Tag Archives: VAT-FTT

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

By Marcus Ward 23 May 2022

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

By Marcus Ward 10 May 2022

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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.

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

By Marcus Ward 15 February 2022

Latest from the courts

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: Roof panels are not insulation. The Greenspace case

By Marcus Ward 2 December 2021

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In the Upper Tribunal (UT) case of Greenspace Limited the issue was whether insulated roof panels were “energy-saving materials” per VAT Act 1994, sect 29A, Schedule 7A, group 2, items 1 and 2 and thus liable at the reduced rate of 5%. Or rather at the standard rate of 20% on the basis that they were a supply of a roof itself.

Background

The appellant supplied and installed roof panels for conservatories which comprised a layer of close-cell extruded polystyrene foam (Styrofoam) around 71mm thick. The Styrofoam was covered with a thin aluminium layer and a protective powder coating which are together around 2mm thick. The supplies were made to residential customers and the panels were fitted onto their pre-existing conservatory roofs. The Panels were slotted into place on the existing roof structure and Greenspace did not replace its customers’ existing roof framework when doing this; the struts and glazing bars that supported the previous glass or polycarbonate panels were left in place. Consequently, the Panels were not self-supporting and could only be used if the customer already had an existing conservatory roof structure.

The decision

The First-tier Tribunal (FTT) decided in 2020 that the panels were not “insulation for a roof” but were a new roof in their own right, and that the appellant’s supplies did not therefore qualify for the reduced rate of VAT (unlike insulation that could be separately attached to a roof, the panels actually formed the roof).

The UT dismissed the new appeal and found that the FTT had not been obliged to compare the roof after Greenspace had installed its panels to the original roof. The frame that was retained could not itself be described as a roof, and the provision of the Thermotec panels which made the conservatory weatherproof as well as insulating it could properly be categorised as the provision of a new roof.

One of Greenspace’s grounds of appeal was that the FTT decision was vitiated by the assumption that because the panels took the form of roof coverings, they were necessarily incapable of constituting “insulation for … roofs”. The appellant argued that as this was a flawed assumption (that Greenspace’s supplies “must” be treated as something more than insulation) the decision should be set aside. This contention was rejected by the UT judge.

Commentary

A fine distinction is often required to be made to establish the correct VAT treatment of a supply. In this case a degree of semantics was required to determine whether the panels were energy-saving materials (even when they certainly saved energy). On such small things turned the assessment of £2.6 million here. It always pays to double check VAT treatments rather than making assumptions.

VAT: Input tax recovery. The Mpala Mufwankolo case

By Marcus Ward 15 November 2021

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In the First Tier Tribunal (FTT) case of Mr Mufwankolo the dispute was whether the appellant was able to recover VAT charged by the landlord of the property from which he ran his business – a licenced retail outlet on Tottenham High Road.

Background

The landlord had opted to tax the commercial property and charged VAT on the rent. The appellant was a sole proprietor; however, the lease was in the name of Mr Mufwankolo’s wife, and the rent demands showed her name and not that of the sole proprietor. It was contended by the appellant, but not evidenced, that the lease had originally been in both his and his wife’s names, despite his wife being the sole signatory.

The issues

Could the appellant recover input tax?

Did the business receive the supply?
Was there appropriate evidence?

It was clear that the business operated from the relevant property and consequently, in normal circumstances, the rent would be a genuine cost component of the business.

The Decision

The FTT found that there was no entitlement to an input tax claim and the appeal was dismissed. The lease was solely in the wife’s name and the business was the applicant as a sole proprietor. (There was an obvious potential for a partnership and an argument that a partnership was originally intended was advanced. The status of registration was challenged in 2003, but, crucially, not pursued).

It was possible for the property to be sub-let by the wife to the husband, however, this did not affect the VAT treatment as matters stood. Additionally, there was no evidence that the appellant actually paid any of the rent, as this was done by the tenant. There were no VAT invoices addressed to the sole proprietor.

Given the facts, there was no supply to the appellant, so there was no input tax to claim, and the issue of acceptable evidence fell away.

It was a certainty that the appeal could not succeed.

Commentary

There were a number of ways that this VAT cost could have easily been avoided had a little thought been given to the VAT arrangements. An oversight that created an avoidable tax hit.

A helpful guide to input tax considerations here: Care with input tax claims.

Legislation

The VAT Act 1994 Section 3 – Taxable person

The VAT Act 1994 Section 4 – Taxable supply

The VAT Act 1994 Section 24 (1) – Input tax

The VAT Act 1994 Section 24 (6) – Input tax claim evidence

VAT: DIY housebuilders can make more than one claim – The Ellis case

By Marcus Ward 18 October 2021

Latest from the courts

In the First Tier Tribunal (FTT) case of Andrew Ellis and Jane Bromley [2021] TC08277, the issue was whether a person constructing their own house can make more than one claim for VAT incurred.

Background

The DIY Housebuilder’s Scheme enables a DIY housebuilder to recover VAT incurred on the construction of a house in which the constructor will live. Details here.

In this case, the specific issue was whether, despite the HMRC guidance notes on the scheme claim form explicitly stating that only one claim can be made, whether two claims may be submitted and paid by the respondent.

The appellant constructed a house over a period of five years (he was a jobbing builder and the work was generally only undertaken at weekends and holidays). To aid cash flow, an initial claim was made, followed by a second two years later.

The relevant legislation is The VAT Act 1994 section 35.

Decision

The appeal was allowed. The FTT found that HMRC’s rule that only one claim could be made under the DIY housebuilder’s scheme was ultra vires and that multiple claims should be permitted.

The judge stated that “…there is no express indication that only one claim may be made. Like many provisions, section 35 VATA is drafted in the singular. Drafting in the singular is an established technique to assist in clarity and to enable the proposal to be dealt with succinctly. As there is no express indication to the contrary in section 35 VATA, section 6 Interpretation Act 1978 applies to confirm that the reference to “a claim” in section 35 VATA must be read as including “claims”.

Commentary

This is good news for claimants who often must wait a number of years for a house to be built and therefore carry the VAT cost until the end of the project.

This case presumably means that it is possible to make claims as the project progresses and there is no need to wait until completion.

We await comment on this case from HMRC, but it is hoped that clarification will be forthcoming on whether the result of this case will be accepted.

VAT: Are freemasons’ aims philosophical, philanthropic, or civic? The United Grand Lodge case

By Marcus Ward 4 October 2021

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In the First Tier Tribunal (FTT) case of United Grand Lodge of England (UGLE) the issue was whether subscriptions paid by members of the freemasons are exempt via The VAT Act 1994, Schedule 9, Group 9, section 31, item 1(e) “Subscriptions to trade unions, professional and other public interest bodies” which exempts membership subscriptions paid to a non-profit making organisation which has objects which are of a political, religious, patriotic, philosophical, philanthropic or civic nature.

Background

So, in this case, for the subscriptions to be exempt, freemasonry’s aims must be philosophical, philanthropic, or civic. UGLE submitted input tax claims on the basis that its subscription income was exempt and HMRC declined to make the repayments.

An organisation which has more than one main aim can still come within the exemption if those aims are all listed and described in the legislation. The fact that the organisation has other aims which are not set out in law does not mean that its services to members are not exempt provided that those other aims are not main aims. If, however, the organisation has a number of aims, all equally important, some of which are covered by the exemption, and some of which are not, then the services supplied by the organisation to its members are wholly outside the exemption.

The contentions

The respondents stated that the aims were not UGLE’s sole main aim or aims, and, even if they were, the aims were not in the public domain.

UGLE claimed that its sole main aim was philosophical in nature; or, in the alternative, the main aims, taken together, were of a philosophical, philanthropic, or civic nature and it did not have any other main aims.

Decision

The appeal was dismissed. The judge decided that the supplies made by UGLE in return for subscription payments were properly standard rated.

It was common ground that the motives of the members in joining the organisation are irrelevant.

It was accepted that since 2000 freemasonry has become more outward looking and since then has become more involved in charitable work among those, and for the benefit of those, who are not freemasons or their dependants. That said, the judge was not satisfied that the charitable works of individual freemasons, such as volunteering to give time to a local charity, were undertaken by them as freemasons rather than simply as public-spirited members of the community.

It was found that UGLE did have aims of a philosophical, philanthropic and civic nature (the promotion of all aspects of the practice of freemasonry and charity was central to UGLE’s activities). However, it was not accepted that these were UGLE’s main or primary aims. At least 48% of payments made by UGLE were to freemasons and their dependants and in the FTT’s judgment such support remained one of the main aims of freemasonry and thus of UGLE. The importance of providing support for freemasons and their dependants who are in need is a central tenet of freemasonry – The duty to help other freemasons is clearly set out in the objects of the four central masonic charities. The evidence showed that the provision of relief to freemasons and their dependants was the more important than donations to good causes unconnected with freemasonry.

Civic aims

There was nothing in the evidence which indicates any civic aim. UGLE cannot be said to be an organisation that has aims pertaining to the citizen and the state. Indeed, freemasons are prohibited from discussing matters of religion and politics in lodges.

Consequently, as one of UGLE’s main aims could not be described as philosophical, philanthropic, or civic, its membership subscriptions were standard rated. Making payments to freemasons was more akin to self-insurance, rather than philanthropic in nature.

VAT: Report on Tax Tribunal performance published

By Marcus Ward 7 September 2021

A new report reviewing the performance of the Tax Chamber of the First-tier Tribunals (FTT) has been published. It identifies the FTT’s strengths and areas for improvement It has been published by the independent the Tax Law Review Committee (TLRC)

The major causes of dissatisfaction among FTT users include:

delay
lack of communication by the FTT administration
a lack of engagement by some judges during the hearing
the allocation of cases to judges with the appropriate knowledge or skill.

Delay is the overriding concern among tribunal users surveyed: both delay between the hearing and the release of the decision (which sometimes is over one year) and delay caused by the FTT administration. Especially in relation to the FTT administration, the underlying cause of these problem seems to be a lack of funding, as there is a rapid staff-turnover with staff leaving for better renumerated jobs in other parts of the Civil Service.

Area of strength:

how litigants in person are often assisted by judges taking an inquisitorial approach.

The report identifies potential for further improvements to access to justice for litigants in person, including allowing remote video-hearings as an alternative to having cases determined on paper without a hearing, and the possible establishment of a pro-bono advocacy scheme.

VAT: Construction of a dwelling – zero-rated? The CMJ (Aberdeen) case

By Marcus Ward 18 August 2021

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The First-Tier tribunal (FTT) considered the case of CMJ (Aberdeen) Limited (CMJ) and whether the supply of building services in respect of the construction of a dwelling were correctly zero rated by the appellant. HMRC deemed that the construction services were standard rated on the basis that the works were not carried out in accordance with the terms of the relevant statutory planning consent.

Background

HMRC’s view was that, although planning consent was in place at the time the construction services were supplied by the appellant, that planning consent permitted only the alteration or enlargement of a dwelling and did not allow for the construction of a dwelling. HMRC accept that the property was constructed as a new building, but that this was not permitted by the planning consent and so the construction was not carried out in accordance with it.

CMJ contended that statutory planning consent had been obtained for the construction via a combination of the planning consent and a construction building warrant which it had obtained from the relevant authority, and which allowed for the construction of a new building.

Legislation

The zero rating for the construction of new dwellings is contained in The VAT Act 1994, Schedule 8, Group 5, item 2

“The supply in the course of the construction of

(a) a building designed as a dwelling…”

Note 2 to Group 5 of Schedule 8 to the VAT Act include the following:

“(2) A building is designed as a dwelling or a number of dwellings where in relation to each dwelling the following conditions are satisfied…

…(d) statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent.

Decision

The appeal was dismissed. It was judged that the building warrant did not comprise statutory planning consent for the purposes of note 2 (d) because:

Planning consent and building warrants operate under different statutory regimes.

Breach of planning consent is dealt with separately from a breach of the building warrant legislation, and each is dealt with by the specific statutory regime . If there is a breach of planning consent, it would not affect the validity of the building warrant, and vice versa.

The Building Standards Handbook states that the purpose of the building standards system is setting out the standards to be met when building work takes place. This is different from planning consent which is consent to allow the authority to permit development on a piece of land. They are distinct and separate regimes aimed at distinct and separate issues. While planning permission is about how the house will look, a building warrant is about whether it meets building standards.

Both planning permission and a building warrant is required. One is no substitute for the other.

It is possible to obtain retrospective planning consent, the judge did not believe it is possible to get a retrospective building warrant.

It was not possible to carry out works of construction in accordance with a valid statutory consent, since no such consent had been given for construction at the time that the building works were carried out.

Commentary

The legislation covering building work is complex and there are many traps for the unwary. Even the seemingly straightforward matter of whether a new dwelling is constructed can produce difficulties, as in this case. We always counsel that proper VAT advice is sought in such circumstances.

VAT: Input tax recovery – whether a taxable supply. The Door Specialist case

By Marcus Ward 9 June 2021

Latest from the courts

In the First Tier Tribunal case of The Door Specialist Limited (TDSL) the issue was whether an HMRC assessment for overclaimed input tax was correct.

Background

The appellant recovered input tax on the import of goods (doors). The company did not sell the doors, but simply gave the goods (no consideration provided) to a separate company called Just Doors (JD). It was JD who made the sales of the doors to third party customers. TDSL and JD were under common ownership but no VAT group in place at the relevant time. TDSL was VAT registered as it made separate, unrelated taxable supplies of property rental

Arguments

HMRC contended that as there was no onward taxable supply of the doors by TDSL, no input tax was recoverable per The VAT Act 1994 section 24 (1). TDSL relied on HMRC’s published guidance (Notices 700 and 700/7) in relation to gifts and proposed that it would be proper to assess for output tax on the “supply” to JD rather than denying the input tax claim.

Issues

The issues may therefore be summarised as whether;

the relevant goods were used for the purpose of any economic activity by TDSL
the doors could be treated as business gifts as contended by the applicant such that the input tax was recoverable.

Further cases on economic activity/business here, here and here

Decision

It was decided that as there was no direct and immediate link between the purchase of the goods and any onward taxable supply in the course of business or economic activity by TDSL (as required by the outcome of the cases of BAA Ltd JDI International Leasing Ltd) the disallowance of the input tax was appropriate. The advancement of the business gifts contention did not assist the taxpayer as this was not an economic activity in itself. The appeal was therefore dismissed.

Commentary

A clear example of not considering the VAT implications when carrying out transactions. This tax cost could have easily been avoided if TDSL had sold the doors to JD. As both parties were fully taxable, there would have been no VAT hit. Business gifts and promotional activities are also often a complex area of VAT and as one former colleague once remarked “If you have a marketing department you have a VAT issue”.