Tag Archives: Tax

CVC VAT Focus 17 May 2018

17th May 2018

 

HMRC NEWS

VAT on antiques or art from historic houses (Notice 701/12)

This explains which disposals of assets from historic houses are within the scope of VAT.

HMRC and online marketplaces agreement to promote VAT compliance

HMRC has committed to working with online marketplaces to set out a cooperation agreement to promote VAT compliance.

VAT: missing trader fraud

Find out how to spot VAT missing trader fraud and how to protect yourself or your business from organised criminals.

Revoke an option to tax after 20 years have passed

Form VAT1614J has been updated.

 

OTHER VAT NEWS

We understand that HMRC has begun to contact firms directly regarding the VAT treatment of electronic searches following the Brabners LLP VAT case summarised on our website. The Law Society has issued guidance which can be viewed here.

CVC BLOG

VAT recovery, supplying insurance and the benefits of customer location

Exempt supplies do not normally provide a right to reclaim VAT on costs incurred in making such supplies. However, certain supplies that would ordinarily give no right to VAT recovery may be ‘specified’ to do so when the customer is located outside the EU. Follow the link to read our most recent blog, by Robert Thorpe, which explains this further.

CASE REVIEW

CJEU

 

1. Right of deduction after a tax inspection

This request for a preliminary ruling concerns the interpretation of EU law and the principles of fiscal neutrality, effectiveness and proportionality. In the main proceedings, Zabrus Siret filed VAT returns following tax inspections requesting repayment of VAT. The national tax authorities refused to reimburse this tax as the amounts being claimed related to a tax period which had already been subject to an inspection by the domestic tax authority. Zabrus Siret appealed this decision.

There were two questions before the court in this instance, amounting to one main question, being whether EU law precluded national legislation which the right to reclaim VAT in respect of a tax period which had previously been subject to a tax inspection.

As the Court has held previously, the right of deduction is an integral part of the VAT system and may not, in general, be limited. The right to deduct VAT in Romania is subject to a five year limitation period which is shortened in the event of a tax inspection. The effect of this is that the taxpayer cannot correct VAT returns for tax periods which have been subject to an inspection. Whilst the Romanian authorities argued that this was a legitimate practice, the Court held that the EU law principles does preclude national legislation which prevent, in circumstances such as those in the main proceedings, a taxable person from claiming his right of deduction following a tax inspection.

 

CVC Comment: The right of deduction is fundamental and can only be limited in very specific circumstances. This ruling demonstrates that even where domestic laws seem to preclude this right in line with EU law, the CJEU are prepared to rule in favour of the taxpayer in matters such as those at hand. In practice this decision will have no impact on UK taxpayers as the UK rule preventing recovery of VAT once a VAT period is more than four years old is considered proportionate to the needs of the State to have certainty on its fiscal position.

 

2. Deductibility of VAT in a failed takeover

This case concerns Ryanair’s bid to take over Aer Lingus. Despite failing with its bid, Ryanair incurred significant VAT costs. Ryanair claimed a deduction of this VAT, which was denied by the Irish tax authorities on the grounds that acquisition and holding of shares does not constitute an economic activity within EU law.

Two questions are before the CJEU in this instance; whether an intention to provide management services to a takeover target is sufficient to establish that the acquirer is involved in an economic activity and if there can be a direct and immediate link between professional services rendered in the context of such a potential takeover and the potential provision of management services.

The Court has yet to issue a judgment but the Advocate General has issued a preliminary opinion, that input tax recovery was justified by Ryanair, not as a holding company, but because it was seeking to take over Aer Lingus in order to extend an operating business.

CVC Comment: We await a CJEU decision but if this follows the AG’s opinion then this would suggest that HMRC’s policies on input tax recovery are, in some cases, too restrictive.

 Court of Appeal

 

3. VAT recovery: VAT incurred in relation to investment activity

The Court of Appeal has referred matters raised in The Chancellor, Master and Scholars of the University of Cambridge case to the CJEU for guidance. The Court of Appeal proposes to ask the CJEU for guidance on the following:

  • Where management fees are incurred in relation to a non-taxable investment activity is it possible to make the necessary link between those costs and the economic activities which are subsidised with the investment income.
  • The Court of Appeal also seeks confirmation that its reading of the Sveda decision is correct and that no distinction is to be made between exempt and non-taxable transactions for deciding whether input tax is deductible.

CVC comment: the First Tier and Upper Tribunal previously ruled that the input tax incurred in relation to investment management fees could be treated as residual input tax and is recoverable to the extent that income derived supports taxable business activities. Taxpayers must hope that the CJEU agree.

 

4. Zero-rating the construction of a relevant charitable purpose building

Wakefield College, a charity, appealed against the Upper Tribunal’s decision that construction services provided to it in the course of constructing a new building were not zero-rated for VAT purposes. The supply in the course of construction of a building intended for use for a relevant charitable purpose i.e. a non-business activity, may be zero-rated.

The issue in this case was whether subsidised fees charged to students prevents the zero-rate from applying because it renders the education a business activity.

The Court of Appeal found that the supply of courses by Wakefield College to students paying subsidised fees is a business activity. The Court of Appeal provided the following reasons for its decisions:

  • The sole activity of the College is the provision of educational courses, this is not an ancillary activity.
  • The provision of courses to students paying subsidised fees is significant.
  • The fees paid by subsidised students are significant in amount.
  • The subsidised fees made a significant contribution to the cost of providing courses.
  • The level of course fees was fixed by reference to the cost of the courses.
  • The fees were not fixed by reference to the means of the student.

The College’s appeal was dismissed.

CVC comment: Wakefield College previously won its case before the First Tier Tribunal; however, HMRC succeeded in appealing the FTT’s decision to the Upper Tribunal. This decision provides further clarification of ‘non-business’ for VAT purposes. The Court of Appeal considered the CJEU decisions in Borsele and Finland, as well as the decision in Longridge on the Thames.

Upper Tribunal

 

5. Third party consideration in a points reward scheme

This appeal by Marriot Rewards LLC & Whitbread Group PLC concerned whether payments made by Marriot Rewards (MR) to hotels participating in the loyalty scheme were consideration as a supply to MR or, alternatively, represented third party consideration paid by MR for supplies to customers redeeming points earned on the scheme, the reward being a “free” stay in a hotel. MR had submitted a reclaim of input VAT on the basis that payments made to participating hotels were consideration for services supplied.

A further issue arose; if payments were not third party consideration then were they payments for services relating to immovable property or advertising. This was relevant to the issue of where the supplies arose under VAT place of supply rules.

Upholding the decision of the FTT, the UT held that payments made by MR to hotels participating in the scheme were for supplies of services to MR. As regards the question of whether the supplies were related to land (immovable property) or advertising, the UT held that the supplies fell into neither description. This was relevant because for periods prior to 2010 Whitbread had sought to recover overpaid output VAT on the basis that it was, as a participating hotel operator, supplying services that fell outside the scope of VAT. Conversely, for periods after 2010, HMRC argued that the supplies should not have attracted VAT under the general place of supply rule, such that MR was ineligible to reclaim that VAT under the 13th Directive (MR wanted the services to be land related such that UK VAT charged could be reclaimed.

CVC Comment: This was a complex case involving three parties with different interests in the outcome. However, as far as the fundamental question of who redeems supplied services to it further undermines HMRC’s attempts to view the beneficiary of business promotion schemes as the recipient of supplies, a preferred analysis if HMRC in seeking to block VAT refunds. Whilst there are aspects of this case and appeal which are unique, those operating points rewards schemes should consider and clarify the VAT position in relation to any supplies made between parent groups and “redeeming” participating parties. It is also important to consider carefully exactly what supplies are being made and where they are being made for tax purposes.

First Tier Tribunal

 

6. Requirement to provide security for VAT

This appeal concerns a requirement to provide security to HMRC in respect of, amongst other taxes, VAT. Owing to historic non-compliance by the appellant and on-going non-compliance following entering into a “Time to Pay” arrangement with HMRC for substantial arrears, HMRC served a Notice to Derby Access Scaffolding (DAS), the appellant, requiring security for future VAT.

It was submitted by the appellant that the Notices requiring security to be provided were flawed and unreasonable. HMRC had failed to enter into dialogue with the appellant and had therefore made unreasonable projections of profit for DAS. It was also submitted that HMRC’s internal reviews could not be fair as they were internal and that the principle that decisions be made in a fair and reasonable manner had not been followed in this case. HMRC contended that it was reasonable to require security in the given circumstances, especially when considering historic non-compliance.

The Tribunal gave very little consideration to the notion that HMRC’s internal reviews were not partial. It also held that there is no obligation on HMRC to enter into dialogue with those to whom it serves notices of requirement of security and that for the purposes of protection of the revenue the amounts required in security were not unreasonable. Ultimately DAS failed to satisfy the Tribunal on any aspect of its appeal and the appeal was therefore dismissed.

CVC Comment: In cases of serious non-compliance, HMRC will seek security against not only VAT but all other taxes. This case illustrates that when the obstacles to challenging such a judgment are exceedingly high and the Tribunal has shown no enthusiasm for involving itself in matters of detail and respects HMRC’s discretion.

 

CVC VAT Focus 26 April 2018

26th April 2018

 

HMRC NEWS

HMRC has updated guidance on its website as follows:

Register for VAT if you own land with another person

Find out if you need to register for VAT jointly or as an individual when you buy, let or develop land with another taxable person.

VAT registration for groups, divisions and joint ventures

Link to VAT registration for people who own land with another person added to ‘Joint ventures and VAT’ section.

Tell HMRC about an option to tax land and buildings

Notification of an option to tax land and or buildings (VAT1614A) form has been updated.

VAT MOSS exchange rates for 2018

Find currency exchange rates for VAT Mini One Stop Shop (VAT MOSS) businesses registered in the UK to complete declarations.

 

OTHER VAT NEWS

We understand that HMRC has begun to contact firms directly regarding the VAT treatment of electronic searches following the Brabners LLP VAT case summarised on our website. The Law Society has issued guidance which can be viewed here.

 

 

CVC BLOG

VAT recovery, supplying insurance and the benefits of customer location

Exempt supplies do not normally provide a right to reclaim VAT on costs incurred in making such supplies. However, certain supplies that would ordinarily give no right to VAT recovery may be ‘specified’ to do so when the customer is located outside the EU. Follow the link to read our most recent blog, by Robert Thorpe, which explains this further.

 

CASE REVIEW

 

CJEU

 

1. Time limits on right of deduction of input tax: Portugal

In Biosafe, there were taxable supplies made in 2011 from one VAT registered trader to another (Flexipiso), in the course of business, with appropriate supporting documentation. Under EU VAT law, this gives rise to a right of deduction of the input tax incurred by the purchaser in the relevant VAT period on purchases which relate to those taxable supplies. Flexipiso recovered the relevant input VAT, charged at the reduced rate of 5%, incurred on purchases from Biosafe. Several years later, Biosafe were subject to a tax inspection which revealed that the reduced rate of 5% had been incorrectly charged. The Portugese authorities assessed that the supplies were subject to the standard rate of VAT of 21% (Portugal) and Biosafe paid over the monies assessed.

Biosafe sought reimbursement from Flexipiso who refused to pay on the grounds that, under domestic law, their right to deduction of input VAT expired four years after the original supply was made. This brought two questions before the CJEU. The first being, does EU law preclude domestic legislation which prevents the four year period during which a right to deduction arises beginning again on the date assessment documents are issued to the supplier. The second being, if the answer to the first question is no, does the EU law preclude domestic legislation which, in the current situation, makes it legitimate for the purchaser to refuse to pay VAT when it is impossible to deduct that additional tax?

In response to the first question, it was held that the Directive does preclude domestic legislation where the right to deduct input tax is refused on the ground that the time limit for that right started to run from the date of the initial invoice. In the light of this response, the Court held that the second question did not require an answer as it follows logically from the first that a taxable person may not be denied the right to recover input tax by domestic time limits.

CVC Comment: This case confirms that where input tax has been deducted at an incorrect rate, the right to recovery by the business incurring the incorrect expense cannot be precluded by domestic time limits on the right to recovery.

 

2. Interpretation of EU Law on deduction adjustment

This case concerning SEB Bankas AB (SEB) was related to a supply made to SEB by VKK Investicija (VKK) of building land. Initially the parties had agreed that the transaction was subject to VAT. Some years later VKK decided that the supply was VAT exempt and raised a credit note to SEB to reflect this. This left SEB owing the authorities the input VAT originally deducted on the transaction. A fine was raised on SEB by the authorities as well as the assessment to tax. After progressing through domestic courts, questions came before the CJEU regarding the interpretation of the EU law on VAT adjustments.

The key questions before the court were; whether the obligation to adjust undue VAT deductions applies where the initial recovery could not have been made lawfully as the transaction was exempt and, if so, whether the mechanism for doing so applies in situations such as those in the main proceedings. The Court held that the EU law does require the adjustments of VAT deductions which should not have arisen because VAT was charged unlawfully.

As regards the date on which the adjustment should be made, the CJEU held that this is for national courts to decide, taking account of the principles of legitimate expectation and legal certainty and that a taxpayer’s deduction of VAT cannot, applying the principle of legal certainty, be open to challenge for an indefinite period.

CVC Comment: Where a deduction of tax has been, mistakenly, unlawfully made in relation to an exempt supply, then there is a duty on the person making the deduction to make an adjustment when this is discovered. Whether or not the obligation arises immediately is a matter which has been left open to domestic interpretation. It appears that UK policies are already in line with this decision insofar as in most cases, after four years, VAT periods are no longer open for a mandatory adjustment.

 

3. Triangulation and EC Sales Lists

Firma Hans Bühler, a limited partnership established and VAT registered in Germany and also identified in Austria for VAT purposes, bought products from suppliers established in Germany. Those products were sold to a VAT registered customer in Czech Republic. The products were dispatched directly from the German supplier to the customer in Czech Republic. The German supplier provided its German VAT registration number and Firma Hans Bühler’s used its Austrian VAT registration number on its invoices provided to the Czech Republic customer. The triangulation simplification was used; as such, the final customer in the Czech Republic accounted for VAT due in the Czech Republic.

The Austrian tax authorities found that Firma Hans Bühler’s supplies were ‘abortive triangular transactions’ because the reference to triangular transactions did not appear on Firma Hans Bühler’s EC Sales List.

The CJEU stated that the triangulation simplification cannot be refused because the EC Sales List has been submitted late. In addition, it is not relevant that Firma Hans Bühler’s Austrian VAT registration number was no longer valid on the date it submitted its EC Sales List (it is relevant that the VAT number is valid at the time of the supply). If the failure to submit correct EC Sales Lists on time meant that the taxpayers could not evidence the conditions for triangulation had been met, the triangulation could not apply.

The CJEU also commented that the benefit of the triangulation simplification cannot be refused on the basis that the intermediate supplier is VAT registered in the member state of dispatch.

CVC comment: the judgment confirms that the triangulation simplification can apply even if the taxpayers EC Sales Lists are not compliant provided the taxpayers can evidence that all of the conditions for simplification are met.

 

First Tier Tribunal

 

4. Sufficiently Self-contained?

This appeal by Colin James Mitchell and Kim Louise Mitchell concerned the recovery of input VAT under the DIY Builders Scheme in respect of the construction of a building in their garden. HMRC had initially refused the recovery on the grounds that not only was the building was not “self-contained living accommodation” but also that the planning consent prohibited the separate use of the building from the house; conditions necessary for a claim under the DIY Builders Scheme.

In order for a refund to be successful the building must be self-contained living accommodation and a key issue between the appellants and HMRC in this case was the absence of a kitchen in the new building. HMRC contended that this meant the building was incapable of being self-contained. The Tribunal agreed, on this point, with the appellant who argued that the ability to install and use a microwave was sufficient for the building to be constituted as self-contained.

The second prong of HMRC’s contention was the prohibition of separate use of the building in the planning permission, “…shall not be used as a separate residential unit at any time” amounts to a prohibition on separate use. They also add that the planning permission for a “garage” cannot be construed as a “dwelling”.

The Tribunal agreed with HMRC on the second point and dismissed the appeal.

CVC Comment: In cases where planning permission specifically forbids separate residential use of a construction then the Tribunal are unlikely to find in favour of the applicant. Prior to any expenditure on development it is vital that the tax implications be considered and this involves detailed analysis of the proposal and planning permission granted.

 

5. Printed matter: Zero-rated goods or standard rated service?

In this instance, The Tribunal had to decide supplies by Paragon Customer Communications Limited (Paragon) to Direct Line Insurance Services (DLIS) amounted to, as Paragon contended, a single supply of booklets comprising of predominantly zero-rated matter or, as HMRC contended, a supply of services, of which booklets were not a predominant element. It is also asserted by HMRC that some of the booklets supplied as zero-rated were in fact not supplies of booklets and so should have been standard-rated.

Paragon supplied various documents in relation to insurance documents for DLIS including advertising, standard Terms and Conditions, appraisals and reminders. The question came before the Tribunal as a result of an assessment on Paragon who HMRC contended was making a single, standard-rated supply of services based on the preparation and packaging involved in the process of supplying the products, the envelopes used and separate documents which were not part of the main supply i.e. the aforementioned appraisals and terms and conditions documents. Paragon appealed this assessment by HMRC on the grounds that the supplies made were one composite supply of zero-rated booklets, this was, in essence, a question of single or multiple supply.

Whilst the Tribunal considered multiple cases, including the single supply criteria in Card Protection Plan and issues of divisibility considered in Levob Verzekeringen BV, the conclusion of the Tribunal was relatively clear; Paragon is successful in its appeal against the assessment. It is held that packaging and delivery of the disputed documents is, in this instance, considered to be a single, zero-rated supply of booklets.  

CVC Comment: this decision may have a wider implication, in particular for charities. Many charities cannot recover VAT incurred because of their non-business and/or VAT exempt activities. HMRC changed its policy some years ago with respect to the VAT liability of direct mailing services (standard rated). This decision may call into questions HMRC’s policy. It will be interesting to see if this decision is appealed by HMRC to the Upper Tribunal.

 

VAT recovery, supplying insurance and the benefits of customer location

20th April 2018

Introduction

Normally the terms insurance and VAT recovery do not go hand in hand. Insurance is VAT exempt under Schedule 9, Group 1 of the VAT Act 1994. Exempt supplies do not normally provide a right to reclaim VAT on costs incurred in making such supplies. However, certain supplies that would ordinarily give no right to VAT recovery may be ‘specified’ to do so when the customer is located outside the EU.

Supplies of insurance that allow VAT recovery

The Specified Supplies Order 1999/3121 gives a VAT recovery right in relation to supplies of insurance intermediary services such as brokers when the customer is based outside the EU. Additionally, in relation to intermediaries, a right to reclaim VAT on business costs exists when they arrange a supply of insurance to a non-EU person. In practical terms, this means that many UK based insurers and agents and brokers with an international aspect to their customer base do have the right to partial recovery.

If such supplies are made the VAT recovery position should be considered, particularly where these form a material portion of the business’ supplies.

Are my customers outside the EU?

It is easy to overlook that some European locations are not part of the European Union. Supplies of insurance or insurance intermediation services could still provide a VAT recovery right. For example:

• Jersey
• Guernsey
• The Canary Islands
• Gibraltar
• Norway
• Iceland

It is worth reviewing customer location or the location of underlying supplies if they involve these locations as a potential VAT recovery benefit might not be recognised.

Insurance for export of goods to outside the EU

Supplies of insurance related to export of goods from the EU may also allow VAT recovery. Where:

• goods are being exported by the recipient of the insurance;
• insurance is directly linked to the specific goods being exported, and
• the insurance covers the risks of the person who owns the goods or is responsible for their export.

This would also be a supply of insurance specified to allow a right to VAT recovery.

Assistance

VAT recovery and customer location may provide significant opportunities to companies offering insurance. The interaction of location and the partial exemption rules adds complexity and this may be when professional expertise becomes invaluable in realising an opportunity. CVC has assisted many businesses in this sector to improve their position in relation to VAT whilst also ensuring that this is within a compliant, logical and workable framework.

If you would like to discuss this area please contact Dean Carey or Robert Thorpe on 01206 321029.

CVC VAT Focus 12 April 2018

12th April 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 review these annual adjustments for clients if required.

HMRC NEWS

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.

 CVC BLOG

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.

CASE REVIEW

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 22 March 2018

22nd 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

Revenue & Customs Brief 3 (2018): Changes to the VAT exemption for cost sharing groups.
This brief and the related VAT information sheet explain the immediate changes that are taking place in HMRC’s policy following recent judgments

VAT Notes 2018 Issue 1
HMRC has published its 2018 VAT Notes Issue 1.

VAT: businesses that sell goods in the UK using online marketplaces
Updated with changes announced in the Autumn 2017 Budget for sellers that use online marketplaces.

VAT returns and EC Sales Lists Online: VAT
How to use the test service: 4.1 guidance has been updated with version 4.2.

Draft legislation: The Value Added Tax (Amendment) Regulations 2018
Response to consultation has been published.

CVC BLOG

Spring Statement 2018 and VAT

In the Spring Statement, the Chancellor announced details of two consultations with implications for the future operation of VAT. Please see our news item for further information.

CASE REVIEW

Upper Tribunal

1.Planning Permission Post-Sale

Cavendish Green Limited (Cavendish) appealed against a previous decision that the sale of a building did not qualify for zero-rating as the structure present at the point of transfer did not have automatic statutory planning permission and had not received planning permission from elsewhere. In the absence of the necessary planning permission, the sale should have been treated as VAT exempt and Cavendish should not be able to claim back input VAT relating to the project.

The First Tier Tribunal made it clear that planning permission must be sufficient at the time of supply in order for the sale of a building to benefit from zero-rating. In the Upper Tribunal, Cavendish sought to introduce new evidence to show that the structure in question did in fact have statutory planning permission at the time of sale and was thus able to benefit from the zero-rate. The Tribunal refused to admit this evidence as it found the behaviour of Cavendish to be “most unsatisfactory” as it failed to make a formal written application with evidence to support its claims and the addition of new evidence would not be fair and just.

The appeal was dismissed as the taxpayer had no proof to demonstrate that the structure met the conditions for automatic statutory planning permission, this case may have had a different outcome had Cavendish approached the Tribunal differently. 

First Tier Tribunal

2. Sales of properties; TOGCs?

In this case the Tribunal considered whether the sale of four properties by Clark Hill Limited satisfied the necessary criteria to be treated as transfers of going concerns and, therefore, be outside the scope of VAT as neither a supply of goods nor services. The main issue between the parties is the interpretation of “relevant date” in the VAT law.

The Tribunal issued four decisions, relating to one property each. In three from the four transactions before the court, the transfer was held not to be a TOGC as HMRC had not been informed of the exercising of the option to tax by the “relevant date” which is held to be the date on which the deposit is received by the seller’s solicitors. The fourth property transaction presented its own unique circumstances which led to a different conclusion. The deposit was paid to the auctioneers of the property on the 3rd of December, the seller’s solicitors received the funds on the 16th. The point on which this question turns is the capacity in which the auctioneers held the deposit; agent or stakeholder.

HMRC contend that the funds were held by the auctioneers as an agent for the seller and therefore that Clark Hill should be treated as having received the deposit when the auctioneers did, on the 3rd December. Clark Hill refuted this, claiming that there is no evidence to support the claim that the auctioneers were agents. The Tribunal agreed and this transaction was treated as a TOGC.

3. Appealing an assessment out of time

In Homechoice Flooring Limited (HFL), the appellant’s director, Mr. Singh, sought permission to make a late appeal in respect of a VAT assessment. Mr. Singh was over two years late in making this appeal, his explanation being that he believed he had in fact, through his former accountants, lodged an appeal already. He sought to contend that as he believed HFL’s accountants were dealing with the appeal, he had no cause to believe any further action was required on his or HFL’s behalf.

In response, HMRC looked to whether or not there was a reasonable excuse for the delay, arguing that HFL’s contention that an appeal had been made is not supported by any documents and there is no record of an appeal at HMRC in relation to this matter. It was also put forward that as Mr. Singh had changed accountants twice since the assessment, he could reasonably have been expected to make enquiries into the status of the appeal he believed to be ongoing.

As Mr. Singh made no effort to check on the status of HFL’s appeal, the Tribunal found that his excuse could not be seen as reasonable and therefore dismissed his appeal. They also stated that poor trading results do not amount to a reasonable excuse.

4. Bridge between buildings: does it make an annexe?

St Brendan’s Sixth Form College (St. Brendan’s) appealed against a decision made by HMRC that certain construction works carried out for St Brendan’s were liable for VAT at the standard rate, not zero-rated as St Brendan’s believed. A new block was built in order to provide extra space for teaching, a café and a staff room. The question is whether the new building qualified for zero-rating under Item 2, Group 5, Schedule 8 Value Added Tax Act 1994.

HMRC argued that the new building was not a separate building because of a link bridge between the new building and a pre-existing building. It was also contended that as the activities that will take place in the building are similar to those already taking place on the site in other buildings, the new building is actually an extension of the existing buildings. To refute this, St Brendan’s contended that the building is a separate building with its own access and facilities and is a different type of building and constructed of different materials, and serving different purposes.

After considering all points and taking into account the relevant case law, the appeal was allowed on the grounds that the new building was a new building and was not merely an extension of, or annexe to, the pre-existing buildings on site.

5. Zero rating hot food

Pegasus (Manchester) Limited (Pegasus) appealed against a VAT assessment relating to food sales which HMRC deemed to be hot and therefore standard rated. The appellant sold takeaway food in spill-proof containers which were not intended to retain heat. Pegasus contend that the food served is not intended to be hot at all but is served warm as a result of storage at 56C in a bain-marie, in order to comply with  the food safety and hygiene regulations 2013. Before being placed in the bain-marie the food is cooled to 19-20C which is below the ambient temperature of the restaurant which is claimed to be 28-30C.

HMRC submitted that as the cooked food is kept in a bain marie with a temperature of 56C, the food is hot as it is above the ambient temperature; “hot” does not need to mean piping hot. It is also submitted that the main purpose of the bain marie is to sell hot food and moreover that compliance the food safety and hygiene regulations 2013 is only required where food is to be sold as hot. The provision by the appellant of napkins and cutlery to customers imply that the food is to be consumed as it is sold and it is sold as hot food.

The Tribunal found in favour of HMRC in this instance as the food is kept hot before being served and is hot as defined in the relevant legislation when it is supplied. The supply should therefore be standard rated.

6. Default surcharge direct debit not taken

Crown Blinds Limited appeal against a VAT default surcharge relating to late payment of VAT. The appellant does not dispute that the VAT for the relevant time period was paid late but submits that he had a reasonable excuse as he had a direct debit instruction in place for the payment of VAT but HMRC had failed to process this.

The appellant had cancelled the direct debit and reinstated it several times between September 2016 and March 2017 and HMRC had contacted the appellant on each of these occasions to state that if payment of VAT is to be taken by direct debit then a new instruction must be set up online or by sending paper instruction.  Despite an email from the appellant’s bank manager stating that the direct debit had been reinstated on 5th June 2017, the payment was not processed as the instruction was not reinstated on HMRC’s systems. HMRC had already advised that a new mandate would be required in correspondence in March 2017 and submit that a prudent trader would have acknowledged the correspondence and used an alternative method to make payment for the relevant periods.

The Tribunal found in favour of HMRC, stating that the appellant should have paid closer attention to the correspondence from HMRC which made clear that the direct debit was not being processed. The appellant cannot be said to have a reasonable excuse so the penalties were confirmed in full.

 

2018 Spring Statement and VAT

15th March 2018

In the Spring Statement, the Chancellor announced details of two consultations with implications for the future operation of VAT.

VAT threshold

One of the conclusions of a recent Office of Tax Simplification (OTS) report regarding UK VAT was that the relatively high VAT registration threshold has a distortionary impact on business growth. The OTS recommended that the ‘government should examine the current approach to the level and design of the VAT registration threshold, with a view to setting out a future direction of travel for the threshold, including consideration of the potential benefits of a smoothing mechanism’. As a result the government has now published a call for evidence.

This call for evidence is split into three chapters.

  • the first explores in more detail how the threshold might currently affect business growth
  • the second looks in more detail at the burdens created by the VAT regime at the point of registration, and why businesses might manage their turnover to avoid registering
  • the third considers possible policy solutions, based on international and domestic examples

Responses to the questions raised by the consultation should be submitted by 11:59pm on 5 June 2018

Split Payment Method of VAT collection

HMRC is also consulting on an alternative method of VAT collection to help combat VAT losses arising as a result of the expansion of e-commerce. A split payment method would see VAT separated and paid at the time of the transaction, rather than on a periodic basis via the VAT return process. Through this consultation, HMRC are asking for views on potential options for a split payment mechanism, whilst also further assessing the overall viability of split payment by seeking the views of a wider range of stakeholders.

Responses to the questions raised by the consultation should be submitted by 11:45pm on 29 June 2018

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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