VAT News October 2016

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.

VAT Newsletter September 2016

It’s been an eventful summer and one of the busiest we’ve known. Here’s our latest VAT Newsletter with some of the latest developments.

In the Courts – a surprise opinion on cultural services

The Advocate General’s Opinion has been published in the case of British Film Institute (C-592/15). The case was referred from the UK Court of Appeal. The C of A asked whether the cultural services exemption under Article 13A(1)(n) of the Sixth Directive (now Article 132(1)(n) of the VAT Directive) has direct effect in the UK, so as to exempt BFI’s supplies (admission to showings of films), in the absence of any domestic implementing legislation. The referral also asked whether any discretion is given to Member States to discriminate between cultural services in their application of the exemption. This is because in the UK exemption is restricted to admission to

  • a museum, gallery, art exhibition or zoo; or
  • a theatrical, musical or choreographic performance of a cultural nature.

HMRC say this prevents admission to film screenings being exempt, but the UK Courts so far have disagreed.  However  the Advocate General’s opinion is that Member States do have discretion to decide which cultural services are exempt from VAT. Therefore in his opinion the only issue is whether not applying exemption to BFI’s film admissions is contrary to the EU principle of equal treatment in relation to supplies by other operators, which the AG says is for the UK courts to decide. If followed by the ECJ this would mean that the BFI case would have to come back to the UK courts  to decide whether BFI was being denied equal treatment.

Why it matters

This opinion will be of interest to any eligible bodies which supply cultural services, but have been denied exemption by HMRC on the grounds that the services in question are not listed in UK law. There are number of UK cases backed up behind BFI. This is not the final decision,  and AGOs are not necessarily followed by the European Court.  If you have any questions about how this case affects you, please get in touch.

 Can a wall be a dwelling?

A development company acquired a domestic property with a view to developing a large house on the site on a speculative basis. The property was semi-detached, and the company planned to demolish the existing property, make good the gable end of the remaining house to leave a gap between it and the new house. It then planned to build the new house and a new boundary wall between the two properties. Planning permission was received for these works on 30 November 2011. The foundations of the new house were dug but before the new house was built the company sold the land to a new buyer who intended to build a different house which required new planning permission. The company was obliged to obtain planning permission and build a perimeter wall as part of the deal.

On the basis that the sale of the property constituted a zero rated supply, the Appellant claimed the input VAT incurred on the property. However, HMRC considered that the building of the wall was part of the demolition of the existing property and not part of the construction of a new dwelling, so that the sale had constituted an exempt supply of land and the input VAT could not be recovered.

The Tribunal agreed with the company that the construction of the wall was not preparatory work; it was the first stage in the construction of a domestic building. The Tribunal considered that ‘dwelling’ can be interpreted to mean a house together with other buildings on site which are integral to the property as a whole, and therefore the wall was a building that was part of a dwelling being constructed. In principle therefore, the company was a ‘person constructing a building designed as a dwelling’ and sale could have been zero-rated. However, unfortunately the planning permission conditions were not satisfied on the date of the sale, and therefore the sale was exempt and the input tax incurred on the site was irrecoverable.

Why it matters

The case illustrates the need for the planning permission to be in place at the time of the sale of construction projects. It is also interesting because the tribunal was prepared to accept that the construction of a substantial garden wall above ground level can constitute the construction of a ‘building’, which in turn can, along with other buildings including the house, constitute a “dwelling” for VAT purposes.


Making Tax Digital – major consultation on reform of tax reporting

HMRC issued a number of consultation documents in August concerning its ‘Making Tax Digital’ (MTD) initiative. MTD is a programme which is intended to create a single digital tax system, to be used by almost all taxpayers by 2020. The MTD implementation for VAT is expected to be effective from 1 April 2019. Consultation responses are required by 7 November 2016 and we would urge all businesses to read and respond to the consultation.

In summary, MTD means most businesses will have to use systems or apps which are compatible with HMRC’s tax systems (Corporation Tax, Income Tax, NICs and VAT) and which will regularly update the taxpayer’s digital tax account (at least quarterly), bringing taxpayers closer to ‘real time’ updating of their tax accounts.

There are six separate consultation documents, all of which are available on the website along with Making Tax Digital for Business – An overview for small businesses, the self-employed and smaller landlords, a simplified single consultation document for the smaller business.

MTD will be the default method by which businesses manage their tax affairs. All businesses with Income Tax, National Insurance, VAT or Corporation Tax obligations will be within scope of these requirements unless they have been explicitly exempted. The consultation documents include proposals which will have a significant impact on VAT reporting.

The ‘Bringing business tax into the digital age’ paper outlines how MTD will be delivered through digital tools, and there are VAT aspects to be considered by all VAT registered businesses. They will have to select software and apps which are compatible with the MTD HMRC systems.

Charities and MTD

In that paper HMRC are seeking views on whether charities should be exempted from the requirements of MTD. The vast majority of charities do not incur a direct tax liability on an annual basis. However, many charities interact with HMRC on a quarterly basis because they are VAT registered. HMRC considers that due to their unique tax status charities should be exempted from the digital update requirements and for them it will be a voluntary process. This will be a very welcome exemption as anyone who reads our updates will know VAT for charities is complex. It seems unlikely, particularly in the short time frame, that there will be many suppliers willing to invest the considerable effort it would take to design software or apps that could cope with partial exemption and business and non-business issues many charities face.

HMRC are also consulting on whether charity trading subsidiaries should be exempted from the requirements of MTD and are keen to receive submissions on whether this group should also be exempted.

Overseas businesses selling goods in the UK via on-line marketplaces
HMRC has published new guidance aimed at offshore businesses selling goods to UK customers via on-line marketplaces.  The guidance reflects the measures announced in the last Budget which are aimed at improving UK VAT compliance by offshore sellers selling through digital marketplaces.  Under the new regime, an on-line marketplace operator, or an agent or representative of the overseas seller, can be held jointly and severally liable for any UK VAT that the offshore seller fails to pay.