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Weekly VAT News

Week to 24 February 2020

Welcome to the latest edition of EY VAT News, which provides a roundup of indirect tax developments.

If you would like to subscribe to receive this newsletter by email each week, please sign up for Indirect Tax communications here, and email us at eyvatnews@uk.ey.com to confirm.

If you would like to discuss any of the articles in more detail, please speak with your usual EY indirect tax contact, or one of the people below. If you have any feedback or comments on EY VAT News, please contact Ian Pountney.

EY Events

  • Indirect Tax Perspectives – 5 March 2020

    We are delighted to invite you to the next Indirect Tax Perspectives seminar on Thursday 5 March. The event will provide an update on current and forthcoming issues that should be on the radar of any business that deals with indirect tax.

    Please see below for details of the event and how to register. If you would like to forward the details to a colleague, please feel free to do so.


    At this event we will cover:

    • A Brexit and Free Trade Agreement outlook
    • Potential indirect tax topics for the UK Budget on 11 March
    • Updates on recent and forthcoming indirect tax news and issues
    • Topical developments in VAT litigation and legislation
    Date and Timings

    5 March 2020
    08:30 – Registration and breakfast 
    09:00 – Seminar begins
    10:30 – Close followed by coffee


    1 More London Place
    London SE1 2AF ( map )

    Please register for this event here or contact Elaine McCluskey.

  • EY ReFIT (Retail) Forum – 18 March 2020

    We are delighted to invite you to the next ReFIT (Retail for Indirect Tax) update seminar on 18 March 2020, where we will look at the latest indirect tax developments specific to the retail sector and provide an opportunity to share ideas and perspectives with your peers and the EY Retail Indirect Tax Team.

    This event would benefit all those working within finance and tax functions in a retail environment.

    Please see below for details of the event and how to register. If you would like to forward the details to your colleagues, please feel free to do so.


    At this event, we will cover:

    • EY's reflections on the current Brexit outlook in terms of the impact on retail businesses and manufacturers in the supply chain; what should businesses be thinking about during the transition period following the UK's departure from the EU on 31 January 2020?
    • Budget 2020 – update from the Budget on 11 March
    • Making Tax Digital (MTD) – with VAT group and payment on account returns now being filed electronically, we focus on the digital journey and the types of solutions that should be considered (e.g. enhanced Excel spreadsheets and automation, including EY's new SaaS GVRT)
    • Product file automation – we demonstrate intuitive technology (using machine learning) to streamline this time-consuming process
    • An update on hot topics and case law

    The event will be a timely opportunity to review the impact of Brexit on the indirect tax landscape and how businesses are turning to technology to manage the increasingly complex compliance environment, both in the UK (with the introduction of MTD) and internationally, with ever tighter reporting deadlines and requirements to provide increasing levels of transactional information.

    Date and timings

    18 March 2020
    10:00 – 10:30 Registration
    10:30 – 13:00 Seminar
    13:00 – 14:00 Networking Lunch


    1 More London Place
    London SE1 2AF (map)

    Click here to RSVP or for further information please contact Simon Baxter.

EY Publications

  • TradeWatch – Issue 1 2020

    Issue 1 2020 of TradeWatch is now available. TradeWatch is a quarterly communication which outlines key legislative and administrative developments for customs and trade around the world. This issue comes in an interactive format, with links to EY resources, interactive graphics and maps. The publication also includes sections on Insights, Technology and Tax Alerts.

    In this issue we shine a spotlight on trade disruption, including Brexit, and the latest developments on the US-China trade dispute. We also consider how trade policy is disrupting global trade, and if data can provide trust to rewrite the terms of trade. Our regional insights include Canada's new Assessment and Revenue Management System, the new Repetro-manufacturing regime in Brazil for the oil and gas industry and the free trade agreement between the EU and Singapore.

Court of Justice of the European Union

  • Calendar update

    Wednesday 26 February

    Hearing – C-146/19 SCT – A Slovenian referral asking whether Article 90(2) of the VAT Directive permits a derogation from the right to reduce the taxable amount for VAT purposes, even with respect to cases of definitive non-payment, where such non-payment is a consequence of a failure on the part of the taxable person liable for the VAT to take proper steps, such as lodging a claim in bankruptcy proceedings commenced against a debtor? If such a derogation is permissible, must there nevertheless be a right to reduce the taxable amount where the taxable person is able to demonstrate that, even if he had lodged a claim in the bankruptcy proceedings, it would not have been satisfied, or is able to demonstrate that there were reasonable grounds for not lodging a claim? Does Article 90(1) of the VAT Directive have direct effect even if the legislature of a Member State has exceeded the scope of the possibilities for derogation established by Article 90(2)?

    Hearing – C-235/19 United Biscuits (Pensions Trustees) and United Biscuits Pension Investments – A UK referral asking whether supplies of pension fund management services, as are provided to the Pension Trustees by (a) Insurers and/or (b) Non-Insurers, are within the meaning of Article 135(1)(a) of the VAT Directive (formerly Article 13B(a) of the Sixth Directive)?

    Thursday 27 February

    Opinion – C-331/19 Staatssecretaris van Financiën (Taux réduit de TVA pour aphrodisiaques) – A Dutch referral asking whether the term ‘foodstuffs for human consumption’ used in point 1 of Annex III to the 2006 VAT Directive must be interpreted as covering, in accordance with Article 2 of Regulation (EC) No 178/2002 of the European Parliament and of the Council of 28 January 2002 laying down the general principles and requirements of food law, any substance or product, whether processed, partially processed or unprocessed, intended to be, or reasonably expected to be ingested by humans? If not, how must that term be defined?

    Comments: Depending on the Court's Judgment, if VAT relief can be applied to the definition of ‘food’ under the EU Regulation (Reg 178/2002), as the Court has been asked to consider, then, subject to certain exceptions (including, inter alia, medicines), UK zero-rating could potentially be extended to cover anything which is ingested by humans, for example food supplements. There could be an opportunity to make a claim for UK VAT overdeclared on these products over the last four years. Similar claims may also be possible in other countries within the EU.

    For further information please contact Steve Henshaw.

    Tuesday 3 March

    Opinion – C-791/18 Stichting Schoonzicht – A Dutch referral asking whether articles 184 to 187 of the VAT Directive preclude a national adjustment regime for capital goods whereby under certain circumstances in the year the goods enter into use (which is the first adjustment year) the total amount of VAT recovered is adjusted in a single step?

    Thursday 5 March

    Judgment – C-211/18 Idealmed III – A Portuguese referral asking whether Article 132(1)(b) of the VAT Directive precludes a hospital owned by a private company, which has concluded agreements for the provision of medical care with the State and with legal persons governed by public law, from being deemed (under certain conditions) to have started to operate under social conditions comparable with those applicable to bodies governed by public law, as referred to in that provision?

    Judgment – C-48/19 X (Exonération de TVA pour des consultations téléphoniques) - A German referral asking whether, in circumstances where a taxable person advises insured persons on various topics relating to healthcare and medical conditions by telephone on behalf of health insurance funds, does this constitute a VAT exempt activity that falls within the scope of Article 132(1)(c) of the VAT Directive? Is it sufficient for the required proof of professional qualification that the telephone consultations are conducted by ‘health coaches’ (medical staff, nurses) involving a doctor in about one third of the cases?

    Wednesday 11 March

    Opinion – C-231/19 Blackrock Investment Management (UK) – A UK referral asking whether, on a proper interpretation of Article 135(1)(g) of the VAT Directive, where a single supply of a management service within the meaning of that Article is made by a third-party provider to a fund manager and is used by that fund manager both in the management of special investment funds (SIFs) and in the management of other funds that are not SIFs, is that single supply to be subject to a single rate of tax? If so, how is that single rate to be determined? Or is the consideration for that single supply to be apportioned in accordance with the use of the management services so as to treat part of the single supply as exempt and part as taxable?

    Judgment – C-94/19 San Domenico Vetraria – An Italian referral asking whether Articles 2 and 6 of the Sixth Directive and the principal of fiscal neutrality should be interpreted as precluding national legislation under which the lending or secondment of staff by a parent company, in respect of which the subsidiary merely reimburses the related costs, is disregarded for VAT purposes?

First-tier Tribunal

  • Healthy truffles are ‘confectionery’ and standard rated

    Corte Diletto UK Limited

    The First-tier Tribunal (FTT) has released its decision in the case of Corte Diletto UK Limited (Corte) concerning the VAT treatment of ‘Nouri Truffles’, subsequently called ‘Nouri healthy balls’. The FTT had to decide whether the products are zero-rated as food or standard-rated as confectionery. If the product was confectionery, there was a further question as to whether the product could be considered as a cake and zero-rated.

    Nouri healthy balls are small balls made from dates, nuts and other natural ingredients with no added sugar, promoted as being vegan, gluten free and healthy but indulgent. At the time in question, they were produced in three flavours: matcha green tea, coconut and chia seeds and chocolate and hazelnuts. They were sold in packs of three and in a ‘luxury box’ of 16 truffles.

    The FTT held that the products should properly be considered as confectionery on the basis that:

    • Originally they were called ‘truffles’ – truffles are sweet. The products taste sweet, even if not very sweet
    • The original packaging and presentation of the products resembled what one would expect of premium sweets and chocolates. In particular, the ‘luxury box’ has the appearance of a box of chocolates. The newer foil packaging for the three-ball pack looks less of a premium product but still has the appearance of many confectionery items
    • The products are presented as an “indulgent treat” on the company's website, on the packaging and on the company's social media feeds
    • The unpackaged appearance of the product is very similar to items which are undoubtedly confectionery. Whatever they are called and whatever their ingredients, they have a similarity to and, in cases where the coatings are similar, they look like chocolate truffles; they are the same size and shape and they are appealingly dusted with nuts or coconut
    • They are designed to be eaten in small quantities as a “nutritious and healthy, but delicious and indulgent snack” or between meals
    • The company's own social media output gives the impression that the products are snacks/treats which one might eat in place of (allegedly less healthy) confectionery
    • Further, they are clearly “sweetened, prepared foods normally eaten with the fingers” and so are confectionery within the definition of Note 5
    • The FTT considered that the view of the informed man on the street, having taken account of all the facts, would be that the products are confectionery

    In respect of whether the Nouri healthy balls were cake, following the Pulsin' case in which Pulsin' bars had been found to have sufficient characteristics of brownies to be classified as cake and so zero-rated, Corte contended that its products were similar. The FTT held that the Nouri healthy balls are not similar to Pulsin' bars and even if they were, that is not the test. Each case must be considered on its own facts. Although the Nouri health balls might become dry and crumbly in the air like cakes, they do not possess other characteristics which would enable them to be classified as cakes. They do not look like cakes and do not taste like cakes even brownies or tiffin bars or similar. They do not have the texture or consistency of any kind of cake and their ingredients are different. Further, they are not described or presented or marketed as cakes and they are also different in size and shape. In the FTT's view, the products looked out of place among mini brownies and muffins – much more at home in a dish with Ferrero Rocher and Thornton's rum truffles. The FTT considered that the informed ordinary person would not form the impression that the products are cakes.

    Dismissing the appeal, in summary, the FTT held that the Nouri healthy balls are confectionery but are not cakes and therefore are standard-rated for VAT purposes.

    Comments: VAT and food remains a complex area of taxation. There are a number of cases before the Courts currently including a European case C-331/19 Staatssecretaris van Financiën (Taux réduit de TVA pour aphrodisiaques). Any businesses selling foods may wish to consider undertaking a VAT liability review. 

  • Automotive ‘Fleming claim’ to be based on standard HMRC tables where other evidence lacking

    Ian Workman

    The FTT has released its decision in the case of Ian Workman (IW). The case considered the amount of output tax to be repaid to IW in relation to an amended automotive Fleming claim. IW argued that the percentage of manufacturer bonuses and the number of demonstrators it sold based on HMRC's standard tables underestimated the VAT it was due. Specifically, the tables used by HMRC for these claims assumed that eligible vehicles were changed every four months rather than every three months as contended for by IW (resulting in a higher number of eligible vehicles). The assumed bonus percentage paid on demonstrators in the tables was 5-7% rather than 10% as contended by IW.

    Due to the historic nature of the claim, much of the evidence used was based on accounts of suppliers that IW traded with at the time rather than records or accounts of persons working for the business itself. The FTT held that at least 111 eligible vehicles were operated at its peak but was not satisfied on the evidence before it how many demonstrators were used in the business at other times. The FTT was not satisfied that manufacturers bonuses on demonstrators were paid at the rate of 10%. The FTT instructed the parties to agree what effect these findings have on the quantum of the amended Fleming claim and to make a further appeal if agreement was not reached.

    Comments: Interestingly, the FTT appears to have some sympathy for the taxpayer in relation to the average figures used by HMRC stating that there is no way of knowing on what they are based with no evidence to support those averages. Ultimately though, the FTT was not satisfied by the evidence presented. Any businesses with Fleming claims based on HMRC's ‘Elida’ or ‘Italian’ tables may wish to review the case and whether it has evidence to support the higher repayment of VAT.

    For further information please contact Chris Rowe.

  • Successful taxpayer MTIC appeal

    Ronald Hull Junior Limited

    The FTT has released its decision in this MTIC case concerning the alleged fraudulent evasion of VAT in the scrap metal trade. Ronald Hull Junior Ltd (RHJ) appealed against HMRC's decision to deny credit for input tax in relation to purchases from two different suppliers. The clear majority were purchases from Barnsley Metal Company Ltd (BMC). A small number of purchases were from Carwood Commodities Limited (CCL). HMRC alleged that BMC was a fraudulent defaulting trader (i.e. did not pay over VAT due to HMRC). In relation to RHJ's purchases from CCL, HMRC alleges that GPSE, who supplied CCL, was also a fraudulent defaulting trader. HMRC contended that RHJ ‘knew or should have known’ about the fraud in relation to both purchase supply chains.

    The FTT held that GPSE was not a defaulting trader and the most likely explanation for the default by GPSE was that the business failed due to its deregistration from VAT which HMRC effected as it believed that GPSE was involved in fraud. Once deregistered, other businesses in the steel trade would not do business with it. The FTT held that HMRC had not shown that there was a connection between sales made by CCL to RHJ and the purchases made by CCL from GPSE Ltd. The FTT found the length of time between the purported connected transactions improbable and that RHJ Ltd ‘did not know and should not have known’ that connections with CCL were connected to fraud. The FTT held that none of the transactions contained any factors which should have alerted RHJ Ltd to the possibility of fraud. Even if RHJ Ltd had conducted more extensive due diligence, the FTT held that it would not have found any conclusive factors. BMC was a defaulting trader; its transactions with HMRC were dishonest and those involved had a history of similar frauds. However, the FTT again held that RHJ Ltd ‘did not know and should not have known’ that its transactions with BMC were connected to fraud. To RHJ, these transactions were in the ordinary course of its business, there was nothing in the transactions themselves that were suspicious. RHJ did not have the means or knowledge to uncover the history of the businesses and further due diligence would not have revealed conclusive indicators of fraud. On this basis, the FTT allowed the appeal.

HMRC Material

  • Revenue and Customs Brief 1 (2020): VAT treatment of digital publications following the News Corp case

    HMRC has issued Revenue and Customs Brief 1 (2020): VAT liability of digital publications – Upper Tribunal in News Corp and Ireland Ltd. The brief states that HMRC's view of the VAT treatment of supplies of digital newspapers and other digital publications has not changed following the Upper Tribunal decision in News Corp UK and Ireland Ltd (News Corp) i.e. HMRC still considers these supplies to be subject to VAT at the standard-rate.

    In the Brief, HMRC has confirmed that the Upper Tribunal held in News Corp that digital newspapers should be subject to the zero-rate of VAT in the same way as a physical newspaper on the basis that:

    • Group 3 of Schedule 8 VATA 1994 is not limited to goods and can include services (such as digital publications)
    • The News Corp digital newspapers were essentially the same, or at least very similar, to the corresponding printed newspapers, fulfilling the same legislative purpose and falling within the same category of items (or ‘genus of facts’) that UK legislation has always zero-rated
    • The domestic legal principle known as the ‘always speaking’ doctrine is engaged (essentially, that legislation in certain circumstances should reflect and keep up to date with technological advances)
    • The supply of the digital newspapers in dispute fell to be zero-rated within Item 2 (notwithstanding that they did not exist when the zero-rates were introduced)

    However, the Brief also confirms that HMRC has been granted leave to appeal the decision to the Court of Appeal and any claims in relation to the zero-rating of digital newspapers or digital publications following News Corp will be rejected. The Brief explains the information HMRC expects to receive in respect of any protective claims submitted.

    For further information, please contact David Latief.

  • Excess parking charges made by contractors are outside the scope of VAT

    HMRC has updated its VAT supply and consideration manual in the section covering Consideration: Payments that are not consideration: Fines and penalty charges, to confirm its view of the VAT treatment of excess charges by contractors following the Beavis v Parking Eye decision. Where parking site owners contract out the management and operation of their parking sites and allow the contractor to retain all or part of the penalties collected, the Manual confirms that these fees (commonly known as parking charge notices or PCNs) are outside the scope of VAT whether retained by the parking enforcement contractor or passed on to the land owner.

  • Guidance updated on clearing imported and exported goods

    HMRC has updated its guidance on clearing imported and exported goods.

    From early March 2020, import and export clearance documents sent to HMRC will be sorted automatically. This means that businesses will now need to fill out and send a PDF summary form (called a trader submission header form or NCH1) to HMRC for each submission that needs further checks. Clearance of goods will be delayed if the trader submission header form (NCH1) is not submitted correctly. If goods are selected for further checks by HMRC (Route 1, Route 2 and Route 0), businesses will need to send the NCH1 and all supporting paperwork to nch@hmrc.gov.uk.

    For further information, please contact Charlotte Prescott.

EY Global Tax Alerts

  • Ecuador

    Ecuador – Effective 1 January 2020, Ecuador's tax reform adds certain goods to the list of transferred or imported goods that are subject to a 0% VAT rate. The tax reform also amends the list of VAT withholding agents and imposes a 12% VAT rate on digital services, when the consumer is an Ecuadorian resident.

  • EU

    EU – The European Commission (the Commission) has opened a Public Consultation to strengthen the exchange of information framework in the field of taxation (the Consultation). The Consultation focuses on the collection and exchange of data from digital platform providers.

    The specific objective of the Commission is to update the EU's Directive on Administrative Cooperation (Directive 2011/16/EU, also known as the DAC) to include the ability for tax administrations to collect and then exchange taxpayer data collected by digital platform providers during the course of their operations, delivering a common EU reporting standard in this area.

  • Canada

    CanadaBritish Columbia (BC) has issued budget 2020-21. From an indirect tax perspective, Provincial Sales Tax (PST) updates include:

    • Registration requirements expanded: effective 1 July 2020, Canadian sellers of goods, along with Canadian and foreign sellers of software and telecommunication services, will be required to register as tax collectors if specified BC revenues exceed $10,000
    • Exemptions for soft drinks/pop eliminated
    • Exemption for pollution control and waste management machinery and equipment expanded
    • Exemption provided for electric aircraft
    • Refund for real property contractors working outside BC expanded

    Other indirect tax updates include:

    • Carbon tax rates aligned with federal carbon pricing backstop rates
    • BC carbon tax rates updated to ensure they are in line with the latest science on emissions, resulting in lower tax rates for some fuel types, such as gasoline, and higher tax rates for other fuel types, such as natural gas
    • Motor fuel tax – Refund rates for International Fuel Tax Agreement licences adjusted
    • Tobacco tax – tax rate for heated tobacco products introduced

European Council

  • Council adopts new rules for exchange of VAT payment data

    The European Council has adopted a set of rules to facilitate the detection of tax fraud in cross-border e-commerce transactions.

    As previously reported, the new measures will enable Member States to collect, in a harmonised way, the records made electronically available by payment service providers, such as banks. In addition, a new central electronic system will be set up for the storage of the payment information and for the further processing of this information by national anti-fraud officials.

    The new rules consist of two legislative texts:

    • Amendments to the VAT Directive implementing requirements on payment service providers to maintain records of cross-border payments related to e-commerce. This data will then be made available to national tax authorities under strict conditions, including those related to data protection
    • Amendments to a regulation on administrative cooperation in the area of VAT. These amendments set out the details of how national tax authorities will cooperate in this area to detect VAT fraud and control compliance with VAT obligations

    The texts complement the VAT regulatory framework for e-commerce coming into force in January 2021 which introduces new VAT obligations for online marketplaces and simplified VAT compliance rules for online businesses.

    The new measures will apply as of 1 January 2024.

    Please refer to:

    Text of the directive as regards introducing certain requirements for payment service providers

    Text of the regulation as regards measures to strengthen administrative cooperation in order to combat VAT fraud

    European Council Press Release 18 February 2020

    For further information, please contact Rosie Higgins.

  • Council adopts simplified rules for small businesses

    The European Council has adopted simplified VAT rules applicable to small businesses.

    As previously reported, the purpose of the new measures is to reduce the administrative burden and compliance costs for small enterprises and create a fiscal environment which will help small enterprises grow and trade across borders more efficiently.

    Businesses have VAT administrative obligations and act as VAT collectors generating compliance costs that are proportionately higher for small enterprises than for larger businesses. The existing VAT system foresees that VAT exemption for small enterprises is only available to those in the domestic market. The reform agreed by the Council will enable a similar VAT exemption to be applied to small enterprises established in other Member States.

    The updated rules will also improve the design of the exemption, thereby contributing to reducing VAT compliance costs. It will also provide the opportunity to encourage voluntary compliance and therefore help reduce revenue losses due to non-compliance and VAT fraud.

    The text foresees that small enterprises will be able to qualify for simplified VAT compliance rules where their annual turnover remains below a threshold set by a Member State concerned, which cannot be higher than 85,000 EUR. Under certain conditions, small enterprises from other Member States, which do not exceed this threshold, will also be able to benefit from the simplified scheme, if their total annual turnover in the whole of the EU does not exceed 100,000 EUR.

    The new rules will apply as of 1 January 2025.

    Please refer to European Council Press Release 18 February 2020

    See our global tax alert available here.