Wigs for teddy bears are subject to duty, but in a recent Upper Tribunal case it was ruled that ‘realistic” hearts used for a Build-A-Bear toy are duty free.
Monthly Archives: April 2021
New rules of origin for goods
Brexit update
HMRC has published updated, detailed guidance for the rules of origin for goods moving between the UK and EU.
It is important to understand the impact of the rules and how they impact a business. Specifically, to ensure advantage is taken of zero tariffs when dealing with cross-border goods. The rules apply to both imports and exports and clearly, incurring unnecessary tariffs is to be avoided if possible.
Background
The UK moved to trading based on a new Free Trade Agreement (FTA) – the Trade and Cooperation Agreement (TCA) between the UK and the EU post-Brexit.
To export tariff-free under the TCA, goods must meet the UK-EU preferential rules of origin. This means that there must be a qualifying level of processing in the country of export to access zero tariffs. This applies to EU origin goods imported and moving through the UK from a Member State to another EU Member State, as well as goods imported from the Rest of World.
These rules are set out in the TCA and determine the origin of goods based on where the products or materials (or inputs) used in their production come from. Their purpose is to ensure that preferential tariffs are only given to goods that originate in the UK or EU and not from third countries.
VAT: Is a car wash a car park? The RK Fuels Ltd case
Latest from the courts
More on car parking.
In the RK Fuels Ltd First Tier Tribunal (FTT) case, the issue was whether the lease of an area of the supplier’s petrol station to a business operating a car wash was an exempt right over land or whether it was excluded from the exemption because it was a car park (the ‘grant of facilities for parking a vehicle’ VAT Act Schedule 9, Grp. 1, Item [1] [h]) and was therefore standard rated.
Background
Although the tenant operated a car wash (and not a car park) and this was a permitted use under the commercial use agreement, the car wash was located on land used as a car park.
The appellant contended that the car park was rented to carry out the business of car washing, and this is clearly stated in the lease agreement. It is not rented as a car park to park cars. Furthermore, a VAT inspection was carried out by HMRC and the point about the rental income being exempt was raised and accepted by HMRC.
HMRC relied on, inter alia, the fact that the relevant part of the lease stated that “the landlord agrees to rent to the tenant the car park. The car park will be used for only the following permitted use (the Permitted use): as a car wash business. Neither the car park nor any part of the premises will be used at any time during the terms of this lease by the tenant for any purpose other than the permitted use.” And the fact that the appellant was permitted an alternative use of the car park to run a car wash does not cause the area to cease to be a car park, nor does it mean that it cannot be used as a car park. There is a need for cars to be parked on the land whilst waiting to be washed, dried, and cleaned. Without the ability to park a car on the land, the permitted use could not occur.
Decision
The appeal was dismissed. The judge found that a grant of facilities for parking vehicles was made, either expressly or by necessary implication and so was standard rated. Further, the occupation of the car park under the terms of the lease agreement is a means to enable the car wash facility to operate. The site for parking is any place where a motor vehicle may be parked. It was also found that the fact that a person may not leave a vehicle does not render a vehicle any less parked.
The fact that the land was referred to as a “car park” consistently throughout the lease agreement was always going to be a problem for the appellant.
The court went on to consider whether a licence over land had been granted. It is a long-standing principle that a central characteristic of a licence over land is the right to exclude others. As the tenant had no right to exclude others from the relevant land (because, as an example given; customers of the petrol station could park there to visit the shop) there was no exempt supply of the right over land.
Commentary
There were other subsidiary issues, namely on whether an option to tax had been made but this was redundant considering the court’s decision on the substantive point. The decision was unsurprising even considering the guidance set out in VAT Notice 742 para 4.3:
“When a supply is of land rather than parking facilities
If you grant an interest in, or right over or licence to occupy land in the following circumstances, your supply will be exempted, unless you have opted to tax…
· letting of land or buildings where any reference to parking a vehicle is incidental to the main use..”
Even if the argument could be made that the parking was incidental, as the decision was that there was not an interest in, or right over or licence to occupy land the ancillary use point fell away.
Another nail in the coffin of the appeal was that the court found that the decision in the Fareham Borough Council [2014] TC04129 (which found that the right to operate was not an exempt right over land) applied in this case.
Care should be taken when analysing the VAT treatment of a lease. It is tempting to consider that if there is a lease, and it is of land, it is sufficient to merit exemption, but this case demonstrates that further consideration must always be given.
VAT: Car parking provided by a hospital – Exempt? Non-Business? Taxable?
Latest from the courts
In the Northumbria Healthcare NHS Foundation Trust (The Trust) First Tier (FT) case the issue was whether pay and display car park charges were subject to VAT considering the status and activities of the Trust.
Background
The Trust provided parking for staff and visitors at the 14 sites for which it was responsible. The question was whether output tax was due on the parking charges. The Trust submitted a claim for overpaid VAT considering that either:
- there was no economic activity, or, if there was,
- there was a “special legal regime” which meant that tax was not due because The Trust was not a taxable person, or
- the parking charges were closely related to the Trust’s exempt activity (medical care) such that they themselves were exempt
HMRC rejected the claim on the grounds that car parking is a standard rated supply and The Trust appealed against this decision.
It was agreed that The Trust, in carrying out its statutory activities (NHS medical services) is not in business (no economic activity) and therefore the services were outside the scope of VAT. Some private medical services were also supplied, and it was common ground that these were exempt.
Decision
The court found that:
- the Trust made supplies for a consideration for the purposes of obtaining income on a continuing basis so there was economic activity
- the Trust did not provide car parking under a “special legal regime” as a public authority; there is no concept of special legal regime in the relevant legislation
- the treatment of The Trust as a non-taxable person re; car parking would lead to significant distortion of competition
- supplies of car parking were not closely related to medical care. The service must be an indispensable stage and integral in the supply of medical services, ie; the diagnosis, treatment and cure of diseases or health disorders
- the supply of car parking was consequently a taxable business activity carried out by a taxable person, was not exempt, so output tax was properly due.
Commentary
We are aware of a number of cases stayed behind this appeal and there will be disappointment, but little surprise (I suspect) at the outcome. Car parking is a significant source of income for hospitals, medical centres and clinics etc, but this case made it clear that there is no difference in VAT terms between hospital parking and other commercial car parks.
VAT: Postponed Accounting available for Section 33 bodies
HMRC has announced that bodies covered by The VAT Act 1994, Section 33 such as; Local Authorities, Academies, Transport Authorities and the Police can use Postponed Accounting for imports.
Normally, a body cannot account for import VAT on its VAT return if it import goods that it knows will be used solely for non-business purposes. However, this no longer applies to a body that is eligible to reclaim import VAT through a VAT refund scheme (Section 33). Section 33 entities when completing its customs declaration, should select the “making an immediate payment or using a duty deferment account” option.
Section 33 bodies
These entities have special VAT treatment which is effectively the opposite of normal VAT rules. To avoid a cost to the taxpayer, these entities are permitted to specifically recover input tax that relates to non-business activities. Nobody said that VAT was straightforward and in these cases, the VAT rules are inverted!
We act for many Local Authorities and Academies. Please contact us should you, or your clients, have any queries on this matter.
New EC VAT rate database
The European Commission has issued a new tool which enables businesses to check on the VAT rate for specific supplies. It is based on commodity codes but there are drop down menus for detailed descriptions. The tool covers both goods and services. There are both a simple and advanced search functions and the database also covers other taxes:
- Personal Income Tax
- Corporate Tax
- Other Direct Taxes
- Alcohol
- Energy Products
- Real Estate
- Tobacco
- Social Security Contributions
VAT: Treatment of transactions involving cryptoassets. New guidance
Further to my articles on cryptoassets and Bitcoin HMRC have published an updated Cryptoassets Manual CRYPTO40000 which sets out its interpretation of trading in cryptocurrencies.
It covers:
- economic activity
- supplies of tokens
- exchanges
- exemption
- value
- case law
- betting and gaming
- other taxes; CGT, CT, CTCG, Income Tax, NIC and Stamp Taxes
Any business dealing in any way with cryptoassets needs to understand the VAT and other tax implications of services to, and by it.