HMRC NEWS
VAT: Digitisation of claims and extending time limit for DIY Housebuilders Scheme
A person who builds their own home, or converts a non-residential building to their own home, can reclaim VAT incurred by completing a claim under the DIY Housebuilder Scheme. HMRC now proposes to change the scheme by introducing the option of submitting DIY housebuilders VAT refund claims digitally. HMRC also intends to extend the time limit for such claims from 3 months to 6 months after completion of the build.
The aim of the measure is to make administration easier for both HMRC and the claimant. The existing process for making paper-based claims will remain as an option for those that wish to use it. Also, extending the time limit will allow claimants more time to gather their documents and complete their claim, which should result in fewer omissions or errors.
Register for VAT by post
HMRC has now removed the VAT1 paper application, it is now only available to those who qualify as digitally excluded. If you or your business is digitally excluded or there is any other reason why an online application is not possible, you will need to contact HMRC to request a paper form VAT1 and confirm your reason for requesting that paper form.
Revoke an option to tax after 20 years have passed
An option to tax can be revoked for VAT purposes after 20 years have passed using form VAT1614J. The address for sending the completed form and any supporting documents has been updated with the new details on the link above.
HMRC email updates, videos and webinars for VAT
The above link can be used to learn more about VAT including accounting schemes, VAT returns and keeping records. HMRC has updated the above page with links to live webinars for ‘VAT Accounting Schemes’ and VAT – the basics and the VAT return’.
Fuel and power (VAT Notice 701/19)
The above guidance can be used to find out how VAT should be charged on supplies of fuel and power if you’re a supplier or user. HMRC has now updated the guidance to fix some broken links and section 6.1 ‘Supplies taxed at the reduced rate’ has been updated to clarify the qualifying uses of fuel oil, gas oil or kerosene.
CASE REVIEW
Upper Tier Tribunal
1. Margin claim for demonstrator cars
This case concerned a historic claim made by Cambria Automobiles and Invicta Motors (the appellants) in relation to overdeclared output VAT on the sale of demonstrator vehicles in 1973 to 1996 under the VAT margin scheme. In 2003, the appellants made a claim to recover overpaid VAT as a result of the Italian Republic case. HMRC initially rejected this claim and the appellants appealed to the Tribunal, however, after lengthy negotiations, the appellants and HMRC came to an agreement in 2006, under Section 85 VATA 1994, to make a repayment.
However, the calculation for the claim was based on the ‘Italian tables’ from the Italian Republic case, produced for the purpose of estimating claims as it was unlikely that business records dating back to 1973 are still available or complete for persons. Subsequently to the 2006 agreement, it was discovered that the Italian tables contained errors, and if the appellants were to recalculate their claims with the corrected methodology, they considered that their original claims had been significantly understated. As a result, the appellants submitted the ‘2009 claim’ to make good the shortfall. HMRC rejected the 2009 claims and the FTT also upheld HMRC’s decision. The appellants now appealed to the Upper Tribunal (UT).
The appellants argued that the FTT erred in law to conclude that the Section 85 agreement with HMRC in 2006 was full and that it was a final settlement in relation to the vehicles in the 2003 appeal. HMRC argued that the 2009 claims were simply an attempt to amend the 2003 claims, however since the 2003 claims had been settled, it was not open for the appellants to attempt to resuscitate them by arguing that the 2009 claims were entirely new.
The UT considered both parties’ submissions however it stated that a reasonable person having all the background knowledge at the time of the Section 85 agreement, would have understood the agreement as contended by HMRC, meaning that the agreement extends to all overpayments pursuant to the Italian Republic case in relation to the vehicles in the relevant period. The UT agreed with HMRC, concluding that the Section 85 agreement made in 2006, precludes the appellants from making any further claims in relation to the same period. Therefore, the 2009 claims were invalid and the appeal was dismissed.
Constable Comment: In this case, the Tribunal concluded that the appellants were not able to amend their historic claims as they have previously reached a negotiated agreement with HMRC. Whilst the matter was more involved with complex rules and case law being considered, it is a good example to highlight the fact that taxpayers must consider facts of their circumstances in great detail before submitting a claim to HMRC. If you or your business is intending to submit a claim to HMRC for overpaid VAT, we would recommend seeking professional advice in advance.
FTT
2. Cultural VAT exemption: Live events
This case concerned Derby Quad Limited’s (DQ) appeal against HMRC’s assessment for underdeclared VAT in relation to admission charges to broadcasts of live event performances. DQ had contracts with theatre companies for licences to a non-exclusive right to exhibit certain plays performed on stage in selected theatres. The right to present the screenings by way of digital production on DQ cinema screens was ‘near simultaneous’ or ‘non-simultaneous’.
Under Group 13, Schedule 9 VATA 1994, admission charges to cultural events such as theatre performances are exempt from VAT where certain specified criteria are met, however cinema screenings are subject to VAT at 20%. DQ treated its live events as VAT exempt under Group 13 on the grounds that the events were different to a cinema screening, arguing it is an extension of theatre through digital innovation and new technology, allowing audience participation and interaction even remotely. As DQ was an eligible body, and it supplied an admission charge to a performance of cultural nature, DQ took the view its supplies should be VAT exempt.
HMRC disagreed, stating that ‘theatrical performance’ refers to the actual live performance in a theatre rather than a recording of it, emphasising that ‘performance’ is different to ‘showing or screening’. HMRC defined performance as having both a temporal and live requirement but also a geographical one so that it could only take place in one geographical location at a time.
The Tribunal agreed with HMRC, and it found it crucial that the actors and performers received no feedback from the audience at DQ’s live event. The audience cannot convey their reactions and responses to the actors and performers hence a different experiential event for both parties. The Tribunal upheld HMRC’s decision and concluded that the live events are not a ‘theatrical performance’ in terms of Group 13, Schedule 9 VATA 1994, and therefore it is not VAT exempt.
Constable Comment: This case considered the cultural VAT exemption which is often a complex area of VAT. In order to avoid under declaring VAT, it is crucial that the relevant conditions for VAT exemption are satisfied and if there is any ambiguity we would recommend seeking professional advice.
3. Strike out application
In this case the Tribunal considered HMRC’s appeal to strike out Vistry Homes Ltd’s (current representative member of the Vistry VAT group) appeal on the grounds that the principle of cause of action estoppel, issue estoppel and abuse of process apply in respect of the appeal.
In 2018, Linden Limited (LL, previous representative member of the VAT group) made supplies of land with a back to back supply of construction services to Housing Associations (HA). LL treated this supply as a single indivisible supply which is zero rated for VAT purposes, however, HMRC took the view there was a separate supply of VAT exempt land and zero rated construction services. This decision was appealed (the 2018 appeal) and LL provided an example contract with the Merlin Housing Society Ltd (Merlin Agreement) to be considered. However, LL subsequently withdrew its appeal and therefore the matter was concluded in favour of HMRC.
However, in 2022 the Vistry VAT group wrote to HMRC to confirm in VAT periods during 2018-2019, it recovered input VAT on the basis that it entered into agreements with HA to make a single taxable supply for the construction of dwellings which included the land on which the dwellings were built, essentially applying a similar VAT treatment as LL previously. HMRC issued assessments for the input VAT and Vistry, following a statutory review upholding HMRC’s decision, appealed to the Tribunal (the 2022 appeal).
HMRC took the view that LL’s withdrawal of the 2018 appeal had established that there was a separate supply of VAT exempt land and zero rated construction services, this set a general precedent for those parties. Section 85, VAT Act 1994 provides that when an appeal is withdrawn, the parties are deemed to have “come to an agreement…that the decision under appeal should be upheld without variation”, and a Tribunal is then deemed to have “determined the appeal in accordance with the terms of the agreement”. Based upon the “deemed” Tribunal decision and considering Estoppel principles relevant HMRC applied to strike out the 2022 appeal.
Following deliberation, the Tribunal rejected all of HMRC’s grounds of appeal, confirming that the withdrawal of the 2018 appeal was limited to the particular supplies under the Merlin Agreement. It was not a general ruling which HMRC could apply to all supplies between the appellant and HA. The Tribunal concluded that it would be inequitable to prevent the appellants bringing their 2022 appeal before a Tribunal to consider the contractual arrangements, and commercial and economic realities surrounding those arrangements in detail. HMRC’s strike out appeal was dismissed.
Constable Comment: In this case the Tribunal considered whether the appellant can be prevented from arguing points which have been the subject of a prior deemed agreement and deemed Tribunal determination due to the taxpayer withdrawing an appeal. The Tribunal concluded that the prior agreement/determination in this case only relates to the specific supply in that previous instance and cannot be considered a general ruling. Instead, where there are distinct contracts and agreements in dispute, such agreements should be considered and a conclusion must be reached based on the nature of the supplies under those agreements. As a result the appeal was not struck out and a Tribunal will consider the 2022 appeal.
Please note that this newsletter is intended to provide a general overview of the subject. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this blog post. Specialist VAT advice should always be sought in relation to your particular circumstance.