EY VAT News – 06 December 2021
Welcome to the latest edition of EY VAT News, which provides a roundup of indirect tax developments for the past week.
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.
Due to technical difficulties, our Indirect Tax Perspectives webcast which had been scheduled to take place on Tuesday, 30 November could not go ahead. We have set up a new date, so if you would like to attend please re-register for the webcast which will take place on Tuesday, 14 December 2021 from 13:00 – 14:00.
During the webcast we will provide an update on topical indirect tax issues which will include:
- A round-up of recent UK and global indirect tax updates
- Brexit – eleven months on and changes on the horizon
- The uncertain tax treatment regime
Please register for this event here.
The VAT refund process for EU businesses incurring UK VAT changed from 1 January 2021.
Pre-Brexit – subject to certain conditions, EU businesses which were not registered or established for VAT in the UK, would have been able to submit an EU VAT refund claim to recover VAT incurred in the UK for business purposes. The claim period related to the calendar year in which the expense was incurred, with a submission deadline of 30 September the following year.
Post-Brexit – Online claims could continue to be submitted by EU businesses until 31 March 2021 for any UK VAT incurred during the period ending 31 December 2020.
The deadline and method for submitting claims then changed. Rather than a claim period of a calendar year, claims should now be submitted by EU Businesses on the basis of a ‘prescribed year’ which runs from 1 July to 30 June. Consequently, the deadline for the submission of a claim for any VAT incurred in the UK by an EU business between 1 January 2021 and 30 June 2021 is 31 December 2021.
Non-EU businesses which are not registered or established in the UK and have incurred VAT in the UK for business purposes will also have a deadline of 31 December 2021, but for the whole 12-month period of 1 July 2020 – 30 June 2021.
VAT incurred on goods in Northern Ireland will still be claimable via the EU VAT refund scheme as a result of the Northern Ireland Protocol.
Please refer to Refunds of UK VAT for non-UK businesses or EU VAT for UK businesses (VAT Notice 723A) for further details.
Tax administration and maintenance day (TAMD)
Following the Autumn Budget on 27 October and the Finance Bill publication on 4 November, on 30 November 2021, the Government made a number of tax policy announcements, launched a number of new tax consultations and published responses to previous consultations and calls for evidence. The collection of published documents includes a policy paper entitled Tax Administration and Maintenance, which builds on the Government’s 10-year tax administration strategy published in July 2020, and follows on from the command paper Tax policies and consultations, published in Spring 2021. The Tax Administration and Maintenance paper includes an overview of areas of interest across the taxes where the Government has set out further detail on its work to “deliver a modern, simple and effective tax system – which helps taxpayers get their tax right the first time”.
The following items are of particular interest:
VAT split payments – The Government has committed to exploring VAT split payments further, an alternative method of VAT collection where the tax element of a digital payment could be remitted directly to HMRC. While the work is at an exploratory stage, the Government has said that it will continue to assess the potential of split payment both for tackling overseas VAT non-compliance and wider tax modernisation. The Government has acknowledged the ongoing input of stakeholders in the payments industry and will continue to take this work forward collaboratively, including through the Industry Working Group established in 2018.
Online sales tax – As announced at Autumn Budget 2021, the Government continues to explore the arguments for and against a UK-wide online sales tax. Any revenue raised would be used to reduce business rates for retailers with properties in England, with the block grants of the Devolved Administrations increased in the usual way. A consultation on this will be published in the new year.
Sharing economy – Following the publication of a call for evidence and summary of responses earlier this year, the Government continues to work with stakeholders both in industry and at the OECD to develop its understanding of the sharing economy and its implications for VAT. Specifically, the Government is conducting further engagement with stakeholders on the VAT rules for cross-border services supplied between businesses, as well as the possibilities offered by increased data sharing and how such sharing or reporting would be best achieved. The Government has said that it recognises the opportunities and value created by the sharing economy, while remaining committed to protecting the tax base.
Review of tax administration for large businesses – At Spring Budget 2021 the Government announced a review of tax administration for large businesses, in recognition of the role that the tax administration plays in supporting the UK’s competitiveness and promoting investment. Following engagement with stakeholders, the Government is taking action, including developing new Guidelines for Compliance and improved guidance, changes to help address long-running enquiries, and work to improve the co-operative compliance experience.
Call for evidence: the tax administration framework: supporting a 21st century tax system – The Government has published a summary of responses to the call for evidence on the tax administration framework.
The call for evidence sought views on how the legislation, processes and guidance underpinning HMRC’s administration of the tax system could be updated to provide a better experience for individuals and businesses, enable opportunities to further reduce the tax gap, and help build resilience and responsiveness to future crises.
The responses contributed a broad set of inter-related ideas as to how to update the tax administration framework to support a trusted, modern tax administration system. There was overwhelming support from respondents for changes to simplify the tax administration framework and reduce administrative burdens for individuals and businesses.
The Government will take account of responses to this call for evidence in considering how best to develop, prioritise and sequence proposals for change.
Call for Evidence: Simplifying the VAT Land Exemption – The Government has published a summary of responses to the call for evidence on the land and property VAT exemption that closed in August 2021. This sought opinions on the current VAT rules related to land and property. Respondents were also invited to share their views on the potential options for simplification that were presented, as well as providing any other ideas that were not included.
A majority of respondents urged caution over sweeping changes to the current rules, favouring more targeted attempts at simplification in specific areas of land and property VAT. Most respondents identified several supplies that they felt it was difficult to establish VAT liability for. The single most common remark involved the anti-avoidance rules for the option to tax and the absence of a record of the option to tax. There was also notable opposition to simplification, with some respondents suggesting that they were comfortable with the current system because it continues to work well in most instances. Others commented that it would be more beneficial for HMRC to improve consistency in its application of the existing rules.
With regard to the specific options presented by the OTS (removing the ability to opt and making all relevant transactions exempt; removing the option to tax and making all land and property taxable at a reduced rate; and making all commercial land and property taxable at the standard rate with an option to exempt), they were all rejected.
The Government has said that it does not intend to take any further action regarding any of the potential options previously discounted by the OTS. The Government agrees that these options would likely be ineffective in reducing complexity overall. The Government also agrees with respondents that the potential option of linking the VAT treatment to an independent land register would be ineffective, and probably inoperable, and will therefore not be considering this further.
The Government has said that it intends to improve guidance in this area of VAT and will engage further with the sector on potential options for reform. In particular it would like to explore further whether it is possible to establish a workable definition of “short term” or “minor interests” with a view to making such supplies subject to VAT. Also, the implications of making most supplies of land subject to VAT with a limited number of exceptions. The Government acknowledges that this is by far the most significant change of the potential options and would also be the most challenging to develop and introduce in the short to medium term.
Further discussions with businesses are intended to begin in the early part of 2022.
Call for evidence: modernising tax debt collection from non-paying businesses – The Government has published a call for evidence on how HMRC can modernise its collection of tax debts to reflect the changing nature of the economy, where an increased use of e-commerce has given rise to new business practices – including the conduct of business in the UK without having a presence or physical assets here.
The call for evidence also seeks views on HMRC’s approach to the small minority of business taxpayers who do not engage with HMRC and hold off paying their tax for as long as they can, forcing HMRC to resort to costly and time-consuming enforcement action.
The proposals will not affect taxpayers who are in temporary financial difficulty and need support from HMRC to get back onto a sustainable financial footing – including those affected by the COVID-19 pandemic.
The call for evidence closes on 22 February 2022.
Landfill Tax Review: call for evidence – With the aim of ensuring Landfill Tax continues to support environmental objectives, in spring 2021, the Government announced it would review aspects of Landfill Tax in England and Northern Ireland.
It has now launched a call for evidence, focused on how Landfill Tax can continue to support the Government's environmental objectives, including achieving zero avoidable waste by 2050.
The period of consultation closes on 22 February 2022.
Insurance Premium Tax: administration and unfair outcomes – The Government has published a summary of responses to the consultation on Insurance Premium Tax (IPT).
The IPT consultation was launched to suggest proposals to prevent unfair outcomes and improve the administration of the tax for both the industry and HMRC. It proposed options to address unregistered insurers who fail to fulfil their IPT obligations, the use of avoidance structures and whether the administration of IPT could be improved.
There are no legislative policy changes being announced.
HMRC will engage with industry to seek to establish public access to the register of insurers registered to pay IPT, alongside a Code of Conduct for brokers to follow in relation to IPT.
Further updates will follow subject to the outcome of ongoing discussions with industry.
2021 Review of the Office of Tax Simplification – The Government has published the outcome of HM Treasury’s review of the Office of Tax Simplification (OTS). Since its creation in 2010, the OTS has offered independent advice and recommendations to government on making the tax system simpler and easier to interact with for taxpayers. Tax simplification remains a key focus for the government as it seeks to build a UK tax system fit for the challenges and opportunities of the 21st century.
In its report, the Government recognises the opportunities for simplification identified by the OTS and makes a clear endorsement of the role they play in offering specific changes to improve the experience of taxpayers. The report concludes that the government is committed to supporting the OTS in continuing to play an important role. For this reason, the review not only examined the effectiveness of the OTS in advising the Chancellor on tax simplification, but also considered what further steps should be taken to enhance the effectiveness of the OTS in future. The report makes a number of recommendations, which will help embed and improve good practice as the OTS matures as an organisation and continues to build on the work it does providing insights, engaging with a range of stakeholders, and providing a voice for taxpayers.
The Chancellor has also published a letter in which it responds to the OTS, clearly endorsing it as well as specifically covering progress on actions in relation to recommendations made on the inheritance tax review and capital gains tax review.
Use of marketed tax avoidance schemes in the UK – HMRC has published its annual report on the use of marketed tax avoidance schemes in the UK. It sets out the numbers and characteristics of taxpayers using avoidance schemes in the tax year 2019-2020. The report includes data on occupations, locations, ages and the average declared incomes of those involved in avoidance.
Proposals on the treatment of aggregate removed during construction works – The Government has published a summary of responses to the consultation on the tax treatment of aggregate removed during construction works.
In light of these responses, the Government proposes to legislate in a future Finance Bill so that the exclusion from the Levy for aggregate that is returned to the land at the site where it was won applies only for a purpose connected to the winning of aggregate. The Government will also examine the feasibility of consolidating several exemptions from the Levy into one for unavoidable by-product aggregate extracted as part of a construction project.
Small Brewers Relief (SBR): technical consultation – The Government has published its response to the technical consultation on SBR published earlier this year.
At Autumn Budget 2021, the Government announced as part of its alcohol duty review that it would introduce a new Small Producer Relief that would supersede SBR. This sets out the Government’s conclusions in relation to the questions raised in the technical consultation to help brewers and other stakeholders respond to the alcohol duty review in more detail.
Call for Evidence: umbrella company market – The Government has published a call for evidence to ensure it has an up-to-date and well-informed view of how the umbrella company market operates.
The call for evidence invites views from stakeholders on the role that umbrella companies play in the labour market, and how they interact with the tax and employment rights systems. It sets out the concerns that have been raised by some stakeholders, as well as Government action already taken to tackle tax non-compliance and improve protection for workers.
The call for evidence closes on 22 February 2022.
Stamp Duty Land Tax: mixed-property purchases and Multiple Dwellings Relief – The Government has published a consultation on the Stamp Duty Land Tax (SDLT) reliefs for purchases of mixed property and multiple dwellings. It is suggested that these reliefs are being exploited by some purchasers to unfairly reduce their tax liability.
This consultation invites views on possible changes to 2 areas of the SDLT regime:
- Changes to the way SDLT is calculated for purchases of mixed-property – that is, purchases which consist both of residential and non-residential property
- Options to reform Multiple Dwellings Relief, available on the purchase of 2 or more dwellings
The aim of this consultation is both to make the system fairer and to reduce the scope for incorrect or abusive claims.
The period of consultation closes on 22 February 2022.
Hidden economy conditionality – Northern Ireland and Scotland – The Government has published a summary of responses to the consultation on extending tax conditionality to certain licences (to drive taxis and private hire cars, to operate private hire car booking offices, and to be a metal dealer) in Scotland and Northern Ireland from April 2023. This makes the renewal of certain licences conditional on applicants completing checks that confirm they are appropriately registered for tax.
The policy will be developed through continued engagement with the Devolved Administrations and is consistent with reforms which come into force in England and Wales in April 2022, introduced by the Finance Act 2021. The next Finance Bill will introduce a requirement for licensing bodies in Northern Ireland and Scotland to obtain confirmation that an applicant has completed the check before deciding on their renewal application, making it more difficult for traders to operate in the hidden economy. The Government has said that it remains committed to exploring further the wider application of tax conditionality.
Raising standards in the tax advice market – The Government has published a summary of responses to the consultation on ‘Raising standards in the tax advice market: professional indemnity insurance and defining tax advice’, as well as external research on the characteristics of tax agents who are not affiliated to tax professional bodies. The Government has said that compulsory professional indemnity insurance would not be an effective mechanism to raise standards in the tax advice market, nor would it have a significant impact on consumer protection. Wider difficulties with the market for indemnity insurance highlighted potentially significant feasibility and implementation challenges. The Government will therefore not be proceeding with introducing professional indemnity insurance for tax advisers at this time. The Government has said that it remains committed to raising standards in the tax advice market – and will consult on further options, and on proposals to tackle the high cost to taxpayers of using tax agents to claim tax repayments.
Court of Justice of the European Union
Thursday 9 December
Judgment – C-154/20 Kemwater ProChemie
Topics – VAT deduction – supplier details in doubt
A Czech referral asking whether it is compatible with the VAT Directive for the right to deduct VAT to be conditional on the taxable person providing proof that the supply received was made by another specific taxable person? Can the right to deduct be refused without it being established that that taxable person knew or could have known that by acquiring the goods or services in question he was participating in tax fraud?
- C-641/21 Climate Corporation Emissions Trading – An Austrian referral asking whether the VAT Directive should be interpreted as meaning that the national authorities and courts must regard the place of supply of a service, which, under the written law is formally located in the Member State in which the recipient of the supply is established, as being within the national territory if the taxable person supplying the service should have known that, in supplying it, he or she was participating in VAT evasion committed in the context of a chain of supplies?
- C-620/21 Momtrade Ruse – A Bulgarian referral asking whether Article 132(1)(g) of the VAT Directive allows a commercial company registered as a social service provider in one Member State to rely on that provision in order to obtain a tax exemption for the social services which it provides in the territories of other Member States to private individuals who are nationals of those States?
Topics – agent v principal
The High Court has provided its judgment in this case which follows the Supreme Court judgment in Uber BV v Aslam (the case in which the employment status of drivers who provide their services through the Uber app was considered). During this earlier case, Lord Leggatt considered an argument advanced by Uber that it was acting as agent of the drivers. Lord Leggatt suggested, albeit without finally deciding the point, that in order to comply with the provisions of the Private Hire Vehicles (London) Act 1998, Uber would have to accept a contractual obligation to the passenger as a principal to carry out the booking (rather than contending acceptance of a booking constituted a contract between the passenger and the driver to which Uber was not a party).
In response to the Supreme Court judgment, Uber, supported by another ‘ride provider’ Free Now, sought a declaration from the High Court that an operator licensed under the 1998 Act who accepts a booking from a passenger is not required by the Act to enter as principal into a contractual obligation with the passenger to provide the journey in respect of that booking. Judgment on that issue (and on one involving the licensing of Free Now) was given on 6 December 2021. While the case is concerned with the specific provision of the 1998 Act, the decision is significant for the operation of ride-hailing platforms like Uber and also in how much VAT arises.
The High Court has agreed with Lord Leggatt and given a declaration that: “… in order to operate lawfully under the Private Hire Vehicles (London) Act 1998 a licensed operator who accepts a booking from a passenger is required to enter as principal into a contractual obligation with the passenger to provide the journey which is the subject of the booking.”
Both Uber and Free Now acknowledged in the proceedings that at present they do not operate in this way and that they would need to amend the basis on which they provide their services if the Court concluded as it did. Transport for London will also need to reconsider its current practice under which it does not review the contractual terms of an operator when considering a licence application. It has already written to the larger operators to review their contracts to ensure compliance. The ruling directly impacts London but has implications for other UK cities.
Comments: The case is not a VAT case in itself. We are aware that HMRC has issued VAT assessments against Uber on the basis that it provides services to customers (Uber has disclosed this in its accounts). The confirmation by the High Court that in order for Uber to operate lawfully it must be the principal in contracts with passengers may be used by HMRC in its challenge to Uber. Against this, the Court appears to have acknowledged that Uber has not contracted in this way to date. It seems open to Uber to accept it needs to charge VAT on a prospective basis (with of course the likely knock-on increase in costs) but still seek to defend its past position in respect of VAT. Given the High Court judgment focuses on the requirements of the Private Hire Vehicles (London) Act 1998, it may have limited implications for other gig-economy operators outside the private hire sector.
For further information please contact Mitchell Moss.
Topics – Italian Republic claims – repeat claims and whether subject to a Section 85 agreement
The First-tier Tribunal (FTT) has released its decision in this case concerning a decision by HMRC to reject claims made by Cambria Automobiles (South East) Limited and Invicta Motors Limited (appellants) in 2009, for overpaid VAT on the sale of demonstrator motor vehicles sold between 1973 and 1996.
Between 1973 and 1996 the appellants sold ex demonstrator vehicles and accounted for VAT on the profit margin of those vehicles, in line with HMRC’s interpretation of the law at that time. As a result of the CJEU decision in Commission v Italian Republic (C-45/96), HMRC accepted that the sales of ex demonstrator motor vehicles were not subject to VAT and consequently motor dealers could seek to reclaim overpaid output tax pursuant to Section 80 VATA94.
In 2003, the appellants submitted claims under Section 80 (2003 claim), which HMRC rejected. Following an appeal being lodged, a Section 85 VATA94 agreement was entered into in 2006 (Section 85 agreement).
In 2009, the appellants submitted further overpayment claims (2009 claims) under Section 80 in respect of the same period, which HMRC rejected. The appellants argued that the 2003 claims were based on the Italian margin tables which were defective and fundamentally flawed. The authority of the Court of Appeal (John Wilkins) provides for the possibility to bring second or successive overpayment claims under Section 80 provided that those claims have ‘something new to say’. The appellants argued that the 2009 claims do have something new to say when compared to the 2003 claims. The 2009 claims were not covered by the Section 85 agreement which only covered the 2003 claims.
HMRC disagreed and argued that even if John Wilkins is authority in this instance, the 2009 claims do not have anything new to say. Furthermore, the 2009 claims, which are based solely on a different method of calculating the overpayment, are covered by the Section 85 agreement and any overpayment claims for the same period and for the sale of the same cars cannot now be reopened.
The FTT noted that the case of John Wilkins was persuasive, but not binding. The FTT referred to Hayward Gill, and considered it to offer, by parity of reasoning, material support to the appellant’s position regarding whether the claims had ‘anything new to say’. The Tribunal in Hayward Gill had held that on the face of the legislation there was nothing preventing second or successive claims being made under section 80. However, the Court of Appeal in John Wilkins imposed limitations on that right.
The FTT considered that the 2009 claims were not repeat claims which had nothing new to say either factually or legally. In its view they are permissible second claims under section 80. The 2003 claims were based on the methodology set out in HMRC’s Business Briefs. These set out the ‘Italian margin tables’. The 2009 claims were based on different profit margins which are effectively twice that used in the 2003 claims. The 2009 claims said something new and were based on the emergence of a new fact (namely that the profit margin in the Italian tables had been based on figures for the period 1994 to 1996 and not for the entire period 1973 to 1996).
The FTT considered that whilst there should be finality in litigation, in making the 2009 claims HMRC are not being vexed twice in respect of the same matter. Although both the 2003 claims and 2009 claims are in respect of the same vehicles for the same periods, the profit margin figures are different and in asking HMRC to consider these, the FTT did not believe that the appellants are “unjustly harassing HMRC”. The 2009 claims were not repeat claims with nothing new to say and thus liable to be dismissed out of hand as being abusive.
Considering the Section 85 agreement, the FTT noted that this is a deeming provision. Where HMRC and a taxpayer come to an agreement under the terms of which the decision under appeal is to be treated it is in essence deemed to be a determination by the Tribunal of the appeal in accordance with the terms of the agreement. The consequences of entering into that agreement are the same as they would have been had the Tribunal so determined the appeal.
The FTT noted that the 2003 claims, in order to be valid claims, needed to include an amount and an indication of the method used to compute that amount. They clearly did. The Section 85 agreement settled appeals which were brought by the appellants against a challenge by HMRC.
The FTT suggested that a reasonable person, having all the background knowledge which would have been available to the parties, would have understood that the word ‘claim’ in the Section 85 agreement did not bear a highly technical and deconstructed meaning. At the time at which this ‘deal’ was struck the evidence showed that the parties simply wanted to conclude a deal on the best possible terms for each of them. A reasonable person looking at that agreement now, would have understood it to mean all the Italian margin claims which related to the vehicles for the periods. The reasonable person with the background knowledge would not have thought that it was limited to only those claims which had been brought on the basis of the methodology set out in the 2003 claims.
The FTT accepted that the appellants had struck what is, with the benefit of hindsight, a bad deal with HMRC. As things turned out, the profit margins in the Italian tables were inadequate and a number of traders had managed to secure additional repayments. However, none of those traders had been the subject of a Section 85 agreement.
The FTT accepted that VAT which was overpaid between 1973 and 1996 has not been repaid in full. The appellants had relied on the methodology set out in the Italian margin tables which were published by Customs. They had no option but to use the profit margin in those tables. At the time of making the 2003 claims, it was not apparent to them that the basis on which the profit margins had been calculated was limited to the years 1994 to 1996 rather than for the years 1973 to 1996. The appellants did not have the information which would have enabled them to challenge those profit margins.
Dismissing the appeals, whilst sympathetic, the FTT noted that the appellants are commercial organisations of some substance and were professionally represented. They entered a commercial contract with HMRC to settle their Italian margin claims which had been brought by the 2003 claims. There was nothing in the contract itself (namely the Section 85 agreement) nor in any correspondence seen, which suggested that the settlement was dependent upon the methodology used by the appellants in the 2003 claims being ‘correct’. Or that if a different methodology subsequently became either available or accepted by HMRC, a claim based on that methodology would fall outside the ambit of the Section 85 agreement. It was open to the appellants to include such caveats, but they did not do so. It is not for the FTT to rewrite the contract to protect the appellants from any imprudence.
For further information please contact Christopher Rowe.
Topics – Evidence of removal of goods for zero-rating, principles of proportionality and penalties
The First-tier Tribunal (FTT) has released its decision in this case concerning Notices of VAT Assessments and Penalties (assessments) raised by HMRC under Section 73 VATA94 and Schedule 24 Finance Act 2007, on the basis that CPR Commercials Limited (CPR) was not entitled to zero-rate its supplies as it had failed to provide sufficient evidence of the dispatch of goods from the UK.
CPR supplies commercial vehicles to customers within and outside the UK. Following compliance checks in 2014 and 2016, HMRC issued the assessments and during a review period requested evidence to support the assertion that the goods in question had been removed from the UK. Valid evidence was not provided, and the assessments were upheld.
The FTT noted that in relation to the assessments, the burden of proof is on HMRC to show that they were made to best judgement. Thereafter, the burden of proof is on CPR to show that it has satisfied the conditions to zero-rate its supplies and provided documentation to show that the goods were dispatched from the UK. In relation to the penalties, the burden of proof is on HMRC to show that the penalties were correctly calculated and issued. In each case, the standard of proof is the civil standard of the balance of probabilities.
CPR provided two witness statements and a number of documents, including copy purchase and sales invoices, copies of ‘driver declarations’ in respect of vehicles, logs of notifications to the Driver and Vehicle Licensing Agency (DVLA), correspondence from the DVLA showing that vehicles were recorded as having been ‘permanently exported’ and copies of vehicle information obtained from HPI Ltd (an automotive industry vehicle check service).
When a vehicle was sold, CPR would be given a reference number by the purchaser, which was generally the registration number of the relevant vehicle and then the vehicle would be transported to the relevant port on a low loader. All that was required at the port was this reference number. The vehicle was left at the port and CPR stated that the vehicle could not leave the port otherwise than on a ship. The vehicle would then go on the ship on which it was booked. The customer arranged and paid for the shipping in each case and CPR had no further information about the transport arrangements. CPR had asked customers for copies of the ferry tickets but had not received any.
In each case, CPR had a sales invoice showing the EC VAT number for the customers and delivery addresses outside the UK. For each vehicle, once they had been paid, CPR would send DVLA the logbook ‘slip’ which stated that the vehicle had been permanently exported. The vehicle could not then be used on the UK roads. The CPR handwritten notes and the HPI check information obtained showed that the vehicles had been exported either at the time, or very close to the time, of the sale to a country outside the UK.
CPR agreed that it was aware of VAT Notice 725 and the requirement to obtain evidence of removal from the UK. It considered that it had provided clear evidence of the sale and removal of the vehicles and could not understand why the evidence was not considered to be satisfactory by HMRC.
HMRC submitted that it had received none of the documents that were listed in para 5.1 of VAT Notice 725 and had been provided with no evidence that any of the vehicles had been removed from the UK by CPR within three months of the date of supply. The DVLA information relied upon by CPR did not confirm when vehicles had left the UK, nor who had been responsible for their removal. As CPR had been unable to provide these documents, it followed that it had not retained adequate business records to support figures submitted on VAT returns. Para 6, Schedule 11, VATA94 and Regulation 31 of the VAT Regulations require that such records be retained. CPR had therefore failed to comply with this legal requirement.
Dismissing the appeal, the FTT held that export evidence needs to show the destination and mode of transport/route taken to deliver the vehicle. None of the invoices provided in respect of the transactions show the destination of the vehicle, only a correspondence address for the purchaser. The FTT considered that CPR assumed that a non-UK VAT number or correspondence address meant that the vehicle’s destination would be that address but did not obtain any evidence to confirm that assumption. The customer made the arrangements for transport of the vehicle from a port in the UK but provided no documentary evidence to show what this involved. Accordingly, the only documents provided which stated a destination was the driver declarations and the FTT found that the information on these was based on CPR’s assumption, not from information provided by their customers.
Similarly, CPR assumed that delivery of a vehicle to a port meant that it was to be exported from the UK and could not be removed from the port back onto the UK roads. No evidence of the actual mode of transport or route taken was obtained from the customer. No evidence was obtained to confirm where the vehicle had been taken by the customer.
Also, the DVLA information (whether direct or via HPI) shows only that the DVLA were told by CPR that the vehicle had been exported. This information is not evidence of export, it is only evidence that a particular document was sent to the DVLA.
In conclusion, CPR failed to obtain and retain appropriate evidence of export to support zero-rating of the relevant transactions and should, therefore, have charged VAT at the standard rate.
The FTT also found that there had been no breach of the principle of proportionality in this case in requiring evidence of export. The FTT also considered that the penalties had been appropriately calculated.
Topics – spiritual welfare services as part of a retreat – state regulated – VAT exemption
The First-tier Tribunal (FTT) has released its decision in this case concerning whether Mill House Retreats provides spiritual welfare services which are exempt from VAT by virtue of Item 9, Group 7, Schedule 9, VATA94.
Rev Taylor is an active priest in the Church of England, ministering in the Exeter diocese. She conducts service but her primary work is as director of the retreat centre, Mill House Retreats.
Rev Taylor is a ‘self-supporting minister’, which means that she is not in receipt of a stipend from the Church of England. She was previously a paid parish priest. Although she is self-supporting, she remains subject to the same quality of training and supervision as a paid member of the Church of England clergy.
Through the Church of England, Rev Taylor has received training in spiritual direction and her Mill House Retreat activities are supervised by the Church of England. Mill House Retreats provides spiritual welfare through the provision of Christian retreats. As well as ministering to individuals, it also hosts retreats for Church of England organisations. It operates on a non-profit making basis, but it was noted that it is unclear whether it would show a profit from the perspective of UK accounting standards.
Article 132(1) of the VAT Directive provides for exemption for the provision of services associated with the provision of welfare. These provisions have been incorporated into UK law by Item 9 of Group 7, Schedule 9, VATA94 – ‘the supply by (a) a charity, (b) a state regulated private welfare institution or agency, or (c) a public body, of welfare services and of goods supplied in connection with those welfare services. Note (6) to Group 7 provides that ‘welfare services’ includes the provision of spiritual welfare as part of a course of instruction or retreat and Note (8) defines ‘state regulated’.
Rev Taylor acknowledged that Mill House Retreats is neither a registered charity nor a public body. However, she submits that Mill House Retreats is state-regulated for the purposes of the exemption in Group 7, or alternatively, if it is not state-regulated, it is entitled to exemption from VAT on grounds of fiscal neutrality. She asserts that the provision of retreats is regulated by the Church of England. Further, as the Church of England is an established church, it forms part of the state. She submits, therefore, that Mill House Retreats is state regulated. Alternatively, as she is providing spiritual welfare of the kind also provided by charities and state-regulated entities, it breaches the principles of fiscal neutrality that Mill House Retreats’ services are not exempt.
The FTT noted that it was not disputed that the provision of spiritual welfare by Mill House Retreats is of the kind described in Note (6) to Group 7 and it is neither a registered charity, nor a public body. The principal issue before the FTT is whether it is ‘state regulated’ within the meaning of Note (8).
The FTT considered that Mill House Retreats is regulated by the state. It is subject to the oversight of the Church of England and as an established church, the Church of England is an emanation of the state. Measures made by the General Synod of the Church of England take effect as primary legislation of the UK, and Rev Taylor and Mill House Retreats are regulated pursuant to Church of England Measures.
However, the FTT noted that the requirement of Note (8) is that the entity providing the services is ‘state-regulated’, not that it is regulated by the state – and the distinction is critical. ‘State-regulated’ is a defined term and Note (8) requires that the regulation be by a ‘Minister or other authority pursuant to a provision of a public general Act’ which is further defined to be an Act of Parliament or an Act of one of the devolved legislatures (or certain other kinds of legislation not relevant in the immediate case).
Note (8) refers specifically to ‘public general Acts’, rather than primary legislation in general. Although Rev Taylor and Mill House Retreats may be subject to regulation pursuant to a provision of primary legislation of the UK (namely a Measure of the Church of England, or some other provision of canon law), Note (8) requires that the primary legislation takes the form of a public general Act, Church of England legislation are not public general Acts.
Also, the FTT considered that the reference to ‘Minister’ in Note (8) is to a Government Minister (including a minister in one of the devolved administrations), and not to a minister of the Church of England or of any other denomination or religion.
Dismissing the appeal, the FTT concluded that Mill House Retreats and Rev Taylor are not ‘state-regulated’ for the purposes of Item 9, its activities are not exempt from VAT.
The FTT also dismissed the arguments regarding fiscal neutrality but did suggest that Rev Taylor could consider specialist legal advice regarding the possibility of registering Mill House Retreats as a charity, a position acknowledged as complicated by the fact that the building is also her home.
These Regulations replace regulations in the Customs and Excise Border Procedures (Miscellaneous Amendments) (EU Exit) Regulations 2021 (SI 2021/830) after the Select Committee on Statutory Instruments identified errors in that instrument. Those regulations provide for full customs controls at all border locations from 1 January 2022 and help facilitate the movement of goods.
In addition, they make changes which provide for penalties for failure to comply with regulations where checks on imported goods need to be done inland and for failure to comply with instructions given by an HMRC officer.
Please also refer to:
- Update – Customs, VAT and Excise UK transition legislation from 1 January 2021
- Guidance – Draft notices under the Customs and Excise Border Procedures (Miscellaneous Amendments) (EU Exit) (No.2) Regulations 2021
- Policy Paper – The Customs and Excise Border Procedures (Miscellaneous Amendments) (EU Exit) (No.2) Regulations 2021
For further information please contact Gerard Koevoets.
HMRC has reminded businesses to prepare for customs changes that come into effect on 1 January 2022. Please refer to the News Story for further details regarding:
- Customs declarations
- Border controls
- Rules of origin – for imports and exports
- Postponed VAT Accounting
- Commodity codes
- Further changes from 1 July 2022
This Guidance explains what you will need to register for Plastic Packaging Tax. It has been updated to advise that the requirement to include a statement with your invoice to show that Plastic Packaging Tax has been paid, which was due to commence in April 2022, will be delayed.
As part of its 2025 Border Strategy, the Government has committed £180 million to build a UK ‘Single Trade Window’ and has now published a discussion paper which explains that at its core, a Single Trade Window aims to simplify process.
Currently there are multiple Government systems which are involved in moving goods across the UK border. Traders and intermediaries submit data to each system as required, with some of this data being duplicative. A UK Single Trade Window will provide a single data portal into which traders and intermediaries can submit data to Government once. Its delivery will also take account of areas of devolved competence.
The Government suggests that through centralising data entry into one point, traders and intermediaries would see reduced administrative burdens. This will also allow for better data sharing amongst Government agencies. Ultimately the UK Single Trade Window aims to reduce costs of importing and exporting goods for businesses.
Many customs administrations such as Singapore, Sweden, the USA and New Zealand already have a Single Trade Window in place, with more in development worldwide, including the EU.
There are a number of design choices to shape what services the UK Single Trade Window will offer, and the Government is seeking stakeholder views to help inform early design work. It is looking to explore four key areas:
- Approaches to data collection, and usage. It wants to improve how border data is submitted through new data collection options in the Single Trade Window in the short term
- The potential scope for self-declaration of border data directly into the UK Single Trade Window. It is exploring the scope for allowing traders and intermediaries to give border data directly to the Government
- How the UK Single Trade Window should work with existing port and commercial systems, including Community System Providers (CSPs)
- The further opportunities and considerations for data in the longer term, including use of supply chain data and interoperability
For each of these areas, the discussion paper sets out a number of questions which the Government is seeking stakeholder views on. It will discuss this with a broad range of interested stakeholders during the consultation period until early Spring 2022. There will be further consultation and opportunities for stakeholder input as development continues.
For further information please contact Gerard Koevoets.
HMRC has announced that it will run a trial of reducing the hours on some of its telephony services so that it can dedicate the time to work on post that has built up over the past year.
To test the approach, it will close its VAT and CT phone lines (with the exception of the bereavement line) on 3,10 and 17 December.
HMRC has said that by April, it expects to be delivering normal (pre-pandemic) performance on core service lines – in terms of the work it has on hand, turnaround times and the running of real-time channels.
Towards the end of December, it will take a view on what to do next and provide an update in the first week of January.
This Notice explains how to claim a VAT refund in the UK if you are established outside the UK, or how to claim back EU VAT if you are established in the UK or Isle of Man. It has been updated as the Secure Data Exchange Service system (SDES) trial ended on 30 November 2021, the information on electronic submission of VAT refund claims using SDES has now been removed.
This Guidance explains how to make an import or export declaration for human organs, blood, blood products, tissues and cells needed for emergency transplant or transfusion. It has been updated to clarify:
- You can make a declaration by conduct if it's for an emergency medical procedure and the journey cannot be planned to include time to make a full import or full export declaration
- How to declare substances of human origin imported into, or exported from, GB
- How to declare substances of human origin imported into, or exported from, Northern Ireland
This Guidance explains how to charge and collect excise duty on fuel used in private pleasure craft and fuel used for private pleasure flying. The postal address to send payment returns to, in section 6.1, has been updated.
EY Global Tax Alerts
India – The Government has issued a Press Release stating that India and the US have agreed on a transitional approach to the treatment of the current Indian e-commerce Equalization Levy (EL) during the interim period before the OECD BEPS new Pillar One rules come into effect.
The transitional treatment includes the continuation of the 2% EL charge by India, subject to a partial future credit to the multinational enterprise (MNE) against that MNE’s future “Pillar One Amount A” tax liability. The US Government, in turn, has agreed to terminate its proposed trade actions against India with respect to the current 2% EL.
Our Alert summarises the development and implications for non-resident taxpayers.
Council of the European Union
The Council of the European Union has published a draft Ecofin report (Report) to the European Council on tax issues for approval with a view to its transmission to the European Council (16-17 December 2021).
The Report provides an overview of the progress achieved in the Council during the term of the Slovenian Presidency, as well as an overview of the state of play of the most important dossiers under negotiations in the area of taxation.
It is reported that despite the hindrances caused by the COVID-19 pandemic, the Slovenian Presidency continued the discussions on key files, including:
- Addressing challenges arising from the digitalisation of the economy
- The future of VAT rates
- The revision of the 1997 Code of Conduct (Business Taxation)
- Updates to the EU list of non-cooperative jurisdictions for tax purposes
- In the framework of the European Green Deal, started the work on the revision of the Energy Taxation Directive (ETD)
With regards to VAT:
- In 2016, the Council adopted two sets of conclusions: in May 2016 the Council responded to the Commission VAT Action Plan – Towards a Single EU VAT area, of 7 April 2016, and in November 2016 the Council expressed its views on improvements to the current EU VAT rules for cross-border transactions
- Following up on its VAT Action Plan, the Commission proposed a significant number of legislative proposals in the field of VAT. As a whole, those proposals aim at modernising the VAT system to adapt it to the digital economy and the needs of SMEs, to tackle the VAT gap and improve administrative cooperation in the area of VAT
- Building on the progress during the previous Presidency terms, the Slovenian Presidency continued work on the legislative files in the area of VAT:
Definitive VAT system:
Following up on its VAT Action Plan – Towards a single EU VAT Area of 7 April 2016, the Commission chose a two-step legislative approach for the definitive VAT system, and the file was discussed under the Romanian, the Finnish, the Croatian and the German presidencies.
Member States agree that this dossier still requires thorough technical analysis before the final policy choices are made. As already indicated by the Council, the best way forward is to continue focusing on the key elements of the Commission proposal and the analysis of options of accompanying measures. Further work on the definitive VAT system should continue while not preventing or slowing down efforts to improve the current VAT system.
VAT rates reform:
On 18 January 2018, the Commission issued a proposal for a Directive amending the VAT Directive as regards VAT rates. The objective of this legislative proposal is to introduce the rules on setting of VAT rates across the EU, with effect from the entry into force of definitive arrangements for the taxation of trade between Member States.
The Commission proposed to:
- Amend the EU rules on setting of reduced VAT rates
- Grant Member States more freedom in their setting of rates
- Introduce a "negative list" of goods and services on which application of reduced rates is not permissible
Following input from various Member States and technical work, the Presidency is to submit a compromise text to the Ecofin Council on 7 December 2021, with a view to reaching a general approach on the proposal (available here).
On 18 December 2020, the Commission submitted a Proposal for a Council Directive amending the VAT Directive as regards conferral of implementing powers to the Commission to determine the meaning of the terms used in certain provisions of that Directive. The objective of the proposal is to provide a more uniform application of the EU VAT legislation. To achieve this, the Commission proposed to establish a comitology committee which would assist the Commission in the adoption of binding implementing measures by qualified majority voting. In the Commission´s view, this would make decision-making more efficient and save the CJEU from having to solve interpretation questions so frequently.
Although in general Member States could support the overall objective of the proposal, many delegations expressed their reservations, especially as regards the shifting of power from the Council to the Commission and moving towards qualified majority voting.
VAT “buy and donate”:
On 12 April 2021, the Commission transmitted to the Council a proposal for a Council Directive amending the VAT Directive as regards exemptions on importations and on certain supplies, in respect of Union measures in the public interest. The aim of the proposal is to provide for an exemption from VAT for the Commission and other EU agencies when they buy goods and services to be distributed to the Member States free of charge.
Following concerns raised and guidance of the Member States at the Ecofin Council on 18 June 2021, the Portuguese Presidency prepared a compromise text with a reduced scope and submitted it to an informal silence procedure that ended on 26 June 2021 without comments from the Member States. After the approval by the Committee of Permanent Representatives on 30 June 2021, the text was adopted by the Ecofin Council under the Slovenian presidency on 13 July and published in the Official Journal on 15 July 2021.
The Council of the European Union has published a proposal for a Council Implementing Decision following a request from the republic of Latvia for authorisation to continue to apply a measure derogating from Article 193 of the VAT Directive, which determines the person liable for the payment of VAT. Latvia has requested to continue to apply the reverse charge mechanism to timber transactions until 31 December 2024.
The Council of the European Union has published a proposal for a Council Implementing Decision following a request from France to derogate from Articles 218, 178 and 232 of the VAT Directive to be able to impose mandatory electronic invoicing to all taxable persons established in the territory of France.
It is proposed to authorise the derogation as from 1 January 2024 until 31 December 2026.
EU Member States lost an estimated €134 billion in VAT in 2019, according to a Report released by the European Commission. This figure represents revenues lost to VAT fraud and evasion, VAT avoidance and optimisation practices, bankruptcies and financial insolvencies, as well as miscalculations and administrative errors.
The Report suggests that while some revenue losses are impossible to avoid, decisive action and targeted policy responses could make a real difference, particularly when it comes to non-compliance.
Lost VAT revenues have an extremely negative impact on government spending in public goods and services, such as schools, hospitals and transport. The Report opines that missing VAT could also prove beneficial as Member States strive to cover debt incurred during the initial recovery from the COVID-19 pandemic or raise their climate financing ambitions.
It is reported that following continued efforts to improve the situation both at EU and national level, the relative positive trend continued in 2019 with the overall VAT Gap in EU Member States decreasing by around €7 billion compared to the previous year. Moreover, the European Commission has supported Member States in working better together in the ‘Eurofisc' network, comprised of national officials from the 27 Member States and Norway. Since 2019, members of the network actively use the Transaction Network Analysis (TNA) tool financed by the EU to rapidly exchange and jointly process VAT data, allowing them to automatically detect cross-border VAT fraud at a much earlier stage. In 2022, the Commission will also launch legislative proposals to further modernise the VAT system, including the reinforcement of Eurofisc.
In nominal terms, the overall EU VAT Gap decreased by almost €6.6 billion to €134 billion in 2019, a marked improvement on the previous year's decrease of €4.6 billion. Though the overall VAT Gap has been improving between 2015 and 2019, the full extent of the COVID-19 pandemic on consumer demand and therefore VAT revenues in 2020 remains unknown.
In 2019, Romania recorded the highest national VAT compliance gap with 34.9% of VAT revenues going missing in 2019, followed by Greece (25.8%) and Malta (23.5%). The smallest gaps were observed in Croatia (1.0%), Sweden (1.4%), and Cyprus (2.7%). In absolute terms, the highest VAT compliance gaps were recorded in Italy (€30.1 billion) and Germany (€23.4 billion).
In most Member States, the absolute year-over-year change in the VAT Gap was lower than 2 percentage points. Overall, the VAT Gap share decreased in 18 Member States. In addition to Croatia and Cyprus, the most significant decreases in the VAT Gap occurred in Greece, Lithuania, Bulgaria and Slovakia (between –3.2 and -2.2 percentage points in these four countries). Sweden, Finland and Estonia were successful from a different perspective: in these countries, fiscal authorities have for years succeeded in limiting the loss in VAT revenues to less than 5% of the VAT due. The biggest increases in the VAT Gap were observed in Malta (+5.4 percentage points), in Slovenia (+3 percentage points) and in Romania (+2.3 percentage points).
For further information please refer to:
The European Commission has announced the launch of a new Customs Risk Management System (CRMS2) to reinforce the EU's customs controls and protect EU citizens and businesses, as well as the EU's financial interests. The new CRMS2 will officially start operating on 1 January 2022.
The CRMS2 facilitates the real-time exchange of risk-related information between customs administrations. This covers a broad range of possible risks, such as security risks related to explosives, safety risks related to health, the environment or product safety, financial and commercial risks including intellectual property rights and cash controls.
Please refer to the Customs Risk Management Framework for further details.
For further information please contact Gerard Koevoets.