News and Updates
PETER HUGHES – CHARTERED ACCOUNTANT
NEWSLETTER, JUNE 2023
This newsletter is a summary of important recent developments in the field of VAT. I hope you find it interesting and useful. If you would like further details on any of the topics covered or assistance on any other matter, please contact me using the details shown at the end of the newsletter.
Brief 2 (2023) potentially affects suppliers who sell a bundle of goods or services which, if they were supplied individually, would be subject to different rates of VAT. An example is a “meal deal” consisting of sandwiches, crisps and a drink. If sold alone, the sandwiches would be zero-rated but the crisps and drink would be standard-rated. Section 31 of VAT Notice 700 explains how VAT could be apportioned if a single price were charged for all three items. The Notice suggests that an apportionment based on selling price could be used. Using our example above, how would this work if the normal selling price of the individual items were £2.60 for the sandwiches, £1.00 for the crisps and £1.20 for the drink, but under the meal deal the selling price were £3.00?
The normal selling price of the individual items totals £4.80, of which 45.8% relates to the standard-rated items and 54.2% relates to the zero-rated item. Using an apportionment based on normal selling prices, these percentages are applied to the actual selling price for the meal deal, which gives the result that, of the £3.00 meal deal price, £1.37 is standard-rated and £1.63 is zero-rated. To calculate the VAT liability for the supplier, you need to multiply the £1.37 by the VAT fraction of 1/6. So the supplier has to account for VAT of 22.8 pence (and, of course, there is no VAT liability on the zero-rated sandwiches).
VAT Notice 700 shows other methods of apportionment including one based on the cost of the individual items and another based on the VAT-exclusive price. HMRC say in their Guidelines for Compliance that the selling price apportionment is the method which minimises tax compliance risk, and Brief 2 reflects this. The changes encourage businesses to first consider a selling price method, where appropriate and available, before considering a cost price method or any alternative.
Local authorities were previously treated as undertaking a business activity if they provided leisure services to members of the public. Following a number of Tribunal cases, HMRC have concluded that if local authorities treat supplies of leisure services as non-business activities, this will not significantly affect competition. Local authorities can therefore apply the non-business treatment to supplies of leisure services. The consequence is that local authorities do not have to charge VAT on leisure services but can recover input tax under the arrangements in VAT Notice 749.
The VAT exemption on healthcare has been extended to include medical services carried out by staff who are directly supervised by registered pharmacists. This brings these services into line with services provided by other registered health professionals.
Gray & Farrar International LLC – dating services were not taxed as consultancy
The appellant ran a matchmaking business. The issue was whether its services fell within Art 59(c) of the EU VAT Directive: if they did, and were supplied to private individuals overseas, they would be treated as consultancy services and would be outside the scope of VAT. If they were not consultancy services, they would be taxed where the supplier belonged, which in this case was the UK.
The FTT’s decision in 2019 was that the services supplied by Gray & Farrar went beyond the definition of consultancy and fell within the general rule for B2C supplies of services, being taxed where the supplier belongs.The UT held in 2021 that the service involved expert advice which made it consultancy, and it was therefore taxed outside the UK.
HMRC appealed to the Court of Appeal, which held that, following the ECJ judgement in Mesto, the predominant element must be determined from the viewpoint of the typical consumer. The UT had found similarly, but where the Court of Appeal differed from the UT was in deciding that the predominant element was of introductory services. They were not consultancy services, and they fell within the scope of UK VAT
WHY IT MATTERS: There is a common assumption that all B2C supplies must be consultancy and are therefore, when supplied to non-UK customers, outside the scope of UK VAT. This case shows that there will be instances in which a supply is not seen as consultancy, in which case the general rule will apply and UK VAT will be due.
Greenspace – roof panels are not insulation for roofs
Greenspace supplied roofing panels which are designed to insulate conservatory roofs. The panels were fitted to existing conservatory structures. VAT Act 1994 Sch 8 Gp 23 lists energy-saving materials which, when installed in residential accommodation, are zero-rated. (The supplies were made before the law was changed to zero-rate the installation of energy-saving materials.) The list in Note 1(a) includes “insulation … for roofs”. that FTT and the UT ruled the the panels were not insulation for roofs but were new roofs themselves.
However, the Court of Appeal ruled that this was not the correct question, and instead asked whether Greenspace was supplying insulation for roofs, using the ordinary meaning of those words. The Court decided that the panels “do provide insulation for the conservatory on which they are installed but they also protect the conservatory from the outside elements. They may have other characteristics as well, but these two characteristics are fundamental aspects of the product and mean that the supplies fall outside Note 1(a).” Therefore reduced rating did not apply.
WHY IT MATTERS: Under the rules which existed before 1 April 2022 the installation of energy-saving materials was reduced-rated, but The Value Added Tax (Installation of Energy-Saving Materials) Order 2022 changed this and now zero-rates the installation of energy-saving materials in residential accommodation. Either way, the test is whether the supplier is supplying insulation for roofs, as opposed to something which has other characteristics.
David Moulsdale – circular rule for disapplication provisions
See my newsletter of May 2020 for a full description of the cicumstances:
https://pdhughesconsultancy.co.uk/newsletter/news-letter-may-2020
In summary, there was apparently a circular argument:
The Supreme Court has now resolved this circular argument. The purpose of the disapplication rules was to prevent businesses that made exempt supplies from using the option to tax as a route to input tax recovery. This purpose would not be served here, so the option was not disapplied, and the sale had been taxable.
WHY IT MATTERS: The anti-avoidance provisions are triggered if land is opted to tax but the land is within the capital goods scheme, is let to a connected party and the tenant uses the land to make at least 80% taxable supplies. I have advised on this many times in the last ten years or so, including a transaction in which a pension fund built a building and let it to the employer, who was an funeral director making exempt supplies. The option is disapplied in such circumstances, with the result that the rent to the connected tenant is exempt and related input tax is irrecoverable.
Prudential Assurance Company – intra-group supplies did not take place while both entities were in the group and were therefore subject to VAT
Investment management services were made to a fellow group member. They were in some cases paid for and invoiced after the taxpayer had left the group. The FTT held that there was no VAT because the services were supplied at a time when the supplying company was not carrying on a business. The UT disagreed, saying that the tax point rules needed to be considered first, and the tax point occurred when the parties were not both VAT grouped. Therefore VAT was due.
WHY IT MATTERS: The judgement hinged on Reg 90 of the VAT Regs 1995 which relates to continuous supplies of services. They are taxed at the earlier of the payment or an invoice.
Paradise Wildlife Park – relevant charitable purpose did not apply because admission was charged for
The appellant sought to have the construction of a lion enclosure and “World of Dinosaurs” exhibition zero-rated because they were being used for a relevant charitable purpose (RCP). RCP status can only apply where a building is used by a charity otherwise than in the course of a business. In this case, visitors had to pay an entry fee, which meant that the zoo was engaged in a business activity.
The World of Dinosaurs was in any case accessed via a walkway, which was not a building.
WHY IT MATTERS: RCP status, which may lead to construction of a building being zero-rated, is not solely dependent on the building being used by a charity. It must also not be used for a business.
Could you or your staff benefit from a visit to review any VAT issues, or a day’s VAT training? I have 19 years’ experience of presenting VAT courses, and some of the courses I have delivered are as follows:
I have presented VAT courses in numerous countries including the Netherlands, Malta, Switzerland and Ireland, as well as delivering online training.
My courses are interactive, and I encourage participants to ask questions relating to situations they have encountered in their work.
I qualified as a Chartered Accountant in 1997 with Malthouse & Company, a practice in Liverpool City Centre, and moved on in 1999 to work in property management. In January 2004 I started my own practice, initially in Birkenhead but then in York from 2008.
Many of my clients have been with me since the mid-2000s and value the personal and prompt service I offer, whether they need in house VAT training, a visit to discuss VAT issues or ad hoc advice over the telephone or by email. Any telephone advice I give is followed up within a short time by an emailed summary.
I am a member of the VAT and Duties Subcommittee of the ICAEW Tax Faculty, and I am one of the ICAEW’s representatives on HMRC’s Land and Property Liaison Group
Peter Hughes, M.A., F.C.A.
11 Sails Drive,
Heslington,
York
YO10 3LR
Tel 01904 421570;
Mobile: 07801 810694
P.D. Hughes Consultancy Services Ltd
Company No 06841251 (Registered in England & Wales)
peter@pdhughesconsultancy.co.uk
www.pdhughesconsultancy.co.uk
9 June 2023