News and Updates
PETER HUGHES – CHARTERED ACCOUNTANT
NEWSLETTER, SEPTEMBER 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.
The Government introduced a new zero-rate for certain digital publications on 1 May 2020. Before that date, digital publications were standard-rated, unlike the printed versions of most publications which were zero-rated. News Corp submitted a claim for a refund of VAT paid on digital publications, arguing that these fell within the ordinary meaning of newspapers. HMRC rejected those claims. News Corp appealed.
The Supreme Court has rejected News Corp’s appeal, finding that UK zero rates could not be extended beyond those that existed before 1975 (the “standstill provision” in EU law). The differences between the meaning of “newspapers” in 1975 and in 2020 were clear, and the zero rate could not be applied before the change of the law in 2020.
HMRC are now writing to organisations who have submitted claims for VAT based on the earlier Upper Tribunal decision, and asking them whether they wish to proceed with their claims.
HMRC have confirmed in a letter to JVCC members that webinars fall within the exception to the general rule for B2C services of consultants to non-UK customers (under paragraph 16 of Schedule 4A, VATA 1994). They consider webinars to be “educational services where the supplier and the customer are in different countries from each other at the time when the supply is made”, which is listed as an example of the services of consultants in VATPOSS13250.
So a webinar provided by a UK supplier to non-UK individuals would be taxable where the customer belongs. It is outside the scope of UK VAT, but depending on the law in the country where the customer resides, it could be subject to VAT in that country.
Although HMRC maintains that this is a longstanding policy, many advisers have long taken the view that webinars fall under the B2C general rule, and are therefore taxable in the UK when supplied to individuals.
ICAEW members who belong to the Tax Faculty may wish to read an article I have written for TaxLine on the subject: “Would removing the VAT exemption for private schools make VAT simpler?”
Sonder Europe Ltd – TOMS applies to short term accommodation
Under the Tour Operators’ Margin Scheme (TOMS), if a supplier buys in passenger transport or accommodation and resells it to a traveller without material alteration, only the margin between the resale and the purchase is taxed. If the transport or accommodation is enjoyed outside the UK, the supply is zero-rated; otherwise it is subject to standard-rated VAT.
Sonder provided self-contained accommodation to travellers. It leased the accommodation from landlords and sublet it for various periods between one night and a few weeks. HMRC ruled that it fell outside TOMS, saying that Sonder was not re-selling the accommodation without material alteration. Effectively Sonder was changing the accommodation from an exempt supply of land to a standard-rated supply of hotel accommodation. The Tribunal, however, said there was no suggestion that the accommodation was meant to be used for long-term leasing, and in fact the average length of stay was only five nights. Therefore Sonder was receiving a supply of short-term accommodation and reselling it as short-term accommodation. So there was no material alteration.
Had the supply not fallen within TOMS, VAT would have been chargeable on the supply to the traveller. The effect of TOMS is that VAT is due only on the profit margin.
TOMS has in the past been viewed as applicable only to hotel accommodation, and therefore the Tribunal’s decision is likely to be challenged by HMRC on the grounds that TOMS is not intended for R2R transactions. It is only a First Tier Tribunal decision and is therefore open to challenge in the Upper Tribunal.
WHY IT MATTERS: Pending an appeal by HMRC, providers of short-term accommodation on an R2R basis might want to consider using TOMS.
Realreed Ltd – no legitimate expectation created by previous HMRC inspections
Short-term accommodation with a minimal level of service provided is often seen as a “hotel or similar establishment” and therefore subject to standard-rated VAT (or reduced-rated between 2020 and 2022). HMRC say in VATLP11320 that the level of the additional services is irrelevant. If the accommodation is advertised for use by visitors or travellers, it is subject to VAT.
For many years Realreed had been letting short-term accommodation and treating it as exempt. On three occasions between the 1990s and 2005, HMRC had visited Realreed but had not raised an assessment, but they have now done so. Realreed appealed against the decision to the First Tier Tribunal, and a decision is awaited.
However, Realreed also instituted judicial review proceedings. Realreed’s view was that the failure to raise an assessment on previous occasions created a legitimate expectation that Realreed’s VAT treatment was correct. The High Court rejected this. The HMRC officers had not critically examined whether the exemption applied, and, more significantly, they had not told Realreed that they had done so. Realreed could not rely on HMRC’s previous failure to raise an assessment.
WHY IT MATTERS: As long ago as 2008 a client successfully appealed against an HMRC assessment for wrongly reclaimed input tax. The client argued that HMRC had failed to notice the error on previous occasions, and HMRC agreed that there had been “misdirection by omission”. HMRC would be unlikely to concede in such a case nowadays, especially since the issue of Brief 15/09 which said that their primary duty is always to collect the correct amount of tax.
Cabot Plastics (ECJ) – fixed establishment does not exist if associated company remains responsible for its own human and technical resources
Cabot Switzerland (CH) entered into a contract with Cabot Plastics Belgium (BE) whereby BE would store goods belonging to CH and then manufacture those goods into plastics. BE would continue to hold the finished goods until they were sold by CH.
The Belgian authorities considered that CH had the use of production plants, distribution centre, warehouses and staff of BE, and that this created a fixed establishment. BE was liable for Belgian VAT of €10.6m on its supplies to CH, which was now established in Belgium. Because CH had a fixed establishment in Belgium, the supplies were effectively being made by a Belgian supplier (BE) to a Belgian customer (CH), or so the Belgian authorities thought.
The ECJ held that, if BE remained responsible for its own resources and provided them to CH at its own risk, then those resources did not become resources of CH. So CH had no establishment in Belgium, and no VAT should be charged by BE.
WHY IT MATTERS: The outcome is similar to the ECJ judgement in 2022 in the case Berlin Chemie, where it was held that a Romanian subsidiary did not become a fixed establishment of its German parent. Here, the Belgian authorities were, in effect, asking a company to charge VAT to itself, or at any rate to an associated company which was its only customer.
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.
MY PRACTICE AND CONTACT DETAILS
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
3 September, 2023