Welcome to the October issue of our VAT Newsletter.
Upper Tribunal rules market pitches are taxable
The Upper Tribunal has overturned the decision of the First tribunal and decided that the sale of spaces at craft fairs is taxable at the standard rate. Kati Zombory-Moldovan t/a Craft Carnival organised craft and garden fairs. Spaces were sold to businesses and individuals involved in various crafts to enable them to sell their products at a fair to which the general public were admitted on payment of an entrance charge. The taxpayer accounted for VAT on the admission fees paid by the public but not on the supply of spaces to stallholders which she treated as an exempt supply of land. HMRC considered that the supplies to stallholders were not capable of falling within the land exemption, and should be treated as a composite supply of taxable services comprising the organisation of a craft fair, the purpose of which was to provide the stallholders with an opportunity to trade.
The taxpayer contended that only the right to use an allocated space was supplied to the stallholder and, as this met the EU law criteria of “leasing or letting of immoveable property”, it was an exempt supply. The starting point is that a supply of land is exempt from VAT. But there are many exceptions in the VAT legislation – for example, charges for hotel accommodation and car parking are standard rated. In some cases, supplies are subject to VAT because the customer is deemed to be getting more than just a supply of land in return for his payment.
HMRC contended that there were services provided that went beyond the right to use the particular space. The taxpayer further submitted that if that was the case the stall itself remained exempt either because there was a single supply of the stall which predominated, to which the other elements were ancillary, or because there were a number of essential elements making a composite whole, the essential feature of which was the right to use land.
The Upper Tribunal has held that it would be artificial to attempt to split what was provided to a stallholder into more than one supply. Regarding whether the single supply was exempt, the Upper Tribunal drew a distinction between informal car boot sales where buyers and sellers turn up on the day without booking in advance, and the kind of fairs that the taxpayer organises.
The UTT considered that the taxpayer was going beyond the relatively passive function of granting an exempt interest over land. It was providing the stallholder with a licence, not only for the use of a plot of land for a particular period, but for the use of a stall or pitch “at the event specified”. Based on a review of the contractual arrangements, the UTT concluded that the taxpayer traded on its reputation as a long-standing organiser of successful trade shows and had significant responsibilities beyond the bare provision of an appropriately-sized plot. The UTT therefore considered that the taxpayer’s supplies to stallholders did not fall within the land exemption.
Why it matters: This case illustrates the difficulties in deciding whether granting a right to use space is taxable or exempt. This decision might appear to go against HMRC’s own advice in VAT Notice 742, para 2.6. which says the exemption for the supply of land is available for “granting traders a pitch in a market or at a car boot sale.” The key point in both the Craft Carnival and International Antiques cases is that HMRC argued the fair organiser was supplying a lot more than a pitch to exhibitors and therefore paragraph 2.6 was not relevant. Businesses making supplies to stallholders at exhibitions and events may wish to review the VAT treatment of their charges to stallholders following this latest decision. Cases such as this and International Antiques and Collectors Fairs Ltd indicate that, as far as trade fairs are concerned, the dividing line between exempt supplies of land and taxable supplies of exhibition services has to be determined by how much the supplier’s activity goes beyond merely providing the space for the exhibitor to display. In both cases, the tribunals have emphasised the fact that the taxpayers held themselves out as experienced organisers of successful trading events, and this emphasis on the organisational aspects of their activities was sufficient to take them beyond the passive activity of granting someone exclusive permission to occupy a specified area for a specified time.
Members of VAT groups – which entity is entitled to make a claim for overpaid VAT?
The Upper Tribunal (UTT) has released its decision in the joined cases of Lloyds Banking Group plc, Standard Chartered PLC, MG Rover Group Ltd and BMW (UK) Holdings Limited. The cases at the First Tier Tribunal (FTT) level had resulted in diametrically opposite judgments. In MG Rover the FTT had held that it was the generating taxpayer who was entitled to make the claim. By contrast the Standard Chartered FTT held that it was the representative member of the VAT group which was so entitled. The UTT has held that the right to make a VAT repayment claim belongs to the representative member of the VAT group even after the ‘real world supplier’ leaves the VAT group , and any resolution of how the members of a group deal with that repayment is a private law matter.
Why it matters: Since the litigation concerning repayment of overpeaid VAT was settled in the Fleming case, many taxpayers have made claims, which have been complicated by disputes over which entity was entitled to the repayment. This is a complex area and taxpayers may wish to review the position following the Upper Tribunal decision, particularly as other litigation on this topic is ongoing.
HMRC can deregister UK VAT representatives of non-EU businesses
HMRC can require a non-EU established taxpayer to appoint a UK established VAT representative who is jointly and severally liable for the taxpayer’s obligations and liabilities under that Act. With effect from 7 November 2016, HMRC will be able to refuse to register a person as a VAT representative and cancel the existing registration of a VAT representative if they are satisfied that the representative is not a fit and proper person to act in that capacity.