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.
HMRC has updated this notice with clarification on the treatment of mixed sponsorship and donations.
HMRC has updated its selection of webinars and online courses.
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.