Reduced VAT for e-pubications

EU citizens could pay less for e-books after plans to allow member states to reduce VAT on e-publications were backed in committee on 3 May.

An EU Commission proposal to enable member states to charge a reduced rate of VAT on e-books, which would bring them into line with VAT levied on printed matter, was backed by the 48 votes to 1 with 2 abstentions by the Economic and Monetary Affairs Committee. The proposal will now be voted by Parliament as a whole on May 31st.


Spring/Summer Newsletter

Welcome to our Spring/Summer news update. It’s been a busy few months since our last update in January. There’s more detail in the links below.


The triggering of Article 50 and the UK’s eventual departure from the EU will have a major impact on UK VAT in the future as we discuss here.

Making Tax Digital

HMRC’s proposals to ‘Make Tax Digital’ will eventually affect how all businesses make tax and VAT returns (though there is a proposed exemption for charities) and is likely to require all businesses to adopt digital accounting and /or adapt their software packages. Whilst the legislation was cut from the Finance Bill due to the election we are told this is a deferral only. There is more detail on the proposals here.

Cultural and Educational exemptions

The European Court has recently decided that the UK is entitled to deny exemption to film screenings by non-profit making bodies in the case of BFI. That means there will be no extension of exemption to other areas, but Brockenhurst College was successful in arguing that the catering and theatrical activities its students provided to third parties were exempt because they were closely related  to the education of the students.

Holding companies

Finally HMRC have updated their guidance on deduction of VAT by holding companies  following cases hear on the CJEU. It was expected this would be issued as an HMRC brief but instead HMRC have updated several parts of their Manuals. This will affect recovery of VAT on mergers and acquisitions

As always if you have any questions on VAT give us a call on 0208 492 1901 or drop us an email.


College’s ancillary activities are ‘closely related’ to education

On 4 May the CJEU held that Brockenhurst College’s supplies of catering and entertainment services, when proivded by students as part of their courses, are closely related to education and exempt.

The case concerned charges the College made for meals prepared and served by students as part of catering courses and for tickets for student performances which were also intended to give students an opportunity to develop their skills.  The question was whether these were taxable, since the recipients were not students, or whether they were exempt, because the purpose of the activities was to further the education of the students – and thus were ‘closely related’ to the College’s educational supplies.

The CJEU has agreed with the First and Upper Tribunal and ruled that the charges are exempt. The Court decided that ‘closely related’ was  the same as ‘ancillary’ and thus the catering and entertainment was not an end in itself, but supported the principal supply of education.  The legislation does not require these ancillary supplies to be made to the student in situations where the supplies are for the purpose of enhancing the student’s education, and did not generate additional financial resources, and as long as the activity did not compete unfairly with other commercial businesses.

The Court found that in this case the College’s customers were always associated with students or the college, and there was no general admission for the public.  The catering and performances were not to professional standards, and the main reason they were undertaken was to develop the students.  As such the activities were unlike their commercial equivalents which benefit only the consumer, and thus there was no unfair competition.

Furthermore, the College charged only 80% of the costs, so there was no intention to raise funds in relation to the activities. As the motive was to educate the students the supplies were exempt provided that such activities are essential to the students’ education and their basic purpose is not to obtain additional income for that establishment by carrying out transactions in direct competition with those of commercial enterprises. On the latter point the ECJ ruled that it is for the national courts to determine and this will therefore be referred back to the Court of Appeal.

Any educational bodies which have not already made protective claims to HMRC for overpaid VAT on such supplies should now do so.

VAT deduction by holding companies

HMRC have finally published updated guidance on recovery of VAT by holding companies. The update had been expected to take the form of a Brief which would be published on but instead HMRC have updated the VAT manuals (also on instead.

Following the CJEU decision in the joint cases Larentia +Minerva, HMRC has been reviewing their policy in respect of holding companies and deduction of VAT incurred on acquisition costs.

The CJEU held that VAT incurred by a holding company on the costs of acquiring shareholdings in subsidiaries to which it also intended to provide taxable management services, must be regarded as part of a holding company’s general overhead expenditure and  thus as deductible (subject to any partial exemption restriction).

Prior to this case HMRC’s previous policy had been that VAT incurred on the acquisition costs of shares by a holding company was only deductible where it was directly attributable to the provision of taxable services.  They also considered that VAT on costs incurred by holding companies was only recoverable if the intention was to recoup the expenditure by providing taxable services to subsidiaries within a ‘reasonable’ period of time.

The guidance covers:

  • when a shareholding is regarded as bring used as part of an economic activity;
  • whether a holding company is the recipient of a supply;
  • whether a holding company is undertaking economic activity for VAT purposes;
  • whether a shareholding is acquired as a direct, continuous and necessary extension of a taxable economic activity of the holding company;
  • whether there is an intention to make taxable supplies;
  • contingent consideration for management services;
  • the effects of a holding company joining a VAT group;
  • stewardship costs; and
  • mixed economic and non-economic activities.

Businesses considering mergers, acquisitions and corporate restructures should read this guidance.

Revised VAT Notice 701/30 – Education

HMRC have issued a revised VAT Notice 701/30: education and vocational training (26 April 2017) which explains the VAT treatment of education, research, training, connected goods and services, and examination services.

The notice has been updated to explain the treatment of funds taken from the new apprenticeship service account to pay external providers for apprenticeship training with effect from 1 May 2017. This notice cancels and replaces the 25 February 2014 version.

VAT deduction on works carried out under planning gain agreements

The Advocate General (AG) opinion in the Bulgarian case of Iberdrola Inmobiliaria Real Estate Investments (“Iberdrola”) has called into question the UK’s treatment of VAT incurred on works under planning gain agreements. It has also led to some contrasts and questioning on effect of the Sveda case.

Iberdrola constructed a holiday village from which it intended to make taxable business supplies. The site needed a connection to the existing municipal waste-water pump station, The pump station was in need of renovation and Iberdrola agreed, as part of the planning consent, to repair and upgrade it for the local authority. It instructed a building contractor to carry out the works, on which it recovered the VAT. The tax authority denied the VAT repayment on the basis that the VAT was not incurred by the Iberdrola for its business purposes.

The AG’s opinion was that European legislation does not permit the deduction of VAT on services which are provided free of charge directly to a third party for its purposes, even where the person incurring the costs was motivated by business reasons. Whilst the AG accepted that there was some benefit to Iberdrola in incurring the costs, the supply by the  contractor was to the local authority. Therefore, Iberdrola was not entitled to deduct the VAT incurred on works to the pump station.

Furthermore, the AG contrasted the facts here to the case of Sveda, because in that case the taxpayer did not pass on the benefit of having a culture trail constructed to another party but used the trail to benefit its own business by allowing potential customers of its retail activities to use it free of charge. So, in Sveda, the costs were overheads of the taxpayer’s business.  Iberdrola did not use the renovated infrastructure in the context of its own business but passed on the benefit of them to the local authority. It is expected the CJEU will decide on this case later this year.

Why it matters While the AG’s opinion provides an indication of the judgement of the CJEU it is possible that the CJEU will not follow the AG’s opinion This decision could impact property developers and housebuilders in the UK who enter into planning gain agreements (section 106) with local planning authorities to provide infrastructure. Presently in the UK HMRC allow VAT recovery on such works.