Tag Archives: VAT-courts

The VAT treatment of sightseeing passes. The Go City Limited case

By Marcus Ward 3 September 2024

Latest from the courts

In the First-Tier Tribunal (FTT) case of Go City Ltd the issue was the VAT treatment of passes (“sightseeing packages”) sold by the appellant. Should they be outside the scope of VAT as multi-purpose vouchers (MPVs) or whether “functioning as a ticket”? The difference being the time of supply (tax point).

The issues

The appellant sells passes which enables the buyer to enter London attractions and travel on certain types of transport. The passes were sold at a price lower than the usual admittance price at the attractions. HMRC originally accepted that the supplies were of “face value vouchers” (MPV – see below) via The VAT Act, Schedule 10A, and latterly Schedule 10B, but later changed its view. It raised assessments for the deemed underdeclarations.

Tax point

The difference in VAT treatment is, essentially:

Face value vouchers (FVV) that can be used for more than one type of good or service (multi-purpose – “MPV”) – No VAT due when sold (if sold at or below their monetary value).
FVVs that can only be used for one type of good or service (single-purpose) – VAT due on the value of the voucher when issued.

Moreover, the above means that for single purpose vouchers, VAT is due whether the voucher is actually redeemed or not – there is no way to reduce output tax previously accounted for if the voucher is not used. Whereas for MPVs VAT is only due when they are redeemed. More background on vouchers below.

Contentions

Go City Ltd argued that what was being sold was MPV and output tax was only due when the voucher was redeemed.

HMRC contended that the sale was of a “ticket” (effectively a single purpose voucher) and that output tax was due “up-front”.

Decision

The appeal allowed. The Tribunal concluded that he passes were MPVs and their sale was consequently outside the scope of VAT. No output tax was due at the time they were sold.

The passes were not only outside the scope of VAT because they are MPVs, but also because the supplies take place when the customer uses the pass, and not when it is purchased. The position is essentially the same as in Findmypast and MacDonald Resorts .

Furthermore, the FTT considered the validity of a number of the assessments HMRC issued. These were raised “to protect HMRC’s position” in respect of the alleged underdeclaration of output tax. The court ruled that these assessments were invalid because, at the time they were raised, HMRC did not have a view that the appellant’s returns were incorrect, as a final decision had yet to be made.

Commentary

The correct decision I feel. A long read, but well worth it for interested parties.

Technical background

Face value vouchers

Recent changes, radically alter the UK rules for face value vouchers (FVV). FVVs are vouchers, tokens, stamps (physical or electronic) which entitle the holder to certain goods or services up to the value on the face of the vouchers from the supplier of those goods or services. Examples of FVVs would include vouchers sold by popular group discount websites, vouchers sold by high street retailers, book tokens, stamps and various high street vouchers.

Single or multi-purpose

The most important distinction for FFVs is whether a voucher is a single purpose voucher or multi-purpose voucher. If it is a multi-purpose voucher, then little has changed. If it is a single purpose voucher, however, HMRC will now require output tax to be accounted for at the date it is issued. Single purpose vouchers are vouchers which carry the right to receive only one type of goods or services which are all subject to a single rate of VAT. Multi-purpose vouchers are anything else. The differences can be quite subtle.

For example:

a voucher which entitles you to download an e-book from one seller will be a single purpose voucher. A voucher which entitles you to purchase books (zero rated) or stationery (standard rated) from the same seller will be multi-purpose.
a voucher which entitles you to £100 of food at a restaurant which does not sell takeaways is probably single purpose, whereas if the restaurant has a cold salad bar and the buyer can buy a zero-rated take-away with the voucher (and/or standard rated hot food) then it would likely to be multi-purpose.

VAT: Tax point of telecommunications – The Lycamobile case

By Marcus Ward 7 August 2024

Latest from the courts

In the Lycamobile UK Ltd First-Tier Tribunal (FTT) case, the issue was whether VAT was chargeable on the supply of a “Plan Bundle” at the time when it was sold and by reference to the whole of the consideration that was paid for it, or whether VAT was instead chargeable only when, and only to the extent that, the allowances in the Plan Bundle were actually used. The time of supply (tax point) was important because not only would it dictate when output tax was due, but more importantly here, if the appeal succeeded, there would be no supply of the element of the bundle which was not used, so no output tax would be due on it.

Background

The Plan Bundles comprised rights to future telecommunication services; telephone calls, text messages and data (together, “Allowances”). There were hundreds of different Plan Bundles sold by the Appellant and the precise composition of those Plan Bundles varied.

Contentions

Lycamobile considered that that the services contained within each Plan Bundle were supplied only as and when the Allowances were used, so that the consideration which was received for each Plan Bundle would be recognised for VAT purposes only to the extent that the Plan Bundle was actually used. In the alternative, these supplies could be considered as multi-purpose vouchers such that output tax was not due when they were issued, but when the service was used. Very briefly, the contention was that it was possible that not all of the use would be standard rated in the UK.

Unsurprisingly, HMRC argued that that those services were supplied when the relevant Plan Bundle was sold (up-front) and output tax was due on the amount paid, regardless of usage.

Decision

The Tribunal placed emphasis on “the legal and economic context” and “the purpose of the customers in paying their consideration”.

It decided that the terms of the Plan Bundle created a legal relationship between Lycamobile and the customer. The Bundle was itself the provision of telecommunication services when sold. The customers were aware that they were entitled to use their Allowances and could decide whether to, or not. As a consequence, consumption was aligned with payment and created a tax point at the time of that payment. There was a direct link between those services and the consideration paid by the customer.

The Tribunal also considered the vouchers point. There were significant changes to the rules for Face Value Vouchers on 1 January 2019 (the supplies spanned this date), but the FTT found that the Plan Bundles were not monetary entitlements for future services under either set of rules, so the tax point rules for vouchers did not apply here.

The appeal was dismissed and HMRC assessments totalling over £51 million were upheld.

Commentary

Not an unexpected result, but an illustration of the importance of; tax points, legal and economic realities, and what customers think they are paying for. All important aspects in analysing what is being provided, and when.

VAT: Are cosmetic skin treatments exempt medical care? The Skin Science case

By Marcus Ward 8 May 2024

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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: TOGC and deliberate errors – The Apollinaire case

By Marcus Ward 19 December 2022

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In the First -Tier Tribunal (FTT) case of Apollinaire Ltd and Mr Z H Hashmi the issues were:

whether the appellant’s input tax claim was valid
were the director’s actions “deliberate”
was a Personal Liability Notice (PLN) appropriate?

Background

Mr Hashmi (the sole director of Apollinaire) asserted that he sold his business, Snow Whyte Limited to a Mr Singh as a going concern, together with the trading name “Benny Hamish”. The purchase price was never paid. He alleged that Mr Singh traded for approximately one month and then sold stock worth £573,756 to Apollinaire. The appellant submitted an input tax claim for the purchase of the goods. HMRC refused to make the repayment and raised penalties for deliberate errors. HMRC subsequently issued a PLN to Mr Hashmi.

Issues

Initially HMRC stated that Mr Singh may not have existed, that there was no sale of Snow Whyte Ltd by Mr Hashmi to Mr Singh and similarly, no sale back to Mr Hashmi. However, this submission was later amended to argue that Mr Hashmi controlled the movement of the stock at all times and that the issue was whether the transfer of stock from Snow Whyte Limited was a Transfer Of a Going Concern (TOGC), whether or not Mr Singh existed.

Mr Hashmi appealed, contending that the transactions took place as described to HMRC.

Decision

Unsurprisingly, given Mr Hashmi’s previous history of dissolving companies, but continuing to trade under the same name as those companies (listed at para 14 of the decision) and failing to submit returns and payments, the FTT accepted HMRC’s version of events. Further, there was insufficient evidence to support the transactions (if they took place) and the judge fund that the appellant’s evidence was not credible. If the events did take place, there was no input tax to claim as all the tests (where relevant here) for a TOGC (Value Added Tax (Special Provisions) Order 1995, Regulation 5) were met:

the assets were sold as a business as a going concern
the assets were used by the transferee in carrying on the same kind of business
there was no break in trading
both entities traded under the same name
both entities operated from the same premises
both entities had the same employees and tills

The appeal was dismissed.

Penalties

The FTT further decided that HMRC’s penalties and PLN [Finance Act 2007, Schedule 24, 19(1)] were appropriate. The claim for input tax was deliberately overstated and that Mr Hashmi was the controlling mind of both entities and was personally liable as the sole company director of Apollinaire.

HMRC relied on case law: Clynes v Revenue and Customs[2016] UKFTT 369 (TC) which reads as follows:

“On its normal meaning, the use of the term indicates that for there to be a deliberate inaccuracy on a person’s part, the person must have acted consciously, with full intention or set purpose or in a considered way…

…Our view is that, depending on the circumstances, an inaccuracy may also be held to be deliberate where it is found that the person consciously or intentionally chose not to find out the correct position, in particular, where the circumstances are such that the person knew he should do so.”

Commentary

This case is a reverse of the usual TOGC disputes as HMRC sought to establish that there was no taxable supply so no VAT was due. It underlines that:

care should always be taken with applying TOGC treatment (or appreciating the results of failing to recognise a TOGC)
penalties for deliberate errors can be significant and swingeing
directors can, and are, held personally responsible for actions taken by a company

VAT: The importance of due diligence. The 50 Five (UK) Limited case

By Marcus Ward 10 May 2022

Latest from the courts

In the First Tier Tribunal (FTT) case of 50 Five (UK) Limited the issue was the VAT rate applicable to energy saving materials. An additional twist was that there was a sale of the business between the tax point of the relevant supplies and HMRC’s assessment.

Background

The appeal was brought in the name of the Appellant in respect of assessments raised by HMRC against the company prior to the date on which it was purchased by the present owners. The present owners were not made aware of the assessment at the time of purchase. It had not been disclosed to them as part of the due diligence which was undertaken.

The Appellant’s business was that of supply and installation of heating and hot water systems. The customers were supplied with fully installed systems. The Appellant did not ask the customers to separately source the parts for such systems and then simply fit them. These supplies were treated as those of energy saving materials and the reduced rate of 5% was applied.

HMRC raised an assessment after taking the view that the supply should have properly been standard rated at 20%.

Decision

The FTT decided that legislation which permits the sale of energy saving materials at the reduced rate of VAT apply only where the supply of those materials is independent of an installation service. In this case, as the Appellant was the provider of the goods, and also the installer, the supply to the end customer was standard rated (a composite supply).

It was noted that this outcome was counter intuitive and the result does indeed seem unfair to the taxpayer, but as there was no reasonable prospect of the appeal succeeding, it was struck out. The assessment and interest was now payable by the new owners.

Commentary

An unfortunate outcome for the new owners, but it highlights three VAT issues:

always carry out appropriate due diligence when buying a business. VAT is often an issue and if the buyer had discovered the assessment, it could have either abandoned the purchase, or negotiated on the price
never assume that a lesser rate of VAT applies without carrying out appropriate research or seeking advice
always consider whether a supply is separate or composite. This is a difficult area of the tax as the amount of case law testifies

The only recourse the new owners have now is taking action against the sellers of the business.

A VAT did you know?

By Marcus Ward 29 April 2021

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.