Tag Archives: VAT-exempt

VAT: Welfare services – School Holiday Clubs

By   27 June 2022
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HMRC has published updated guidance on childcare following the decision in the RSR Sports Limited (RSR) case. The issue being what supplies fell within the definition of “services… closely linked to the protection of children and young persons” and supplies of “welfare services” – VAT Act 1994, Schedule 9, Group 7, item 9.

The guidance in VATWELF3032 states that RSR could be distinguished from Sports Academies (Decision No TC05171), a case where the tribunal had held that the activities element predominated.

The important key features were:

  • the members of staff were merely supervising activities
  • they did not hold any coaching or teaching qualifications
  • there was no external standard to which the services were being provided
  • the activities were merely an adjunct to the essential service which was childcare

Other providers supplying services can similarly exempt their supplies where the facts demonstrate that they qualify and exhibit the key features set out by the FTT in RSR.

HMRC no longer interprets activity-based clubs to include those clubs exhibiting these key features. Such clubs can therefore, qualify for the welfare exemption if they otherwise meet the conditions.

VAT: Are preparatory ground works for burial chambers exempt? The Hodge case

By   23 May 2022
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Latest from the courts

In the First-Tier tribunal (FTT) case of Hodge and Deery Limited the issue was whether ground works preparatory to installing flexi vault burial chambers exempt via The VAT Act 1994, Schedule 9, group 8, item 2 – “The making of arrangements for or in connection with the disposal of the remains of the dead.”

Background

The vaulting system was installed in graveyards with unstable soil structures which can result in issues with toxins and in subsidence of an existing grave when another grave is dug in the adjacent plot. The burial plots are ready for use and the element above the plots is landscaped (which was undertaken by a third-party).

The appellant’s case

The appellant considered that the installation of the flexible burial vaults should be treated as the advance digging of multiple graves. It should not be regarded differently from the preparation of “normal” graves.  The sole purpose of the preparation of a grave is to dispose of the remains of the dead and it should not matter that the undertaker does not prepare the grave himself.

HMRC’s case

HMRC considered that the installation of flexible burial vaults do not fall within the exemption because:

  • item 2 must be construed to confine the exemption to those supplies directly involved with the disposal of the remains of a particular dead person
  • item 2 is confined to supplies directly made by the funeral director with care and custody of the deceased. It does not extend to sub-contractors of the funeral director
  • the appellant had no responsibility for the deceased
  • although the availability of zero rating in connection with the provision of new housing can be available to sub-contractors involved in the supply of new housing, this exemption cannot extend to sub-contractors in the same way, as the sub-contractors cannot be concerned with the body of the deceased

Decision

The judge considered that the services resulted in the provision of many graves for the disposal of the remains of the dead and that the result of the services satisfied the object of the exemption. The digging of graves is central to the disposal of the remains of the dead, the services are made in connection with the disposal of the remains of the dead and within Item 2.

Commentary

In this case, it did not matter that the services are provided in advance, and nor did it matter that the services are not provided in connection with a specific funeral. It also confirms that the funeral director or undertaker need not provide all the services themselves. It seems obvious that the digging of graves is pivotal to the disposal of the remains of the dead and once it was established that a third party could dig the grave, the appeal was bound to be successful.

VAT: Is dog grooming taught in schools? The Dogs Delight case

By   15 February 2022
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In the Julie Lalou t/a Dogs Delight First Tier Tribunal (FTT) case the issue was whether the teaching of dog grooming qualified as private tuition and was therefore exempt.

Background

The Appellant operated a business providing dog grooming and dog grooming courses. The appeal was concerned only with the supplies of dog grooming tuition as it was accepted that dog grooming in itself is taxable.

Technical

The sole issue in dispute in this appeal was whether the supplies fall within the private tuition exemption as for provided by The Value Added Tax Act 1994, Schedule 9, Group 6, item 2 “The supply of private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer”.

HMRC’s view was that “to be eligible for exemption dog grooming would need to be a course that is ‘ordinarily’ taught in schools and universities which it is not…”

The appellant wrote to HMRC giving a list of seven “local Colleges and Universities where the Level 3 Dog Grooming Diploma is ordinarily taught”. The appellant went on to state “There are many more within the UK” which were said to represent around 30% of English colleges. Further it was stated that the business was a City & Guilds approved centre and that the courses were not recreational.

Decision

It was accepted that the courses that the appellant taught involved her making supplies of tuition in that she transferred to her students skills and knowledge.

But, unsurprisingly, the appeal was dismissed. The appellant had failed to demonstrate that dog grooming is taught at a wide number of schools and universities

The court also determined that the appellant needed to provide some evidence of whether dog grooming was taught at schools and universities in the EU (again, something she had failed to do).

Commentary

The exemption for private tuition is fraught with complexities and the amount of case law on the subject is significant, which indicates the difficulties in analysing the VAT position.  An example here. It is important to establish what is being provided and that research is carried out to consider the degree of ubiquity of the subject in education. A general guide to education here. The phrase “ordinarily taught” is rather nebulous and it would be prudent to obtain as much evidence as possible that a subject is s commonly or ordinarily taught in schools and universities if a supply is treated as exempt.

VAT: Car boot sale pitches are exempt – The Rufforth Park case

By   14 February 2022
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In the Rufforth Park Limited (RPL) First Tier Tribunal (FTT) case the issue was whether pitches for car boot and auto jumble sales were subject to VAT or were they a simple licence to occupy land and exempt?

Background

The appellant has been running car boot sales at Rufforth Park for the more than forty years. When RPL began the car boot sales, the VAT office was asked to confirm that it did not need to charge VAT on the fees for the pitches. It was told that it should charge VAT, and did so. After a number of years, RPL demonstrated to the VAT office that other businesses in a similar position were not charging VAT. HMRC then agreed and the VAT the company had paid was refunded with interest. The company has not charged VAT on the pitch fees since. After a routine inspection HMRC formed the view that there were a number of services that, together, formed a standard rated supply and assessed for VAT on that basis. RPL appealed against this decision.

Technical

HMRC concluded that the fees for the pitches should be standard rated because the supply of the pitches was provided with other goods and services which constituted a single overarching supply of a service, not merely the right to occupy land. The reasons were:

  • Forty years of running car boot sales had built up a reputation which is a tangible benefit to stallholders. The reputation of regular events is part of the supply the stall holder receives.
  • Advertising to bring buyers to the site for the benefit of stall holders is part of the supply.
  • The amenities on site enable buyers better to enjoy their time at the car boot sale and are part of the supply.
  • The sellers benefit from the amenities as well as the activities undertaken by RPL to attract buyers to the site to buy items from the sellers. Those activities include:
  1. advertising
  2. on site café
  3. toilets
  4. parking
  5. capital improvements to the site to make it more attractive to buyers
  6. provision of some pitches under cover
  7. cleaning the site after the events
  8. RPL had real and significant responsibilities to the sellers (although HMRC did not specify what they were)

This was said to show there was more to the supply than the exempt passive supply of land for a stall to sell items.

The appellant submitted that the supply in this case is a single supply of a pitch rental and one must look at all the circumstances in order to establish its nature. Regard must be had to the commercial and economic realities. The renting of a pitch in a car boot sale in the present case was a relatively passive activity linked to the passage of time and not generating any significant added value and so is VAT free.

Decision

The court found that that the nature of the supply provided in return for the pitch fees is a licence to occupy land within The VAT Act, Schedule 9, Group 1, Item 1 and accordingly the fees were exempt. The appeal was allowed.

Commentary

Yet another case demonstrating the uncertainty in this area. Superficially, there is little difference in the facts of this case to those in the Upper Tribunal (UT) case of Zombory-Moldovan (trading as Craft Carnival) which found that supplies of pitches at craft fairs were standard rated. However, the court found that this case could be distinguished on its facts. Which may be summarised as:

  • there was no formal contract between RPL and its sellers
  • it was not possible to book in advance
  • there was no selection of sellers. Anyone who arrived and paid would get a space, allocated by RPL
  • the advertising on the company’s website, local TV, and Facebook provided only basic information to both buyers and sellers about times and prices
  • RPL had no obligation to put on the car boot sales or the auto jumbles. Sellers have no right to attend. If there was no sale, they would have no recompense.
  • no tables, chairs or electricity were provided, even for an extra fee
  • there was no provision of security
  • the toilet and refreshment facilities were basic
  • the Appellant had carried out such maintenance as is required but had not attempted to enhance the facilities
  • whilst the car boot sales and auto jumbles might be efficiently run, they are simple events involving only the Appellant’s land and its employees and not requiring any particular organisational or management skills. Well run is not the same thing as “expertly organised and expertly run”.

It is important when considering these two decisions to establish precisely what is being supplied, as small differences in facts can affect the VAT treatment. The more “basic” the supply, the more likely that exemption will apply, but it is a question of small degrees of difference.

VAT: Is a car wash a car park? The RK Fuels Ltd case

By   26 April 2021
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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: Is the supply of football pitches an exempt right over land? The Netbusters case.

By   11 November 2020
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Latest from the courts.

In the First-tier Tribunal (FTT) case of Netbusters (UK) Limited the issue was whether the supply was the standard rated provision of sporting facilities, or an exempt right over land.

Background

Netbusters organised football and netball leagues and provided the playing facilities (artificial pitches for football and courts for netball). The hire of the facilities was for a defined period of time and no other party had the right to access the pitches during those times. The hire could be a block, or one-off booking. The appellant contended that the supplies were exempt via VAT Act 1994, Sch 9, Group 1 – “The grant of any interest in or right over land or of any licence to occupy land…”  However, item 1 Note (para m) excludes the “the grant of facilities for playing any sport or participating in any physical recreation” in which case they become standard rated. To add complexity, Note 16 overrides the exception for sporting facilities (so they are exempt) if the grant of the facilities is for:

“(a) a continuous period of use exceeding 24 hours; or

(b) a series of 10 or more periods, whether or not exceeding 24 hours in total, where the following conditions are satisfied—

(i) each period is in respect of the same activity carried on at the same place;

(ii) the interval between each period is not less than one day and not more than 14 days;

(iii) consideration is payable by reference to the whole series and is evidenced by written agreement;

(iv) the grantee has exclusive use of the facilities; and

(v) the grantee is a school, a club, an association or an organisation representing affiliated clubs or constituent associations.”

I have a simplified flowchart which may assist if you, or your clients, need to look at these types of supplies further.

Another issue was whether Netbusters’ league/tournament management services which were, in principle, available independently of pitch hire, but in practice rarely were provided in that way, were separate supplies or composite. There was a single price payable for both pitch hire and league management services.

The appellant contended that its supplies were exempt via VAT Act 1994, Sch 9, Group 1 or that Revenue and Customs Brief 8 (2014): sports leagues, is applicable which states “HMRC accepts that the decision of the FTT is applicable to all traders who operate in circumstances akin to Goals Soccer Centres plc. This includes traders who hire the pitches from third parties such as local authorities, schools and clubs…”

HMRC argued that there was no intention to create a tenancy and the agreements between the parties did not provide for exclusive use of the premises, so the supplies fell to be standard rated.

Decision

The appeal was allowed; the supply was a singe exempt supply because the objective character of the supplies were properly categorised as the granting of interests in, rights over or licenses to occupy land. It was found to be significant Netbusters (or its customers) had the ability to exclude others from the pitches during the period of the matches.

It was therefore unnecessary to consider whether Netbusters’ supplies grants of facilities satisfy all the conditions set out in Note 16 (although the FTT were disinclined to do this anyway as a consequence of the way respondent prepared its case).

Commentary

The issue of the nature sporting rights has a long and acrimonious history both in the UK and EU courts. Any business providing similar services are advised to review the VAT treatment applied.

VAT: Payment handling charges – The Virgin Media case

By   5 February 2020
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In the Virgin Media Ltd First Tier Tribunal (FTT) case a number of issues were considered. These were:

  • whether payment handling charges were exempt via: The VAT Act 1994, Schedule 9, Group 5, items (1) and (5)
  • whether the supply was separate from other media services
  • which VAT group member made the supply?
  • whether there was an intra-group supply
  • whether there was an abuse of rights

Background

Virgin Media Limited (VML) provided cable TV, broadband and telephone services (media services) to members of the public. It was the representative member of a VAT Group which also contained Virgin Media Payment Limited (VMPL).

If customers choose not to pay by direct debit, they were required to pay a £5 “handling charge”. The handling charge was paid to VMPL and passed to VML on a daily basis. The issue was; what was the correct VAT treatment of the charge?

Contentions

The appellant argued that the £5 charge was optional for the customer and the collection of it was carried out by VMPL and was exempt as the transfer or receipt of, or any dealing with, money. Further, that, despite being members of the same VAT group, there was nothing in the legislation which forced the VAT group to treat supplies by separate entities within that group as a single supply to a recipient outside the group.

HMRC contended that there was a single taxable supply and thus no exempt services were provided and, in fact, VMPL was not making a supply at all (and therefore not to VML as the group representative member).  In the first alternative, if it were decided that there was a supply, such a supply was an ancillary component of a single taxable supply by VML as representative group member and not by VMPL as per the Card Protection Plan case. In the second alternative, if both decisions above went against HMRC, that the service provided by VMPL fell outside the exemption so that it was taxable in its own right.

Decision

It was found that:

  • there was a single supply made to customers
  • the supply was made by VML as the representative member of the VAT group
  • the £5 handling charge was an integral part of the overall supply
  • if not integral, the handling charge was an ancillary supply such that it took on the VAT treatment of the substantive supply
  • therefore, VMPL does not make any supply to the end users of the overall service
  • if VMPL does make a supply, it is an intra-group supply to VML which s disregarded for VAT purposes
  • VMPL does not have a free-standing fiscal identity for VAT purposes
  • if the FTT is wrong on the above points and VMPL does make a supply of payment handling services to customers, these supplies are taxable and not exempt (per Bookit and NEC) as the supply is simply technical and administrative and does not amount to debt collection
  • the arrangements do not constitute an abusive practice. The essential aim of the transactions are not to secure a tax advantage so HMRC’s argument on abuse fails

Therefore, the appeal was dismissed and a reference to the CJEU was considered inappropriate and output tax was due on the full amount received by the group from customers.

Summary

This was a complex case which suffered significant delays. It does help clarify a number of interconnected issues and demonstrates the amount of care required when planning company structures and the VAT analysis of them.







VAT: The extent of exempt childcare. The RSR Sports case

By   3 December 2019
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In the RSR Sports Limited First Tier Tribunal (FTT) case the issue was whether the provision of holiday camps for children was exempt healthcare via VAT Act 1994, Schedule 9, Group 7, item 9 – “services… closely linked to the protection of children and young persons” and supplies of “welfare services”

Background

The Appellant traded under the name of Get Active Sports. It provided various services including the provision of school holiday camps which were the subject of the appeal.

The holiday camps were Ofsted registered and “pupils will be safe and receiving the best possible childcare”.  The appellant worked with children aged 4-16 and had specially designed programmes from multi-sports and games to themed arts and crafts. The staff that provided the holiday camp services were not required to have any teaching or coaching qualifications (but needed to be DBS checked). They were just required to ensure that the children were kept busy with a variety of activities and were kept safe.

The appellant considered that these supplies constituted supplies of “ services…closely linked to the protection of children and young persons” – within the meaning of Article 132(1)(h) of Council Directive 2006/112/EEC and supplies of “welfare services” under UK legislation as above. HMRC submitted that the predominant element of that single composite supply was the provision of activities because, weighing up objectively, from the position of the parents whose children attended the holiday camps, the importance to those parents of the childcare aspects of the holiday camps in comparison to the importance to them of the various activities which were made available at the holiday camps, the latter outweighed the former. The supplies did not fall within the exemption and should have therefore properly been treated as standard-rated as the primary aim of the appellant in running the camps was to offer sports and activities to the attendees and that the childcare was simply a by-product of the activity-based courses.

Decision

It was decided that the holiday camp services involved the provision of activities in the course of caring for children during the school holidays. In other words, the holiday camp services included both an activities element and a childcare element.

Although the judge commented that; it was fair to say that this case was finely-balanced, the services provided by RSR amounted to a single composite supply of which the predominant element was childcare (as opposed to the provision of activities) and therefore they fell within the scope of the above provisions and qualified for the exemption

The FTT agreed with HMRC that one element of the holiday camp services was the provision of activities, but it did not agree with the  proposition that just because the provision of activities was an element of the services, that inevitably means that the provision of those activities, as opposed to the provision of childcare, was the predominant element of its supply.

Commentary

It looks like another close call, but the Tribunal appears to have got it right. An interesting aspect was RSR considering it strange that by offering activities to the children, as opposed to sitting them down in front of a television, the appellant was to deprive itself of the ability to bring the its services within the scope of the exemption. The mere fact that the appellant was encouraging parents to choose active childcare arrangements over more passive ones should not cause the relevant services to fall outside the exemption. So a “bit” of sport was OK, but not too much…