Banana and strawberry flavoured Nesquik drinks are standard rated, but chocolate flavoured Nesquik is zero rated.
Tag Archives: tribunal
VAT tertiary legislation – HMRC’s new guidance
HMRC has published new a guide to all information about VAT that has ‘force of law’.
The manual contains all the tertiary legislation for VAT which HMRC has published – all in one place. Primary and secondary legislation is published on Legislation.gov.uk.
What is tertiary legislation?
Within primary and secondary legislation, government departments are sometimes granted the power to publish additional legally binding conditions or directions on a given topic. This information is known as ‘tertiary legislation’.
Tertiary legislation carries ‘force of law’. This means it has the same legal status as primary and secondary legislation. HMRC has an obligation to publish this information in accordance with the law.
The guidance covers:
(with links to the relevant legislation)
- Cash Accounting Scheme
- Flat rate schemes
- Gold imports and exports
- Land, building and construction
- Margin schemes
- Northern Ireland
- One Stop Shop (OSS) and Import One Stop Shop (IOSS)
- Refunds
- Registration
- Reliefs
- Retail Schemes
- Transfer as a going concern (TOGC)
- Transport
- Warehousing
- Valuation
VAT DIY Housebuilders’ Scheme Top 10 Tips
An in-depth article on the DIY Housebuilders’ Scheme here
It is also possible to claim VAT on the construction of a new charity building, for a charitable or relevant residential purpose.
The following are bullet points to bear in mind if you are building your own house, or advising someone who is:
- Understand HMRC definitions early in your planning
Budgeting plays an important part in any building project. Whether VAT you incur may be reclaimed is an important element. In order to establish this, it is essential that your plans meet the definitions for ‘new residential dwelling’ or ‘qualifying conversion’. This will help ensure that your planning application provides the best position for a successful claim. One point to bear in mind, is the requirement for the development to be capable of separate (from an existing property) disposal.
- Do I have to live in the property when complete?
You are permitted to build the property for another relative to live in. The key point is that it will become someone’s home and not sold or rented to a third party. Therefore, you can complete the build and obtain invoices in your name, even if the property is for your elderly mother to live in. However, it is not possible to claim on a granny annexe built in your garden (as above, they are usually not capable of being disposed of independently to the house).
- Contractors
Despite the name of the scheme, you are able to use contractors to undertake the work for you. The only difference here will be the VAT rate on their services will vary depending on the nature of the works and materials provided.
- What can you claim?
A valid claim can be made on any building materials you purchase and use on the build project. Also, services of conversion charged at the reduced rate can be recovered. However, input tax on professional services such as architect’s fees cannot be reclaimed.
- Get the VAT rate right
It is crucial to receive goods and services at the correct rate of VAT. Services provided on a new construction of a new dwelling will qualify for the zero rate, whereas the reduced rate of 5% will apply for qualifying conversions. If your contractor has charged you 20% where the reduced rate should have been applied, HMRC refuse to refund the VAT and will advise you go back to your supplier to get the error corrected. This is sometimes a problem if your contractor has gone ‘bust’ in the meantime or becomes belligerent. Best to agree the correct VAT treatment up front.
- Aid your cash flow
If you wish to purchase goods yourself, it will be beneficial to ask your contractor to buy the goods and combine the value of these with his services of construction. In this way, standard rated goods become zero rated in a new build. If you incur the VAT on goods, you will have to wait until the end of the project to claim it from HMRC.
- Claim on time
The claim form must be submitted within six months of completion of the build, usually this is when the certificate of practical completion is issued, or the building is inhabited. although it can be earlier if the certificate is delayed. More details of when a building is complete here. Recent changes to the scheme here.
- Use the right form
HMRC publish the forms on their website.
Using the correct forms will help avoid delays and errors. Claims can now be made online.
- Send everything Recorded Delivery
You are required to send original invoices with the claim. Therefore, take copies of all documents and send the claim by recorded delivery. Unfortunately, experience insists that documents are lost…
- Seek Advice
If you are in any doubt, please contact me. Mistakes can be costly, and you only get one chance to make the claim. Oh, and don’t forget that this is VAT, so any errors in a claim may be liable to penalties.
More on the DIY Housebuilders’ Scheme here, here, here, and here and Tribunal cases on claims here, here, and here
VAT: Are cosmetic skin treatments exempt medical care? The Skin Science case
Latest from the courts
In the First Tier Tribunal (FTT) case of Gillian Graham T/A Skin Science the issue was whether certain cosmetic skin treatments were exempt via The VAT Act 1994, Schedule 9, Group 7, item 1 which covers services for the primary purpose of protecting, restoring or maintaining health: “medical care”
Were the services provided by Skin Science (SS) medical care?
Background
SS ran a clinic at 10 Harley Street, London and Ms Graham was a Registered General Nurse (RGN).
As an RGN the Appellant must submit revalidation every three years to the Nursing & Midwifery Council. The revalidation process requires her to demonstrate evidence of the scope of her professional practice including; evidence of hours worked, case studies, discussions with other medical professionals to obtain feedback and attending training courses. The Appellant’s realm of practice is disorders of the skin.
Patients generally attend the Appellant’s clinic by choice and are not referred to the Appellant by a doctor or psychologist. Some clients might see the Appellant following referrals from beauticians who may be unable to carry out treatments for certain conditions.
The treatments that the Appellant provides to her patients are not generally part of a treatment plan which involves other health professionals. SS could not confirm whether psychiatrists, psychological professionals or doctors would prescribe fillers or toxin for the conditions that she diagnoses.
A range of treatments were provided, including:
- Restylane
- Pix Cannula
- Teosyal light filling
- Muscle relaxing injections
- Dermal roller
- Glycolic Acid Peel
- TCA Peel
- Botox
- Belotero Volume
- Dermal fillers
- Face lift by injection
- Hollywood Eye Magic Serum
- Belotero injections
SS provided a description of each treatment to the Tribunal.
The appellant also prescribed medicines such as; Lidocaine, Botulinum, Scleremo, Zinerate and Tretinoin.
Contentions
SS argued that the supplies of skin care treatments are exempt from VAT as they are supplies of medical care. She diagnoses recognised medical conditions, provides treatment to address those conditions and is fully qualified to do so. As all of her treatments are aimed at treating or curing those recognised medical conditions, they inevitably have a therapeutic purpose. Although they may improve the appearance of the patients and in some cases be regarded as inherently cosmetic, this is consequential as the primary purpose is to address an underlying medical condition whether physical or psychological or both. Moreover, purpose should be determined by a medical professional and not by HMRC.
HMRC contended that these supplies were standard rated (causing SS to become VAT registered) as they did not have the primary purpose of protecting, restoring or maintaining health as they were overwhelmingly cosmetic and so do not satisfy the requirements of the exemption.
Decision
It was noted that the concept of the “provision of medical care” does not include medical interventions carried out for a purpose other than that of diagnosing, treating and in so far as possible, curing diseases or health disorders and it is the purpose of the medical intervention rather than merely the qualifications of the person providing it that is key.
Health problems may be psychological, they are not limited to physical problems. Where treatment is for purely cosmetic reasons it cannot be within the exemption. Where, however, the purpose of the treatment is to treat or provide care for persons who as a result of illness, injury or a congenital physical impairment are in need of plastic surgery or other cosmetic treatment then this may fall within the concept of medical care.
The Appellant is not a psychological professional under Item 1(c) of Group 7 (health professionals) or a psychiatrist under Item 1(a) (medical practitioners), so the focus must be on what is within the scope of an RGN’s profession. The judge found that the Appellant had not proven her case that diagnosing and treating conditions which are psychological is within the scope of her profession as an RGN.
The decision was that the treatments were not for the primary purpose of protecting, restoring or maintaining health and so not “medical care” and consequently the appeal was dismissed.
A parallel outcome to a similar case in the Skin Clinics Ltd case. Other cases on medical exemption here, here and here.
Commentary
There has been an ongoing debate as to what constitutes medical care. Over 20 years ago I was advising a large London clinic on this very point and much turned on whether patients’ mental health was improved by undergoing what many would regard as cosmetic procedures. We were somewhat handicapped in our arguments by the fact that many of the patients were lap dancers undergoing breast augmentation on the direction of the owner of the club…
It is crucial to apply the above tests to any medical services to determine whether they come within the exemption.
It is worth remembering that not all services provided by a medically registered practitioner are exempt. The question of whether the medical care exemption is engaged in any given case will turn on the particular facts.
VAT: DIY Housebuilder Scheme updated
HMRC has updated its guidance for DIY Housebuilders.
The scheme enables people who build, or convert properties into dwellings for their own use to recover VAT incurred on the project.
More on the Scheme here.
Information about filling in a schedule of invoices before starting a self-build project has been added. This follows other changes to, and cases on, the Scheme which are set out below:
- Changes to the DIY Housebuilders’ Scheme
- DIY Housebuilders’ Scheme – deadline for claims extended
- The Spani case
- The Dunne case
- The Ellis case
The following article provides help with Scheme claimants:
Tax points and VAT groups – The Prudential Assurance Company Ltd CoA case
Latest from the courts
In the The Prudential Assurance Company Limited (Pru) Court of Appeal (CoA) case the issues were the “difficult” questions in respect of the relationship between the VAT grouping rules and the time of supply (tax point) legislation. Is VAT is applicable on a continuous supply of services where these services were supplied while the companies were VAT grouped, but invoices were issued after the supplier left the VAT group?
Background
Pru was at the relevant time carrying on with-profits life and insurance business. Silverfleet Capital Limited (Silverfleet) provided Pru with investment management services. Under an agreement dated 30 August 2002, the consideration which Silverfleet received for its services comprised a management fee calculated by reference to the amount of investments made during the period in which services were provided and performance fees, payable in the event that the performance of certain funds exceeded a set benchmark rate of return.
When Silverfleet was rendering its investment management services, Pru was the representative member of a VAT group of which Silverfleet was also a member. However, in 2007 a management buy-out was effected, as a result of which Silverfleet ceased to be a member of Pru’s VAT group. It also ceased to provide management services to Pru.
During 2014 and 2015, the hurdle rate set under the 2002 agreement was passed. Silverfleet accordingly invoiced Prudential at various dates between 2015 and 2016 for fees totalling £9,330,805.92 (“the Performance Fees”) plus VAT at 20%.
The Issues
The CoA considered whether the Performance Fees are subject to VAT.
The First-tier Tribunal (FTT) decided the point in favour of Pru. However, HMRC succeeded in an appeal to the Upper Tribunal (UT). In a decision that decision, the UT concluded that VAT was chargeable on the Performance Fees.
In its decision, the FTT queried whether regulation 90 of the VAT Regulations went so far as to direct that Silverfleet’s services had not been provided within a VAT group and had been “supplied in the course or furtherance of a business that in the VAT group world was not being carried on”. Further, the FTT was “unable to see what feature distinguishes [Prudential’s] case from that of the taxpayer in [B J Rice & Associates v Customs and Excise Commissioners]”.
In contrast, the UT considered that, pursuant to regulation 90 of the VAT Regulations, Silverfleet’s services were to be treated as having been supplied when invoiced and, hence, at a time when Silverfleet and Prudential were no longer members of the same VAT group. That being so, section 43 of VATA 1994 was not, in the UT’s view, in point. The UT also considered that the FTT had erred in regarding itself as bound by B J Rice & Associates v Customs and Excise Commissioners [1996] STC 581 (“B J Rice”) to allow the appeal. Unlike Mr Rice, the UT said in its decision, Silverfleet “was not entirely outside the scope of VAT when the Services were rendered, but rather it was subject to a specific set of assumptions and disregards”.
Pru contended that Silverfleet should not be considered to have made the supply in the course or furtherance of any business carried on by it. The business will instead be assumed to have been carried on by Pru. This was important because if VAT was applicable to the services Pru would not be in a position to recover it (in full at least) due to partial exemption which represented a large VAT cost.
Unsurprisingly, HMRC considered that output tax was due because at the tax point, Silverfleet as no longer part of the VAT group.
Legislation
The VAT Act 1994, section 43 lays down the rules in respect of VAT groups, and The VAT Regulations 1995, regulation 90 makes provision with respect to the time at which continuous supplies of services are to be treated as supplied for VAT purposes.
Section 43 explains that any supply by one member of a VAT group to another is to be “disregarded” and that “any business carried on by a member of the group shall be treated as carried on by the representative member”. Does this mean that no VAT is chargeable on an intra-group supply regardless of whether the supplier has left the group by the time consideration for the supply is the subject of a VAT invoice and paid? Or is section 43 inapplicable in respect of continuous supplies insofar as the consideration is invoiced and received only after the supplier is no longer a member of the VAT group because regulation 90 provides for the services to be treated as supplied at the time of the invoice or payment?
Decision
The appeal was dismissed and HMTC’s assessment was upheld. It was not possible to disregard the supply as intra-group and the tax point rules for the continuous supply of services meant that it was a taxable supply. The decision was not unanimous, with the decision by the judges being a 2:1 majority.
Commentary
This was a close decision and highlights the necessity of considering the interaction between VAT groups and tax points and the implications of timings. The case makes interesting reading in full (well, for VAT people anyway!) for the technical discussions and the disagreement between the judges.
VAT: Evidence for exports. The H Ripley case
Latest from the courts
In the H Ripley & Co Limited First Tier Tribunal (FTT) case the issue was whether the appellant had satisfactory evidence to support the zero rating of the export of goods (scrap metal).
Background
HMRC denied zero rating on the basis that the appellant did not provide satisfactory evidence to support the fact that the scrap metal was removed from the UK.
The requirements are set out in VAT Notice 725 para 5 and acceptable documentary evidence may include:
- the customer’s order – including customer’s name and delivery address
- inter-company correspondence
- copy sales invoice
- advice note
- packing list
- commercial transport documents from the carrier responsible for removing the goods from the UK, for example an International Consignment Note (CMR) fully completed by the consignor, the haulier and signed by receiving consignee
- details of insurance or freight charges
- bank statements as evidence of payment
- receipted copy of the consignment note as evidence of receipt of goods abroad
- a signed CMR document or note
- a bill of lading
- an airfreight invoice
- an invoice from the carrier of the goods
- official documents issued by a public authority, such as a notary, confirming the arrival of the goods
- any other documents relevant to the removal of the goods in question which you would normally get in the course of business
or a combination of the above.
HMRC advised the appellant that it had received an information request from the Belgian tax authorities in respect of certain transactions and consequently, HMRC required information on the company’s documents in connection with the supplies. On receipt of the information HMRC concluded that the evidence was insufficient to support zero-rating so the sales were treated as standard rated and the appellant’s repayment claim was reduced to reflect this.
In these circumstances the burden of proof is on the appellant to show that it has satisfied the conditions set out in Notice 725 to zero-rate its supplies and provide documentation to show that the goods were removed from the UK.
Decision
The court noted that it was not HMRC’s position that supplementary evidence could not be provided post the required three-months period but that it was entitled to decline the additional evidence when it was provided some 18 to 30 months after the three-month period. It was clear that the evidence of removal must be obtained within three months and not that the valid evidence is brought into existence within the three-month time limit and obtained at some future date.
Notice 725 sets out the conditions which attach to the entitlement to zero-rate supplies. The FTT considered it to be clear from paragraph 4.3 and 4.4 (which have the force of law) that the onus is on the exporter company claiming zero-rating to gather sufficient evidence of removal within three months of the date of the supply. If it does not do so, it is not entitled to zero-rate the supplies.
Specifically, the court considered:
- Sales Invoices – did not provide clear evidence that the goods were removed from the UK. Despite the invoices confirming the sale of scrap metal to a Belgium registered company it did not follow that the address of the purchaser is the same address as the destination that the goods were sent to.
- Bank Statements – simply provided proof of payment they did not confirm who received the goods nor where the goods were delivered.
- Weighbridge Tickets – merely confirm a consignment of scrap metal was sold to a Belgium based company and the goods were collected by a UK registered vehicle.
- CMRs – none of the CMRs were fully completed by the haulier and signed by the receiving consignee.
- P&O Boarding Cards –a taxpayer must have in its possession valid evidence of export within three months from the time of supply. The boarding cards were not provided to HMRC until 30 May 2018, some 18 to 30 months after the disputed consignments took place. It was not disproportionate for HMRC to state that the time limit for obtaining valid evidence of removal was three months and that the substantive requirements of Notice 725 had not been met. In any event, the court did not accept that the boarding cards evidence the exports of the scrap metal; none of the reference numbers on the boarding card match those used in any of the other documents and none of the lead names on the boarding cards match any of the other names in any other document. The boarding cards do not have any identifying features such that they may be matched with any of the disputed consignments.
- E-mails and WhatsApp messages –none of the messages evidence that the loads were exported. At best they evidence a request from the buyer to a carrier to collect goods from the supplier’s yard and the WhatsApp messages were silent on whether the loads were exported from the UK.
The appeal was dismissed, and the assessments were upheld because none of the documents either individually or taken as a whole, were sufficient evidence to support zero-rating.
Commentary
Yet another case illustrating the importance of insuring correct documentation is held. It is not sufficient that goods leave the UK, but the detailed evidence requirements must always be met.
VAT: Input tax claim on Land Rovers. The Three Shires Trailers case
Latest from the courts
In the Three Shires Trailers Limited First Tier Tribunal (FTT) case the issues were whether an input tax claim on the purchase of two Land Rover Discoveries was appropriate when they were converted from commercial vehicles to cars, or was a self-supply triggered?
Background
The vehicles were commercial vehicles when purchased and input tax was recovered. Subsequently, they were converted by the addition of three fold up seats with seat belts behind the driver seat and removing materials which had blacked out the rear windows which reclassified them as cars. This would have subjected them to an input tax block if purchased in that state.
The purpose of buying the vehicles was for the transport of trailers to customers, the collection of trailers from suppliers and to enable personnel of the appellant to attend trade fairs all over the country.
Technical
“A Motor Car” is defined as:
“any motor vehicle of a kind used on public roads which has three or more wheels and either:
(a) is constructed or adapted solely or mainly for the carriage of passengers; or
(b) has to the rear of the driver’s seat roofed accommodation which is fitted with side windows or which is constructed or adapted for the fitting of side windows…”
Issues
The appellant stated that the vehicles were used only for business purposes. Employees were not permitted to use the vehicles for private purposes and did not do so. The vehicles were kept at the business’s premises. He also explained that the vehicles were not converted to cars, if they were cars, they were qualifying cars and if they were non-qualifying cars, the use was only temporary, and they were converted back to commercial vehicles.
Initially, HMRC disallowed the claim because the vehicles became cars and subject to the input tax block.
Subsequently, HMRC’s case was that the vehicles had been converted from commercial vehicles to non-qualifying cars which triggers an irreversible self-supply under Article 5 of the Value Added Tax (Cars) Order 1992 so output tax equalling the claimed input tax was due.
Decision
The FTT decided that, at the time when the vehicles were acquired, they were indisputably commercial vehicles and the appellant was entitled to deduct the input tax on them.
The judge found that, after conversion, the vehicles were intended for use, and were used, only for business purposes. The appellant did not intend that the vehicles should be used for private purposes and so far as he was aware, there was no private use. The vehicles were therefore qualifying motor vehicles eligible for input VAT recovery. No output tax was due on a self-supply.
The appeal was allowed.
Commentary
Another case on the recovery of input tax on car purchases and the difference between commercial vehicles and cars. It is notoriously difficult to persuade HMRC that there is no private use of cars, but it is possible.
VAT: Alternative Dispute Resolution guidance updated
HMRC has, this month, updated its guidance on how to use Alternative Dispute Resolution (ADR) to settle a tax dispute.
Anyone can apply for ADR to help resolve a dispute with HMRC, or to get more information about issues that need to be taken for a legal ruling. The Guidance explains how to apply for ADR and when you can use it to resolve a VAT disagreement with HMRC.
A full overview of the ADR system written by us here, but broadly, it is the involvement of a third party (a facilitator) to help resolve disputes between HMRC and taxpayers. Its aim is to reduce costs for both the taxpayer and HMRC when disputes occur and to reduce the number of cases that reach statutory review and/or Tribunal.
VAT treatment of serviced apartments: The Realreed Limited case
Latest from the courts
In this First-Tier Tribunal (FTT) case the issue was whether serviced apartments qualify for exemption.
Background
Realreed owns a property called Chelsea Cloisters in Sloane Avenue, London. The property comprises; 656 self-contained apartments and some commercial units. 421 of these apartments are let on long leases (no VAT issues arise from these supplies). The appeal concerned the VAT treatment of the letting of the remaining 235 apartments, which include studio, one-bedroom or two-bedroom self-contained rooms. The appellant has, at all times, received a significant number of occupiers from corporate customers when they relocate their employees to London for a specified period, such as a secondment.
The contentions
Realreed argued that the letting of the apartments is a supply of accommodation which is exempt under The VAT Act 1994, Schedule 9, Group 1, Item 1. Chelsea Cloisters operates like a ‘home from home’ for its tenants: it provides residential accommodation. The physical appearance of the building is very similar to that of other residential buildings in the vicinity. It does not have signage suggesting the serviced accommodation is a hotel or similar establishment. It is rare for hotels (or similar establishments) at the booking point to offer long-term availability in the same way as Realreed does. Chelsea Cloisters does not offer room service, or catering of any form. Tenants have fully functioning kitchens and other self-catering facilities within their apartments and have washing machines and dryers to do all their own laundry. Tenants can, and do, stay for extended periods of time (one for around 20 years). The business has always involved the provision of residential accommodation on a longer-term basis than would typically be found in a hotel, with a much higher degree of personal autonomy for the occupant.
HMRC contended that the use of the Apartments is carved out of the exemption in Item 1 by excepted item (d), which applies to “the provision in an hotel, inn, boarding house or similar establishment of sleeping accommodation”. Note 9 to Group 1 provides that “similar establishment” “includes premises in which there is provided furnished sleeping accommodation whether with or without the provision of board or facilities for the preparation of food, which are used or held out as being suitable for use by visitors or travellers”.
Decision
The court considered that Realreed provided sleeping accommodation in an establishment which is similar to a hotel. The two hallmarks of short-term accommodation coupled with additional services (daily maid service, linen changing, cleaning at the end of a stay, residents bar, concierge) mean that Chelsea Cloisters is an establishment in potential competition with the hotel sector, which also offers short-term accommodation with services.
The FTT found that Realreed provided furnished sleeping accommodation, so the remaining question was whether Chelsea Cloisters is used by or held out as being suitable for use by “visitors or travellers” per Note 9.
The FTT interpreted ‘visitor or traveller’ as referring to a person who is present in a particular place without making it their home, ie; they are not staying there with any degree of permanence. The average length of visit was less than a fortnight which must mean that the apartments were indeed made available to visitors or travellers.
The supplies were therefore standard rated.
Commentary
There is a distinction between leases and other room lettings for VAT. The most important issue is the degree of “permanence”, although other factors have a bearing. Businesses which let rooms should consider the nature of their supplies with reference to this case which helpfully sets out which factors need to be considered.