Ernst & Young UK's VAT News - Ernst & Young - United Kingdom

In this issue :

• VAT Rate Increase : Businesses trading over midnight : HMRC announcement
• Staff Hire Concession : House of Commons research briefing
• Intrastat : HMRC Impact assessment : simplification measure
• Parliament : Delegated Legislation Committee : VAT (Buildings and Land) Order 2009
• High Court : Judgment : Loft conversions : whether principal or agent
• High Court : Judicial Review : Sheldon : full disclosure : misdirection by omission
• Tribunal Decisions : Impassioned pleas
• European Commission : Infringement proceedings
• European Commission : Study on VAT gap in EU
• European Court : Case determined by Court Order : recovery of incorrectly deducted VAT
• European Court : Referral : Finance exemption : unlawful exorbitant lending activities
• European Court : Calendar
  

HM Treasury issued a news release on 5 November 2009 and HMRC issued Revenue & Customs Brief 68/09 on 6 November 2009, detailing transitional arrangements for businesses trading over midnight on 31 December 2009, when the increase in VAT rate from 15% to 17.5% takes place. The Brief also details a 'light touch' policy for errors relating to the rate increase and a proposed relaxation to the Price Marking Order 2004.

The news release can be accessed at :
TreasuryNewsRelease

The Revenue & Customs Brief can be accessed at :
http://www.hmrc.gov.uk/briefs/vat/brief6809.htm

A House of Commons research briefing, giving a summary of the whole history of the staff hire concession saga, is available on the Parliament website at :
http://www.parliament.uk/commons/lib/research/briefings/snbt-01225.pdf

HMRC have published an impact assessment on changes to the requirements to submit Intrastat arrival declarations from 1 January 2010. The IA estimates that 6,900 businesses will no longer be required to submit Intrastat arrival declarations, reducing the administrative burden by an estimated £2 million per annum.

The IA can be accessed at :
http://www.hmrc.gov.uk/ria/091026-intrastat-simplification.pdf

The House of Commons Delegated Legislation Committee debated (for all of thirteen minutes!) the VAT (Buildings and Land) Order 2009 on 2 November 2009.

The debate can be accessed at :
http://www.publications.parliament.uk

A1 Lofts Ltd v HM Revenue & Customs

The Court released its judgment on 30 October 2009 in this appeal against the VAT Tribunal decision of 3 December 2008 (20888). The dispute is whether the appellant supplied loft conversions as a principal using the services of a range of tradesmen (such that the value of the appellant's supply was the total paid by the customer – as argued by HMRC) or whether the appellant supplied only project management services with the self-employed tradesmen having a direct relationship with the customer (such that the value of the appellant's supply is its fee for the project management services, ie the balance after remitting the payments due to the tradesmen – as argued by the appellant). The VAT Tribunal found in favour of the HMRC argument. (The Tribunal case appeared so run-of-the-mill in its similarity to cases on hairdressers, driving schools, lap dancing clubs etc that I did not individually report it at the time).

The High Court is particularly critical of what it describes as the 'unstructured approach' of Tribunal Chairman (Miss Gort), suggesting that the correct approach is to analyse the contractual arrangements and determine whether those arrangements are consistent with the facts of how the business is conducted. The Judge continues 'Absent a finding of sham or departure from the written arrangements, the construction of the contracts is likely to be the finishing point as well as the starting point.

The Court concludes that, on this basis, the Tribunal decision cannot be allowed to stand and remits the case back to the Tribunal for a reconsideration in the lights of the High Court comments.

The judgment can be accessed on the BAILII website at :
http://www.bailii.org/ew/cases/EWHC/Ch/2009/2694.html 

R (on application of The Medical Protection Society Ltd) v Commissioners for HM Revenue & Customs

The High Court Queens Bench Division Administrative Court released its judgment on 6 November 2009 in this application for judicial review on the application of the 'Sheldon statement'.

The appellant is a body which supports doctors and dentists (its members) in legal, regulatory or disciplinary claims against them and its supplies to members are exempt under Exemption Group 9. The appellant has a discretion to indemnify its members for costs and expenses relating to the claims against them. The fundamental issue is whether the costs so indemnified are supplies to the appellant or to the individual members. (Although the appellant is not an insurance company, the judgment draws a parallel with subrogated insurance claims and those dealing with the insurance industry might be interested in the asides at paragraphs 7 and 8).

Presumably this fundamental issue does not matter here, in terms of input tax deduction, where domestic supplies are involved but the case revolves around imported services.

The appellant accepted that it had a reverse charge liability in respect of what is described as corporate advice but, in 1998, addressed the question of reverse charge liability in respect of the legal costs relating to claims. The appellant wrote to Customs in February 1998 explaining the relationship between the parties and HMRC replied in March 1998 accepting that the legal services were supplied to the members and hence the appellant did not have a reverse charge accounting liability. A Customs verification visit in 2001 did not challenge the position, although the officer's notes indicated that there was no specific discussion on the legal services.

A further Customs visit took place in 2007 which resulted in HMRC being given a copy of the guidelines to the appellant's legal panel for claims work. Although these guidelines were not produced until 2006, it was accepted that they described the arrangements between the parties which had existed throughout. After reviewing this information, HMRC issued a letter in January 2008 withdrawing the March 1998 ruling retrospectively and issuing an assessment for the previous three years for reverse charge VAT on the legal services of £5.8 million.

The appellant argued that HMRC should not be able to assess tax arising prior to the January 2008 letter.

The principal argument is whether the appellant can rely on HMRC Extra-Statutory Concession 3.5 (aka the 'Sheldon statement' named after the government minister who originally made it in parliament), which reads :

10. "If a Customs and Excise officer, with the full facts before him, has given a clear and unequivocal ruling on VAT in writing or, knowing the full facts, has misled a registered person to his detriment, any assessment of VAT due will be based on the correct ruling from the date the error was brought to the registered person's attention."

The critical issue is whether the appellant's February 1998 letter put the full facts before Customs.

Counsel for HMRC claimed that the February 1998 letter misrepresented the extent of involvement of the members in appointing and controlling the work of the lawyers, in comparison with the picture painted in the guidelines, and that this was significant enough to invalidate the March 1998 ruling under the 'Sheldon statement'. The Judge (the Hon Mr Justice Sales) agreed with HMRC commenting

32. In my view, the basic picture presented in the disclosure letter was one in which MPS's members appeared to be in the driving seat so far as concerned instructing lawyers to deal with claims against them and the handling of any proceedings, with an additional obligation upon them (and their lawyers) to report to MPS and keep it informed and to allow MPS to review and (if it so chose) control steps which might be taken by them. By contrast, the picture which emerges from the Guidelines is one in which it is MPS which is firmly in the driving seat so far as instructing lawyers and the handling of proceedings is concerned, with a limited obligation upon it and the lawyers to keep the affected member informed about what is going on and giving him very limited power to control what happens (his consent is required to settle a claim, but for little else). In the light of this contrast, I do not think that the disclosure letter presented the full relevant facts to HMRC.

A secondary argument that the 2001 Customs visit was tantamount to misdirection by omission was also rejected by the Judge.

Judicial review application DISMISSED

The judgment can be accessed on the BAILII website at :
http://www.bailii.org/ew/cases/EWHC/Admin/2009/2780.html 

Note that the 'Sheldon Statement' ESC was withdrawn from 1 April 2009 as a result of the validity of all ESCs being reviewed following the Wilkinson case. HMRC are maintaining however that this is just a 'rebadging' and the same criteria will continue to be applied as part of their general management of taxes, as outlined in a section of the HMRC website entitled 'when you can rely on information or advice provided by HMRC'. The Revenue & Customs Brief outlining the withdrawal of the ESC can be accessed at :
http://www.hmrc.gov.uk/briefs/vat/brief1509.htm

First Tier Tax Tribunal decision

Summary of  Tribunal decisions

No 'biggies' this week but a couple of impassioned pleas, alas both unsuccessful, on the perceived injustices of three year capping and of the operation of the margin scheme for car dealers.

TC 00212 Botanical Catering Ltd – appellant had failed to appreciate that cold take-away food could be zero-rated and made a claim in May 2008 for tax in period January 2003 to July 2004 – appellant made impassioned plea that the money did not belong to the government and that the refusal to repay the tax would lead to the closure of the business. Judge (Lady Mitting) stated that she had no discretion regarding the application of three year capping – dismissed

The full decision can be accessed on the BAILIII website at :
http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00212.html 

TC 00214 – Peter Benjamin Lyon – another impassioned appellant, this time a car dealer complaining at the alleged inherent unfairness of the second-hand margin scheme in not giving any credit for situations, as is often the case with part-exchanged cars and job lots taken from main dealers, that a loss occurs on individual vehicles – Judge (Hellier) examines the EU law and concludes that there is nothing in the Directive which renders the UK margin scheme unlawful and that there is no inherent discrimination in the operation of the scheme – as the Tribunal has no jurisdiction to cover policy rather than the application of law, appeal dismissed – Judge appends extract from the appellant's post-hearing letter of complaint repeating the perceived injustices and his replies

The full decision can be accessed at :
http://www.financeandtaxtribunals.gov.uk/judgmentfiles/j4577/TC00214.doc

A series of press releases dated 29 October 2009 from the Commission on infringements proceedings show the issue of five separate reasoned opinions (although none against the UK)

• Greece – failure to apply a uniform rate of VAT to the provision of bowling facilities
• France – requirement to appoint tax representative
• Netherlands – application of exemption for fundraising activities
• Austria – construction costs on mixed-use buildings – transgression of 'standstill' provisions
• Poland – Eighth Directive claims – delays in repayments and unrealistic deadlines to correct errors

The European Commission has published a study, carried out by an organisation named Reckon LLP, into the VAT gap across 25 EU Member States and the evolution of the figures over a six year period.

The Commission press release explaining the study can be accessed at :
http://europa.eu/rapid

The study itself can be accessed at :
http://ec.europa.eu/taxation_customs/resources/documents/taxation

C-483/08 Regie Communale Autonome du Stade Luc Varenne v Belgian State – SPF Finances

In accordance with the procedure whereby the Court can determine cases by the issue of an Order, the Court has issued the following

Order of the Court (Seventh Chamber) of 9 July 2009 (reference for a preliminary ruling from the Tribunal de première instance de Mons – Belgium) – Régie communale autonome du stade Luc Varenne v Belgian State – SPF Finances
(Affaire C-483/08)¹

(First subparagraph of Article 104(3) of the Rules of Procedure – Sixth VAT Directive – Article 10(1) and (2) – Recovery of tax improperly deducted – Starting point of the limitation period)

Language of the case: French
Referring court: Tribunal de première instance de Mons

Parties to the main proceedings
Applicant: Régie communale autonome du stade Luc Varenne
Defendant: Belgian State – SPF Finances

Re
Reference for a preliminary ruling – Tribunal de première instance de Mons – Interpretation of Article 10 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OL 1977 L 145, p. 1) – Concepts of 'chargeable event' and 'chargeability of tax' – Starting point of the limitation period for an action for recovery of VAT – The date on which the invoice is tendered or the date on which the VAT return is lodged in which the taxable person claims a right to deduct?

Operative part
Article 10 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 2002/38/EC of 7 May 2002, must be interpreted as meaning that it does not preclude national legislation and administrative practice which fixes the starting point of the limitation period for an action for recovery of improperly deducted value added tax as the day on which the taxable person lodged the VAT return in which he claimed for the first time a right to deduct.
____________
¹ OJ C 19, 24.1.2009

The European Court website shows the following referral from Italy

Reference for a preliminary ruling from the Corte suprema di cassazione (Italy) lodged on 25 September 2009 – Gennaro Curia v Ministero dell'Economia e delle Finanze, Agenzia delle Entrate
(Case C-381/09)

Language of the case: Italian
Referring court: Corte suprema di cassazione

Parties to the main proceedings
Appellant: Gennaro Curia
Respondent: Ministero dell'Economia e delle Finanze, Agenzia delle Entrate

Question referred 
In accordance with the Community law principles set out in the Sixth VAT Directive of the neutrality of VAT and exemption from VAT, under conditions laid down by the Member States, for transactions entailing the granting and the negotiation of credit and the management of credit by the person granting it, can exorbitant lending activities, which are a criminal offence under national law, be subject to VAT where, in economic terms, they may be envisaged as being in competition with the corresponding lawful activities of granting money loans, which fall within the scope of VAT under national law but are deemed exempt thereunder whenever they may be regarded as 'finance transactions'?

Thursday 19 November 2009 – Judgment C-461/08 Don Bosco Onroerend BV – Dutch referral on the VAT treatment of the sale of a partly demolished building with a view to its replacement with a newly constructed building (nb proceeding to judgment without a written AG's opinion)

Thursday 19 November 2009 – Hearing Joined Cases
C-536/08 Staatssecretaris van Financien v X
C-539/08 Staatssecretaris van Financien v Facet BV/Facet Trading BV
– Dutch referrals on timing of right of deduction on intra-Community acquisitions

Week ending 27 November 2009 – No VAT Cases

Thursday 3 December 2009 – Hearing Joined Cases
C-538/08 X Holding BV v Minister van Financien
C-33/09 Oracle Nederland BV v Inspecteur der Belastingdienst Utrecht-Gooi/kantoor Utrecht
– Dutch referrals on the input tax 'standstill' provisions of Article 17(6) of Sixth Directive as applied to supplies for mixed business/private use

Thursday 10 December 2009 – Hearing C-88/09 Graphic Procede v Ministere du budget, des comptes publics et de la fonction publique – French referral on whether reprographics is a supply of goods or a provision of services