withheld (following HMRC’s initial decision that the agreed method should be withdrawn retrospectively.

HMRC appealed against the FTT decision on the principal issue. If HMRC was successful in this appeal, the School cross appealed against the two later issues. 

The UT found that the provision of manuals, as part of a distance learning package, was a single standard-rated supply and dismissed the School’s cross appeals.

CVC comment: It is important to ensure agreements in place with HMRC are reviewed and refreshed where necessary. 

First Tier Tribunal

2. Deduction of VAT as input tax

MG & ND Storer were in business as partnership operating a seafood takeaway, Gee White Kiosk. The building owned by Mr MG Storer was used as business premises not only for the Kiosk but also Quay Desserts, operated by Mr Storer’s son, and Quay Hole, operated by Mr Storer’s partner.

The building was completely demolished and rebuilt. The rebuilt building again housed all three businesses. Following a repayment verification query, HMRC raised assessments for VAT claimed in relation to refurbishment costs and on the purchase of alcohol. HMRC contended that the VAT was not input tax proper to the Partnership on the basis that the true recipient of the supplies of refurbishment was Mr Storer in his capacity as owner and the true recipient of the supplies of alcohol was Quay Hole.

The Tribunal concluded that input tax incurred on supplies of alcohol to the Partnership was recoverable (subject to the corresponding output tax on supplies to Quay Hole) and with regards to the refurbishment costs, only one third of the input tax is deductible.

CVC comment: The tribunal noted that deduction of input tax should relieve a taxable person entirely of the burden of VAT paid in the course of making supplies which are themselves subject to VAT. It is from this fundamental premise that the Tribunal viewed this case. Businesses should ensure that VAT incurred satisfies all of the conditions to be claimed as input tax.

3. Whether inaccuracy was ‘deliberate’

Mehaffey Ltd received a penalty in the sum of £156,162.72 in respect of VAT returns for the periods 12/09 to 09/13. Mehaffey Ltd sells furniture and the penalty related to sales of goods to customers in another EU member state which had been incorrectly treated as zero-rated.

HMRC contended that the inaccuracies were as a result of deliberate behaviour and Mehaffey knew that it did not have (nor could obtain) valid evidence to support zero-rating. The Tribunal considered a number of submissions from Mehaffey but concluded on a balance of probabilities that the inaccuracy was deliberate.

CVC comment: Whilst the onus is on HMRC to establish a penalty has been applied correctly, the Tribunal emphasised that as a general principle it is the responsibility of every trader to keep appropriate records to evidence its tax position.  

4. Disapplication of the option to tax

PGPH Limited was formed to carry on a property business in the healthcare sector. It acquired a property for use in that business and exercised the option to tax. PGPH granted a right to use the property to Smart Medical Clinics Limited (SMCL) following which PGPH incurred expenditure on refurbishment works.

HMRC contended that the option to tax did not apply to the grant to SMCL under paragraphs 12 to 17 of Schedule 10 VATA 1994 due to the financing arrangements for the works being via a ‘relevant person’ occupying the property other than for the purpose of making taxable supplies. As a result, HMRC denied input claimed by PGPH in respect of the refurbishment. The Tribunal considered whether PGPH intended  or expected the land  to be a ‘relevant capital item’ at the date of the grant and whether SMCL would be defined as a ‘relevant person’ for the purposes of the legislation. The Tribunal concluded this was the case and dismissed the appeal.

CVC comment: This case highlights the importance of considering the VAT implications of transactions from the outset.

5. DCM (Optical Holdings) Limited

DCM (Optical Holdings) Limited (“DCM”) is an optical business, specialising in the sale of dispensed spectacles and the provision of refractive eye surgery, operating from 151 stores in four countries.

A  tribunal hearing was arranged in respect of six appeals by DCM, all arising from output tax related issues connected to the operation by DCM of its stores. The appeals have a long  history and have been subject to extensive case management. Although the six appeals were heard together they were not consolidated.

The Tribunal dismissed all six appeals; however, the full case is lengthy covering an array of output tax issues. The decision makes for an interesting read for businesses operating in this sector.

CVC VAT Focus 2 November 2017

We also issue specialist Land & Property and VAT & Charities newsletters. If you wish to subscribe to the Land & Property newsletter please email laura.beckett@ukvatadvice.com. If you wish to subscribe to the VAT & Charities newsletter please email sophie.cox@ukvatadvice.com.


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.