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Weekly VAT News

EY VAT News – week to 18 January 2021

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

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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.


  • Download EY's Brexit mobile app

    Monitoring Brexit developments is challenging – information comes from multiple sources and changes constantly. The EY Brexit App will help you access Government notices, regulatory updates and guidance, as well as keeping you up to date with key developments. Use the app to access:

    • The latest UK Government and EU guidance
    • Direct links to the Brexit webpages of key UK trade bodies
    • News updates from EY on significant Brexit developments
    • The latest thinking from EY's Brexit teams on actions for business

    The free app is a resource tool rather than a diagnostic or question bank and is available on Android and iOS. From your phone, open the App Store or Google Play, search for ‘EY Brexit’ and install.

  • UK Government reinstates VAT margin scheme for Northern Irish used car dealers

    The UK Government has confirmed that it is reinstating the VAT margin scheme for cars imported and resold by car retailers in Northern Ireland.

    The Chancellor of the Dutchy of Lancaster, the Rt Hon Michael Gove said: “I know that a number of Members have been deeply concerned about the operation of additional VAT costs on second-hand vehicles being sold in Northern Ireland. I can confirm today that Her Majesty's Treasury and HMRC will reinstate a margin scheme in order to ensure that Northern Ireland customers need pay no more than those in any other part of the United Kingdom.”

    If the current rules had been left unamended, as part of the Northern Ireland Protocol, motor traders in NI would have been unable to access VAT margin schemes for used vehicles they sell which are sourced from GB.

    HMRC has also published Guidance – Sales of second-hand motor vehicles in Northern Ireland and The Margin Scheme on second-hand cars and other vehicles (VAT Notice 718/1) which has been updated at paragraphs 2.4 and 2.8 to clarify the use of the scheme between GB and Northern Ireland.

    Northern Ireland dealers may have bought a used motor vehicle in GB after the end of the transition period and sold it in Northern Ireland with VAT charged at the full selling price. The Guidance confirms that the vehicle would be eligible for the margin scheme, so the value can be adjusted where the additional VAT has been paid back to the customer.

    For further information please contact Chris Rowe.

  • The UK's Integrated Tariff Schedule

    This Policy Paper concerns the UK's Integrated Tariff Schedule, setting out the rules for the classification of goods and the approach for determining the tariff applicable to those goods.

    The UK's integrated tariff is based on the UK's Most Favoured Nation (MFN) tariff schedule called the UK Global Tariff (UKGT), which the Government announced in May 2020.

    In line with the World Trade Organization MFN principle, UKGT tariff rates apply to all trading partners the UK has no alternative agreements with, such as:

    • Free Trade Agreements
    • Regional Trading Arrangements
    • Preferential access schemes (such as the Generalised Scheme of Preferences for developing countries)

    As well as the UKGT, the UK's Integrated Tariff Schedule includes:

    • Suspensions
    • Reliefs
    • Tariff rate quotas
    • Trade remedy measures
    • Preferential tariffs
    • Rules of origin for FTAs
    • Preferential access schemes
  • Update – Notice 143: a guide for international post users

    This Guidance explains what happens when you import or export goods by post using Royal Mail or Parcelforce Worldwide. The information about sending a package abroad has been updated, as you now need to complete a customs declaration for packages sent to a country within the EU. Information has also been added on the increase in the level for which a formal customs declaration is required from 1 January 2021.

  • Update – Using CHIEF for declaring goods into or out of Northern Ireland

    This Guidance explains when you will still be able to use the Customs Handling of Import and Export Freight (CHIEF) system for declaring goods into or out of Northern Ireland. It has been updated with information about when HMRC will tell users they must stop using CHIEF.

  • Update – Planning your route before moving goods using transit

    This Guidance explains that you need to know what route your goods will be taking so that you can make your transit declaration and so that your haulier or carrier has the information that they need to move your goods compliantly. It has been updated with information about the office of departure process in Northern Ireland for movements starting in GB and for movements starting in Northern Ireland from 1 January 2021. Also, a call to action box has been added for users to check the UK locations of Common Transit UK offices.

  • Update – Changes to accounting for VAT for Northern Ireland and Great Britain from 1 January 2021 – 'VAT on goods sold from GB, transported via Northern Ireland, to an EU Member State'

    This Guidance provides information about when you can, or need to, account for VAT on your VAT return if you are a UK VAT-registered business. It has been updated with new guidance under 'VAT on goods sold from GB, transported via Northern Ireland, to an EU Member State'.

    This refers to goods transported via Northern Ireland to an EU Member State, for example the Republic of Ireland. For these movements, the VAT treatment will depend on the specific circumstances or arrangements agreed between the seller and customer. Broadly, it will depend upon where the goods are situated at the point at which the transfer of rights to the goods takes place.

    If goods are located in GB at the point of sale:

    • Where goods are sold from a UK seller to an EU customer, and the goods are subsequently sent by the seller from GB, via Northern Ireland, to the customer, the process will be similar to accounting for a direct movement from GB to Northern Ireland. The seller should zero-rate the goods on export to the EU, but also will be liable to account for the import VAT on the movement.
    • The UK seller should include the import VAT in the price it charges to the EU customer, to ensure it is paid by the customer. The import VAT charged will then be accounted for as output VAT on the UK VAT return by the seller.
    • Having paid the import VAT to the seller, the EU business may recover it using the EU VAT refund system, unless they have a UK VAT registration. In this case, it may be recovered on their UK VAT return. The UK seller will not be able to claim this back as input VAT as it will have been paid to them by the customer rather than incurred by their business.
    • There will be an exception to this rule where goods are declared into a special customs procedure or Onward Supply procedure when they enter Northern Ireland or before arriving at the first EU Member State. Where goods are declared into an Onward Supply procedure, import VAT on the goods as they enter Northern Ireland will be relieved, and the EU customer should account for the acquisition VAT. Where the goods are moved from GB to the EU under a special customs procedure, including Transit, import VAT will be due where and when those goods leave the customs procedure and are declared to free circulation. The importer will at that point be liable to account for the VAT in the EU Member State in which this takes place.

    If goods are located in Northern Ireland at the point of sale:

    • Where the UK seller moves goods from GB to Northern Ireland, then supplies those goods to an EU customer after that point, this is to be treated as two distinct movements.
    • The first will be treated as a movement of own goods from GB to Northern Ireland, and will follow the process for Businesses moving their own goods from GB to Northern Ireland. The second movement will be an intra-Community sale, and will follow rules on acquisitions and dispatches, or distance sales where the customer is not VAT-registered.

    For further information please contact David Reaney.

  • Update – How to import and export goods between Great Britain and the EU

    This Guidance provides information for traders on importing and exporting goods between GB and the EU. 'How to import goods into GB from EU countries' and 'How to export goods from GB into EU countries' have been updated following the end of the Brexit transition period on 31 December 2020.

  • Update – VAT Notice 48: Extra Statutory Concessions

    This Notice explains all of HMRC's Extra Statutory Concessions (ESCs) in force at the time of publication.

    In certain circumstances where remission or repayment of revenue is not provided for by law, HMRC may allow relief on an extra-statutory basis. ESCs are remissions of revenue that allow relief in specific sets of circumstances to all businesses falling within the relevant conditions. They are authorised when strict application of the law would create a disadvantage, or the effect would not be the one intended.

    The Notice has been updated with the removal of the following with effect from 1 January 2021:

    • 2.6 VAT: supplies to diplomatic missions, international organisations, NATO forces etc in other European Community (EC) countries
    • 9.1 VAT on goods supplied at duty-free and tax-free shops
  • Update – Moving qualifying goods from Northern Ireland to the rest of the UK/Making an indirect export from Northern Ireland

    This Guidance explains how to find out which goods qualify for unfettered access when moving from Northern Ireland to the rest of the UK. It has been updated with information about what to do for goods that started their journey in the EU and were declared for export in an EU country.

    Please also refer to Making an indirect export from Northern Ireland which explains what to do when goods which were declared for export in an EU country leave Northern Ireland, for either GB or another non-EU country.

  • Update – Excise Notice 204b: commercial importers and tax representatives – UK and EU trade in duty paid excise goods

    This Notice explains the UK's requirements for the commercial importation of excise goods already released for consumption in an EU Member State. It provides guidance on the standard scheme for importing such goods as an Unregistered Commercial Importer, as well as the Registered Commercial Importer and Tax Representative schemes.

    It is for the period up to 1 January 2021. Now that the Brexit transition period has ended HMRC has published new guidance from 1 January 2021 and a link to the new guidance has been added to this page.

  • Update – How to report EU sales made on or before 31 December 2020 for VAT

    This Guidance explains how to report supplies of goods and services to VAT-registered customers in an EU country using an EC Sales List. It has been updated with a change to the date in the 'Overview' section – this now refers to EC Sales Lists for sales made on or before 31 December 2020.

    For the export of goods from GB or the supply of services from GB and Northern Ireland made to EU businesses on or after 1 January 2021, businesses will not need to submit EC Sales Lists.

    Businesses will have until 21 January 2021 to submit EC Sales Lists for sales made on or before 31 December 2020. They will still need to submit EC Sales Lists if they sell goods from Northern Ireland to EU VAT-registered customers.

  • Update – Check if Authorised Economic Operator status could benefit you

    Authorised Economic Operator (AEO) status is an internationally recognised quality mark that shows your business's role in the international supply chain is secure and has customs control procedures that meet AEO standards and criteria. This Guidance explains what types of status you could apply for and the benefits of these. It has been updated with the addition of China and the USA to the list of AEO Mutual Recognition Agreements (MRAs) that the UK has negotiated.

  • Update – Bringing commercial goods into Great Britain in your baggage

    This Guidance explains what you need to do when importing commercial goods into GB in your accompanied baggage or small vehicle.  It has been updated with new guidance for declaring goods – 'Making a simple online declaration'.

  • Update – Excise Notice 39: spirits production in the UK

    This Notice explains what spirit manufacturers need to do to comply with HMRC. It has been updated due to the end of the Brexit transition period and cancels and replaces Notice 39 (March 2020).

    Changes have been made in the following sections: ‘Distiller's warehouse: providing a financial guarantee’ – Section 10.4; and ‘UK spirit drinks with a geographical indication (GI) protection’ – Section 12.

  • Update – Excise Notice 47: duty free spirits – use in manufacture or for medical or scientific purposes

    This Notice covers duty free spirits for use in manufacture or for medical or scientific purposes. It cancels and replaces Notice 47 duty free spirits (March 2020) and has been updated to explain the changes which have resulted from the UK leaving the EU. Please refer to, inter alia, 6.2 ‘The supply of duty-free spirits – Northern Ireland’.

  • Update – Excise Notice 69a: aircraft and ship stores

    This Notice explains HMRC's policy on aircraft and ship stores following the Excise Goods (Aircraft and Ship's Stores) Regulation 2015. It has been updated due to the end of the Brexit transition period and cancels and replaces Notice 69a (Oct 2017).

    The changes include:

    • Extending the ability to load excise goods as duty-free stores for ‘take away’ sales to all flights and voyages departing from GB to the EU
    • Allowing duty-free excise goods to be loaded as stores, for both consumption on board and retail takeaway, on trains travelling on an entitled journey
    • Amending references to the Registered Mobile Operator regime, which will only apply in relation to Northern Ireland, including any references to the supporting Excise Goods (Sale on Board Ships and Aircraft) Regulations 1999
    • Removal of unnecessary references to third countries, EU or EU legislation

    It has also been revised to make it clear that the guidance in this notice only relates to excise goods (excluding fuel), not to any other goods that may be loaded as stores.

  • Update – Excise Notice 179a: Aviation turbine fuel

    This Notice explains the rules for the supply and use of aviation turbine fuels (Avtur) and has been updated due to the end of the Brexit transition period. Please refer to, inter alia, 2.3 ‘Where Avtur can be delivered’.

  • Update – Carry out international road haulage

    This Guidance explains what UK goods vehicle operators need to do to carry out international road haulage. It has been updated with a new section called ‘Make sure you’re ready to import and export’ and information has been added to the ‘Customs and document checks away from ports’ section about telling HMRC you will be attending an inland border facility.

    Please also refer to Attending an inland border facility.

    For further information regarding Brexit please contact Andy Bradford (VAT) or Charlotte Prescott (Global Trade).


  • EY Tax COVID-19 Stimulus Tracker – Stay up to date with COVID-19 stimulus responses

    Governments around the world are acting decisively to protect businesses and people from economic disruption being caused by the COVID-19 virus. Whether through tax cuts, investment incentives or changes to filing deadlines, tax systems will play a significant part in helping alleviate the financial and economic turmoil that is now occurring.

    Policy changes across the globe are being proposed and implemented daily. The EY Tax COVID-19 Stimulus Tracker provides a snapshot of the stimulus measures that have been announced in countries around the world in response to the ongoing crisis, including indirect tax developments. It will be updated every 48 hours so do please check for the latest update.

    (While this document is updated on a regular basis, it has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice)

Court of Justice of the European Union

  • Opinion: Joint and several liability of a taxable person for a VAT debt does not extend to default interest

    C-4/20 Alti

    On 14 January 2021 the Court of Justice of the European Union (CJEU) delivered the opinion of Advocate General Kokott (AG) in this Bulgarian referral asking whether Article 205 of the VAT Directive and the principle of proportionality are to be interpreted as meaning that the joint and several liability of a taxable person for a VAT debt, being the recipient of a taxable supply where the supplier has failed to account for VAT, extends to the obligation to pay default interest?

    In 2014, Alti, a Bulgarian company, purchased various agricultural machinery from Fotomag (also a Bulgarian company). Fotomag issued VAT invoices for the purchased items and Alti transferred funds to Fotomag's bank account and exercised the right of VAT deduction.

    According to invoices, Fotomag acquired the machinery from a UK supplier. Following a tax audit, it was established that Fotomag had declared the VAT on the intra-community acquisitions, but it had largely not been paid. Fotomag was held liable, by a tax assessment notice, for the remaining tax debt together with default interest.

    A tax audit was also ordered in respect of Alti, and by an assessment notice in 2018 it was held to be jointly and severally liable for Fotomag's debt. Under domestic legislation, it was liable for VAT that had been shown by Fotomag in the invoices but had not been paid. In addition to the tax liability, the liability notice also covered the default interest owed by Fotomag as from April 2014.

    Alti unsuccessfully raised an objection to the liability notice, and its appeal to the Administrative Court was dismissed. An appeal was lodged to the Supreme Administrative Court, Alti challenging whether it knew or should have known that Fotomag would not pay the VAT. It also asserted that it cannot owe default interest for the period between Fotomag's VAT liability becoming due and the liability notice being issued. Because it does not owe any original VAT on the supply, it had not breached any duty to pay that VAT within the period prescribed.

    The AG noted that the Court had essentially been asked to consider:

    • Does the liability of a third party, allowed by Article 205 of the VAT Directive, cover only the liability for tax or does it also include a liability for default interest owed by the person liable for payment of the VAT?
    • Does Article 205 preclude domestic legislation which expands the extent of the liability to include default interest owed by the person liable for payment of the VAT?

    On the first point, the AG considered that Article 205 empowers Member States, in the situations referred to in Articles 193 to 200 and Articles 202, 203 and 204, to provide that a person other than the person liable for payment of VAT is to be held jointly and severally liable for payment of the VAT. It does not transfer the tax liability to another person, as is the case with Article 196 for example; it provides for a further person who is liable to pay the tax, in addition to the taxable person. This payment obligation is joint and several but is derived from an existing tax liability of another person. It thus effectively establishes the liability of a third party for tax owed by another person (secondary liability).

    Article 205 permits such secondary liability only in certain situations, including those referred to in Article 193 which concerns the tax liability of the supplier in the case of a purely domestic supply, as in the present case. However, in the exercise of the powers conferred on them by EU directives, Member States must respect the general principles of law that form part of the EU legal order, which include the principles of legal certainty and proportionality.

    The AG noted that the very wording of Article 205 suggests that the liability of the third party is limited to the tax. Member States are empowered only to provide that a third party is ‘to be held jointly and severally liable for payment of VAT’. It does not follow that the third party is also jointly and severally liable for further ancillary supplies that may arise (such as interest, charges for late payment, fines etc.).

    Also, Article 205 refers to ‘joint and several’ liability for payment; the debt referred to is the tax debt. The AG considered that this applies from a schematic point of view and follows the spirit and purpose of the provision. Article 205 allows Member States to hold a third party jointly and severally liable for the tax debt, this is intended to safeguard tax revenue. However, the tax revenue to which the tax creditor is entitled is the tax debt arising from the transaction. Ancillary supplies, on the other hand, are not included in the tax revenue.

    Default interest owed by the third party does not constitute tax revenue but is merely an individual lever (or penalty) in tax law to prompt the defaulting person liable for payment of VAT to make payment in good time. It does not represent tax revenue due to the State. Consequently, joint and several liability for such default interest would not make sense from the point of view of safeguarding tax revenue.

    In conclusion, on this point, the AG opined that Article 205 allows Member States only to prescribe the liability of a third party for the tax debt owed by the taxable person, but not a liability for default interest on the part of the defaulting person. Default interest may, however, be imposed on a defaulting person with secondary liability under the second paragraph of Article 207, although this did not occur in the present case.

    The AG went on to note that even though Article 205 restricts the possibilities for Member States to provide that another person is liable for payment of VAT, this does not necessarily mean that it precludes further measures being introduced by the Member States in their domestic law.

    The AG considered that in the absence of harmonisation of EU legislation, Member States remain empowered to choose the sanctions which seem to them to be appropriate. However, the AG opined that the extension under Article 205 of a liability to a third party does not extend to penalties.

    In conclusion, on this point, the AG opined that because EU law limits the extent of joint and several liability in VAT law to the tax debt, Article 205 precludes an extension of that liability (in this instance to default interest owed by the supplier) by domestic law.

    The AG went onto consider whether extending the liability to default interest might be conceivable in instances of combatting VAT fraud. The AG opined that extended liability on the part of the recipient of the supply for third-party default interest might be conceivable to prevent evasion under Article 205, in conjunction with the first paragraph of Article 273. However, in the present case, in the absence of fraud, this is not at issue. According to the description of the circumstances by the referring court, there is no VAT fraud in this case. It is therefore immaterial that the applicant knew or should have known that the correctly declared VAT was not paid in good time or in full. Liability for default interest owed by a third party under Article 205 in conjunction with the first paragraph of Article 273 of the VAT Directive is thus also ruled out.

    In summary, the AG opined that Article 205 is to be interpreted as precluding the inclusion of default interest, which is owed by the person liable for payment of VAT by reason of late payment of VAT, in the secondary liability of a third party.

    Comments: We await to see whether the CJEU follows the AG's opinion, in the meantime any businesses assessed to default interest or other penalties in similar circumstance should consider whether this opinion presents an opportunity to revisit the decision.

  • Opinion: Services provided by a lawyer under an adult protection scheme can, in principle, qualify for exemption

    C-846/19 Administration de l'Enregistrement, des Domaines and de la TVA

    This case is not available in English

    On 14 January 2021 the Court of Justice of the European Union (CJEU) delivered the opinion of Advocate General Pitruzzella (AG) in this Luxembourg referral asking whether services provided by a lawyer under an adult protection scheme are subject to VAT?

    EQ is a lawyer registered with the Luxembourg Bar and is an agent under the protection schemes for adults (mainly as a curator and as a guardianship manager) (Protection Scheme). EQ holds a mandate under the regulations for the protection of legally incapacitated adults. The mandates are issued by a Court for Administration and Guardianship Matters.

    In the period to 2013, the tax authorities considered that EQ's activities were not subject to VAT. However, in 2018, the tax authorities raised tax notices for 2014 and 2015, requesting payment of VAT for services provided under the Protection Scheme.

    EQ challenged the notices, asserting that its supplies under the Protection Scheme failed to meet the test of an economic activity as they fulfil a social function. Also, if considered to be an economic activity, they would be exempt from VAT under the national provision transposing Article 132(1)(g) of the VAT Directive as services closely related to social security and social assistance carried out by bodies whose social character is recognised by the competent public authorities.

    EQ further argued that from 2004 to 2013, these activities were not subject to VAT, so it would be contrary to the principle of legitimate expectation to subject them to VAT for the years 2014 and 2015.

    The referring Court has doubts regarding the legal relationship under which the services are provided, since the protection regime for adults is characterised by a ‘triangular relationship’ between the service provider, the recipient of the services and the judicial authority which has entrusted the service provider with management tasks. It also questions the application of the VAT exemption in these circumstances.

    The AG noted that the Court had essentially been asked to consider whether the activities carried out by a lawyer, as an agent, curator and guardian for ‘incapacitated’ adults, are subject to or exempt from VAT. The questions referred can be grouped as:

    1. The concept of economic activity within the meaning of the combined provisions of Article 9(1) and Article 2 (1)(c), of the VAT Directive
    2. The scope of the exemption under Article 132(1)(g) of the VAT Directive, in particular whether these activities are exempt as ‘services closely related to social assistance and security’ and whether a lawyer practicing them can be considered ‘a body recognised as having a social character by the Member State concerned’ within the meaning of that provision
    3. Whether the principle of protection of legitimate expectation prevents these activities from being subject to VAT when the tax authorities have previously accepted that they were not

    The AG noted that as requested by the Court he would focus on the questions grouped under 2 above. The economic nature of the benefits, according to the criteria set out in Article 9(1) therefore being presumed.

    The AG also noted that interest in this case has wider scope as the CJEU is currently dealing with another similar request from Austria in C-1/20, a single preliminary issue that largely coincides with the Group 2 issues above. The AG noted that several elements emerge from the application for this preliminary decision from the Austrian court, which may also be useful in answering questions in these proceedings.

    The AG considered that VAT exemption under Article 132(1)(g) requires the services to be ‘closely linked to social assistance and security’ and ‘carried out by public law bodies or other bodies recognised as having a social character’ by the Member State concerned.

    As exemptions are a departure from the general principle that VAT must be levied on a supply for consideration, they must be interpreted strictly. However, this strict interpretation cannot go so far to make it excessively difficult to apply the exemption.

    Considering the condition that the services must be ‘closely linked to social assistance and security’, the AG noted that although not defined by the VAT Directive, the CJEU has repeatedly recognised the social nature of certain activities related to the care and assistance of major dependents and their protection.

    The AG considered that to assess whether an exemption can be granted to a lawyer who engages in activities with a certain purpose of social assistance, such as those in the immediate case, which include, inter alia: visiting those assisted in their homes to ensure their well-being and to understand their needs; contact with family, friends, social workers, health care providers; helping with housing; putting in place home help; paying bills, it is necessary to check whether the second condition of the VAT Directive (recognition as a social body by the Member State) is met. However, the AG opined that where lawyers mainly perform social functions (closely related to social assistance), which are not strictly legal, they may benefit from the exemption for social benefits. This exemption cannot be excluded simply on the basis that they are lawyers.

    On the condition on ‘recognition as a social body’ by the Member State, the AG noted that Article 132(1)(g) does not specify any conditions. It is therefore, in principle, for the national law of each Member State to enact the rules under which such recognition can be granted to such bodies.

    The AG opined that recognition as such a body cannot be ruled out on the basis of membership alone in a specific profession, the criterion that could guide the national authority in recognition should be linked to the predominant, quantitative nature of social activity in relation to other activities which are also legitimately carried out. A lawyer, like any other professional, who primarily engages in activities related to ‘benefits closely related to social assistance and security’ may be recognised as an ‘organisation of a social character’ even if he or she also performs activities of a strictly legal nature, even if those are not related to social benefits. The professional should ensure, in this case, that a separate account is maintained in order to differentiate, for VAT purposes, the (predominant) activities closely related to social assistance, which are exempt, and other (residual) activities subject to VAT.

    The AG considered that it will be up to the referring court to determine, taking into account all the relevant facts, whether EQ's activities as an agent, curator and guardian are closely related to social assistance and, in view of the content of the benefits provided, whether EQ can be recognised as a social body, also whether the lack of recognition by the national legislator and national administrative authorities exceeds the limits of the discretion that the VAT Directive leaves to the Member States.

    Comments: A specific set of circumstances and we await to see whether the CJEU follows the AG's opinion. Those providing similar services should consider whether this opinion affects current accounting procedures.

  • Calendar update

    Wednesday 20 January

    Judgment – C-288/19 QM – A German referral asking whether Article 56(2) of the VAT Directive is to be interpreted as meaning that ‘hiring of a means of transport to a non-taxable person’ should include the authorisation of an employee to use a company car (including for private use) if the employee does not remunerate the employer for such authorisation?

    Judgment – C-655/19 AJFP Sibiu and DGRFP Brasov – A Romanian referral asking whether Article 2 of the VAT Directive precludes a transaction whereby a taxpayer, as creditor, acquires immovable property in the context of an enforcement procedure and, sometime later, sells it in order to recover a sum of money which he had loaned, from being regarded as an economic activity in the form of the exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis? Can an individual who has carried out such a legal transaction be regarded as a taxable person within the meaning of Article 9?

    Thursday 21 January

    Judgment – C-501/19 UCMR – ADA – A Romanian referral asking whether copyright holders of musical works supply a service within the meaning of Articles 24(1) and 25(a) of the VAT Directive to those organising performances where a collective management organisation, under a non-exclusive licence, receives remuneration, in its own name but on behalf of those right holders, for the public performance of musical works? If so, do collective management organisations, when receiving remuneration from performance organisers act as a taxable person within the meaning of Article 28 of the VAT Directive, and are they required to issue invoices including VAT to the respective performance organisers, and, when remuneration is paid to authors and other holders of copyright in musical works, are the latter, in turn, required to issue invoices including VAT to the collective management organisation?

    Opinion – C-844/19 technoRent International and Others – An Austrian referral asking whether EU law permits a taxpayer to claim interest where the tax authorities fail to process a VAT refund in good time, even though national law does not provide for such an interest payment? When does the interest begin to accrue?

    Wednesday 27 January

    Judgment – C-787/19 Commission v Austria (TVA – Agences de voyages) – Proceedings brought against Austria. The Commission claims that by excluding from the special VAT scheme applicable to travel agents travel services that are provided to taxable persons who use those services for their business, and by allowing travel agents, in so far as they are subject to that scheme, to determine the taxable amount for VAT on a flat-rate basis for groups of services or for all services provided during a taxable period, the Republic of Austria has failed to fulfil its obligations under Article 73 and Articles 306 to 310 of the VAT Directive.

    Wednesday 3 February

    Hearing – Joined cases – C-58/20 K – An Austrian referral asking whether Article 135(1)(g) of the VAT Directive is to be interpreted as meaning that the term ‘management of special investment funds’ also covers the tax-related responsibilities entrusted by the management company to a third party, consisting of ensuring that the income received by unit-holders from investment funds is taxed in accordance with the law?

    C-59/20 DBKAG – An Austrian referral asking whether Article 135(1)(g) of the VAT Directive is to be interpreted as meaning that, for the purposes of the tax exemption provided for by that provision, the term ‘management of special investment funds’ also includes the granting by a third-party licensor to an investment management company (IMC) of a right to use specialist software specifically designed for the management of special investment funds where, as in the case in the main proceedings, that specialist software is intended exclusively to perform specific and essential activities in connection with the management of the special investment funds but runs on the technical infrastructure of the IMC and can perform its functions only subject to the minor participation of the IMC and subject to ongoing recourse to market data provided by the IMC?

  • New referrals

    • C-637/20 DSAB Destination Stockholm AB – A Swedish referral asking whether Article 30(a) of the VAT Directive is to be interpreted as meaning that a card (‘City Card’), which provides the cardholder the right to receive various services at a given place for a limited period of time and up to a certain value, constitutes a voucher and, in such circumstances, constitutes a multi-purpose voucher? The cards are provided to tourists visiting Stockholm providing the right of admission to 60 attractions (museums etc.). They also entitle cardholders to use around 10 passenger transport services, such as tours provided by the company's own ‘Hop-on-Hop-off buses’ and boats, as well as sightseeing tours with other organisers. The services are either subject to VAT, at various rates, or are VAT exempt.
    • C-612/20 Happy Education SRL – A Romanian referral asking whether Articles 132(1)(i), 133 and 134 of the VAT Directive are to be interpreted as meaning that educational services, such as after school programmes, are covered by the concept of services which are closely related with education where those services are provided by a private entity for commercial purposes and outside a partnership with an educational institution?

First-tier Tribunal

  • Business structure involving a Gibraltar entity, set up to avoid irrecoverable input tax, did not reflect economic or commercial reality and was contrived to result in a tax advantage

    Wilmslow Financial Services plc (in administration)

    The First-tier Tribunal (FTT) has released its decisions in this case concerning Wilmslow Financial Services plc (in administration) (WFS). There was a delay in this case pending the outcome of the judgment in HMRC v Paul Newey T/A Ocean Finance.

    This appeal concerns tax planning arrangements of WFS relating to its loan broking activities, which are exempt services for the purpose of VAT, and the use of a business structure involving a Gibraltar entity. The arrangements aimed to avoid irrecoverable input tax on supplies of advertising services.

    The issues arising in the appeal can be summarised as:

    • What is the proper characterisation of supplies of loan broking services; HMRC contend that WFS was the supplier, whilst WFS contends that a Gibraltar entity, Karakus Limited (Karakus) was the supplier?
    • Was WFS the recipient of advertising supplies or, as WFS contends, was Karakus the recipient of such supplies?
    • Did the arrangements amount to an abuse of law, as HMRC contends, by having a tax advantage as its essential aim; and by virtue of its artificiality and/or by virtue of it being contrary to VAT legislation which provides that VAT is a tax on consumption?

    WFS, which operated as a loan broker, is a limited company in liquidation. It provided loan broking services to a panel of lenders in the UK. In 1997, WFS entered into arrangements with Karakus, a company registered in Gibraltar. Karakus was a licensed credit broker which engaged WFS to supply it with loan broking services to enable it to supply the loan broking to UK lenders. Karakus also engaged Mediability Limited (Mediability) a UK media advertiser which had formerly been engaged by WFS to supply UK media advertising to it.

    Karakus was set up by Mr Rupert Webb, the principal shareholder of WFS.

    Until 1 April 2002, Mediability was engaged by Karakus as a media agent which placed advertising for Karakus in the UK media. From that date, Mediability's role changed to an intermediary which negotiated for media advertisements on behalf of a Gibraltar media agent, ESP. ESP was engaged by Karakus to source UK media advertising. Mediability's role ceased in February 2008. The advertisements placed in UK publications on behalf of Karakus were under the name of WFS.

    HMRC considered that the commercial reality of the arrangements was that loan broking was conducted by WFS and that no true outsourcing by Karakus ever occurred. At all material times the contractual structure entered into was not reflective of the economic and commercial reality and was artificial because it lacked important commercial features and included commercially perverse features. Also, the purpose of the arrangements was to avoid what would have been irrecoverable VAT on advertising services. HMRC further submitted that Mediability, which traded heavily with WFS throughout the relevant period, was significant in initiating the setting up of the structure so its advertising services could be provided VAT free. The implementation of the scheme following receipt of accountancy advice further supports the fact that it was created in order to obtain a tax advantage.

    The FTT noted that case law makes it clear that a tax driven motive is not, of itself, determinative of the issue. It also accepted that it was open to Karakus to outsource work to WFS.

    WFS had submitted that Karakus was a legitimate company conducting legitimate business to a large extent through the services agreement with WFS. In Paul Newey T/A Ocean Finance the Tribunal did not consider ownership of Alabaster by Mr Newey as a matter affecting the analysis of arrangements; similarly, the FTT considered that Mr Webb's beneficial ownership of Karakus should not, in itself, affect the analysis in this case.

    However, the FTT held that not only was the agreement between the parties not arm's length, its terms did not reflect commercial reality. The agreement contained many terms which were uncommercial or lacked terms that would be expected. The FTT was satisfied that the evidence demonstrating that the background leading up to the implementation of the arrangements was tax driven was relevant, albeit not determinative. That evidence, taken together with subsequent evidence, confirmed that the sole reason to restructure the business so as to include Karakus in Gibraltar was to avoid irrecoverable VAT. The FTT found that the arrangements were driven by WFS and Mediability on the advice of a firm of tax advisers with the intention that Karakus would, on the face of it, carry on the business of loan broking with the arrangements providing for Karakus to appear to be a separate entity by features such as the appointment of Gibraltar based directors and payment by way of commissions to WFS.

    The FTT considered there to be insufficient evidence to support a finding that Karakus had the necessary resources to evaluate the loan applications processed by WFS nor was there any evidence to show that it ever evaluated or rejected any of the applications. Although Karakus formally held the contracts with lenders, the commercial reality was that WFS had the business relationships with the lenders and that WFS continued to conduct its business with UK customers and UK lenders in the same manner as it had prior to the insertion of Karakus into the arrangements.

    In all respects WFS's business continued, in reality, as it had prior to putting the arrangements into place with the services being provided by WFS from its premises in the UK to UK lenders with UK based customers via advertisements placed in the UK. WFS procured advertising services on its own behalf and was therefore the recipient of those supplies.

    On the question of the proper characterisation of the supplies of loan broking services, the FTT held that WFS was the supplier and was the recipient of advertising supplies.

    Considering the question of abuse, in agreement with HMRC, the FTT held that the scheme was manifestly contrary to the purpose of VAT by virtue of its artificiality and abusive structure. The use of the special purpose vehicle in Gibraltar added expense to the business which was commercially unnecessary other than to obtain a tax advantage. The scheme required profits from the business to be used to cover the expenses of Karakus which performed none of the necessary elements of the loan broking business from a commercial perspective.

    All marketing, processing and provision of vetted applications for loans was performed by WFS. As distinct from Paul Newey T/A Ocean Finance, WFS sent the completed applications directly to the lenders giving Karakus no opportunity to object. There was no evidence that the directors of Karakus had any experience in loan broking nor that they had any meaningful involvement in it. Karakus did not operate independently of WFS at any point throughout the relevant period. Agreements lacked key details which would be expected in genuine commercial arrangements between arm's length parties.

    In conclusion, the arrangements were highly uncommercial, did not reflect the economic or commercial reality and were contrived to result in a tax advantage. Dismissing the appeal, the FTT was satisfied that the essential aim was to avoid irrecoverable VAT and that the structure of the arrangements was contrary to the purpose of VAT by its artificiality. It follows that the abusive advantage must be eliminated with the result that the re-definition of the arrangements treats WFS as the supplier of loan broking services in the UK (exempt) and recipient of advertising services in the UK (taxable and irrecoverable) at all material times.

    Comments: This appeal was dismissed due the FTT concluding that the arrangements failed to meet the test of commerciality. In the earlier decision of Paul Newey (T/A Ocean Finance), despite the Court of Appeal taking the view that the CJEU judgment changed the way the Halifax principle should be applied, the Tribunal held that structuring a business to create tax efficiencies is acceptable provided the arrangements reflect commercial reality. In light of this case and that of Paul Newey, businesses with similar structures should consider the substance of the arrangements and whether there is a possibility of challenge.

    For further information please contact Mitchell Moss.

  • Supplies of goods ordered by post or by internet, which were delivered by post, were made ‘on behalf of’ the supplier, Article 33 of the VAT Directive applies – supplies made in the UK

    Healthspan Limited

    The First-tier Tribunal (FTT) has released its decisions in this case concerning the application of Article 33 of the VAT Directive for goods despatched from warehouses in the Netherlands. The FTT was asked to consider whether the goods were despatched or transported ‘by or on behalf of the supplier’.

    Healthspan Limited (HL) sells non-prescription health products to retail customers, who place orders by phone, by the internet or by post. Most of the goods are delivered by post, but some are delivered by courier. Between 1 April 2012 and 31 January 2016, most products were despatched from a warehouse in the Netherlands and delivered to customers in the UK.

    In 2016, HMRC decided that during the relevant period the goods had been delivered ‘by or on behalf of the supplier’ and so came within Article 33, implemented in the UK by VATA94, section 7(4). The goods had therefore been supplied in the UK and HMRC registered HL, retrospectively, with effect from 1 April 2012. An assessment was subsequently issued for £27,303,658.

    HL appealed and in 2018, the FTT issued a decision (2018 decision) making findings of fact about all the supplies, but was only able to determine the VAT position of (a) the phone sales, and (b) the goods delivered by courier. The FTT held that goods ordered by phone and those delivered by courier, were delivered ‘on behalf of’ HL, so that Article 33 applied. Delivery was incidental and was included in the single supply of goods. HL asked for and received permission to appeal that judgment to the Upper Tribunal and their appeal is currently stayed.

    In relation to goods which had been both (a) ordered by internet or by post and (b) delivered by post, the FTT found that the legal position was not acte claire (clear and free of doubt) and made a reference to the CJEU. On 13 February 2020 the CJEU stayed the reference behind C-276/18 KrakVet Marek Batko (KrakVet).

    On 18 June 2020 the CJEU issued its judgment in KrakVet, the Court finding that Distance Sales VAT procedures apply where the supplier is ‘involved’ in the transportation of the goods. The FTT was asked whether it wished to maintain the HL reference following the Krakvet judgment and it decided that there was no longer a requirement for a separate decision.

    This second HL decision therefore considers whether goods ordered by internet and by post, which were delivered by post, are within Article 32 or Article 33 in the light of:

    • The findings of fact set out in the FTT 2018 decision
    • The guidance provided by the CJEU in KrakVet

    In the 2018 decision, the FTT noted that in relation to customers who ordered by internet or by post, for delivery by post, they had entered into a contract with PostDirect for the delivery of the goods. It was therefore arguable that the goods were despatched or transported ‘by or on behalf of’ the customers, by virtue of their contracts with PostDirect. However, it was also arguable that the goods were despatched and transported ‘by or on behalf of’ HL because of the nature and extent of the arrangements between those two companies, together with a number of other factors.

    In this latest decision the FTT noted that in Krakvet, the CJEU judgment answers five questions, of which only the fourth is relevant to this appeal:

    • Whether Article 33 must be interpreted as meaning that, when goods sold by a supplier established in one Member State to purchasers residing in another Member State are delivered to those purchasers by a company recommended by that supplier, but with which the purchasers are free to enter into a contract for the purpose of that delivery, those goods must be regarded as dispatched or transported ‘by or on behalf of the supplier’.

    In Krakvet, the CJEU found, inter alia, that consideration of the economic and commercial realities forms a fundamental criterion for the application of the common system of VAT. Therefore, it must be held that a supply of goods falls within the scope of Article 33 where the role of the supplier is predominant in terms of initiating and organising the essential stages of the dispatch or transport of the goods. It is for the referring court to decide whether that was the position in any particular case, taking into account all the factors in issue.

    The CJEU continued by setting out further guidance as to the factors to be considered when determining whether the role of the supplier was predominant, so that Article 33 applies:

    • The significance of delivery in the context of the supplies being made
    • The choices available to the customer
    • The burden of risk in relation to the delivery
    • The payment arrangements

    The CJEU said that courts “must” take the first factor into account, and that it was “necessary” for the other three to be considered.

    On the ‘significance of delivery’ the FTT held that in the immediate case, delivery of the goods was a significant part of what the customers required and was an essential part of the supply of those goods.

    Considering the ‘choices available to the customer’ the FTT noted that PostDirect collaborated with HL, not only in relation to the delivery of the goods but was also responsible for all warehousing and selection of the ordered goods. That is, however, an insufficient basis for making an adverse inference against HL. However, the customer had only two choices: a postal service using PostDirect; and a more expensive courier service provided by DHL (in the 2018 decision these courier services were found to be provided ‘by or on behalf of’ HL). Also, the customer had no direct contact with PostDirect, either at the time of ordering or when there were any issues about delivery; PostDirect's Terms and Conditions (T&Cs) were made available on HL's website; and in an internal document HL referred to PostDirect as providing “our own delivery service”.

    On this factor the FTT held that the customer “merely acquiesced to the choices made by the supplier”, and the choice of delivery company was to be attributed to HL.

    On the ‘burden of risk’ the FTT considered it to be clear from the findings of fact that PostDirect bore no commercial risk. This is because, inter alia, it had been agreed between PostDirect and HL before the inception of the arrangements, that the former would make a 6% profit margin. PostDirect's T&Cs contained only minimal remedies for delivery problems, with contractual compensation being well below the value of goods lost or damaged. However, that had no consequences for the customers because: where there was a problem with the original delivery, they complained to HL, not PostDirect; they were instructed on the packaging to return any goods damaged during delivery to HL's UK office and not to PostDirect; if goods were damaged during delivery, replacement goods were provided by HL; and HL always refunded the related delivery costs to the customer.

    Also, the costs of dealing with delivery problems were almost all borne by HL and in its marketing material HL held itself out as responsible for ensuring that the goods arrived with the customers.

    The FTT considered there to be no doubt that it is HL, and not PostDirect, which bears the burden of risk, both generally and in relation to the costs relating to compensation for damage occurring during that dispatch or transport.

    On the ‘payment arrangements’, embracing both the pricing of the delivery, and the mechanics of making the related payment, the FTT held that it is clear that not only is the delivery charge paid as part of a single transaction with the cost of purchasing the goods, but that any discount had the effect of making ‘the amount of the dispatch or transport costs…merely symbolic’. As a result, this factor shows that there was ‘significant involvement’ by HL in the delivery of the goods.

    Considering all the factors set out in the KrakVet guidance, the FTT held that it is clear that HL's role was ‘predominant in terms of initiating and organising the essential stages of the dispatch or transport of the goods’ and that as a matter of economic and commercial reality, PostDirect was acting ‘on behalf of’ HL.

    In conclusion, in the 2018 decision the FTT held that HL's supplies of goods to phone customers, and all supplies of goods sent by courier, were made ‘on behalf of’ HL and so came within Article 33; that as a result HL was required to be registered in the UK and so that its appeal against HMRC's decision was refused. HL's appeal against the assessment was similarly refused in so far it related to the phone customers and the DHL customers.

    In this second decision the FTT finds that supplies of goods ordered by post or by internet, which were delivered by post, were also made ‘on behalf of’ HL and so come within Article 33. HL's appeal against the remaining part of the assessment is therefore also refused.

    HMRC's decision and the assessment of £27,303,658 is therefore confirmed.

    Comments: Businesses supplying cross border delivered goods should consider whether this case introduces additional compliance obligations.

    For further information please contact Simon Baxter.

  • Payments were received by way of loans and are not consideration for supplies

    GLS Limited

    The First-tier Tribunal (FTT) has released its decisions in this case concerning whether payments received by GLS Limited (GLS) were consideration for taxable supplies or advances by way of loans and exempt from VAT.

    In 2016, GLS, a property developer, provided construction services in connection with the development of a new Aldi store. Mr Stevenson is a director of and the major shareholder of GLS. He also owns a number of other companies. GLS has historically purchased goods and services on behalf of those associated companies and provided loan finance to them.

    Midsize Finance (MF) is a provider of finance to companies that are unable to borrow from banks. Its latest accounts filed at Companies House show it has a loan book of more than £1m. There are no fees for a loan made by MF, but the interest rate is 1% per month for each month during which a loan is outstanding, rising to 2% if there is a default which is not remedied within 5 days.

    Mr Hamish Deans is a director of GLS. He is also a director and shareholder of MF. Mr Stevenson and Mr Deans have been friends and business associates for over 20 years. GLS had a history of borrowing from MF and in 2016 needed to borrow because Mr Stevenson was unable to access bank finance owing to his personal circumstances and impending significant divorce settlement. Some of the 2016 advances were to cover general running expenses and others were used to enable GLS to make loans to some of the associated companies.

    None of the payments received in 2016 had been repaid to MF at the date of the hearing. The accounting records of GLS had been poor in the period under consideration and not all of the loans had been reflected in the accounts of GLS. There had been confusion as to what was a personal loan to Mr Stevenson and what was a loan to GLS secured by a personal guarantee. The accounting records have now been brought up to date and the latest accounts reflect the indebtedness of GLS to MF.

    HMRC considered that the documentation held was insufficient to support the assertion that the payments received from MF were against loans. Whilst GLS provided additional detail regarding the loans as requested by HMRC, it was still asserted that this was insufficient evidence. In 2018 a ‘best judgment’ assessment was raised for incomplete returns, HMRC considering that in the absence of evidence the payments must be considered as being for taxable supplies.

    The FTT noted that for the VAT returns to be incomplete because of the non-inclusion of the ‘loan’ payments, the payments must have been consideration for taxable supplies. If the payments were in fact advances by way of loans the returns were not incomplete. The issue is therefore whether the documents produced by GLS and its advisers are sufficient evidence of loans.

    Six documents were provided to the FTT relating to the alleged loans.

    The FTT considered Documents 3 and 6 to be clear, the context being set out in the first recital in each case, namely that GLS wished to borrow the specified sum from MF. Document 3, clause 2 states that MF had agreed, subject to GLS providing security, to lend to GLS the aggregate sum subject to the terms and conditions specified in the document. The terms included an obligation to repay after 12 months, interest at 1% per month which increased to 2% if there was a default, which would include a failure to repay after 12 months. Document 3 was signed only by Mr Stevenson on behalf of GLS, but not by MF. Bank statements showed that the aggregate sum was paid in three instalments. The FTT noted that this indicated that MF performed the contract whether or not the loan agreement was signed on behalf of MF. In consequence MF could enforce repayment and recover the unpaid interest against GLS.

    Document 6 also had a recital which recorded that GLS’ wished to borrow from MF and that the loan was in addition to the previous loans listed.

    The FTT held that it was satisfied, that as a matter of law, Document 3 is a contract for the provision of loan finance from MF and that Document 6 is a contract for the provision of an additional loan.

    The FTT considered that HMRC's suggestion that Document 6 was insufficient evidence of a loan was incorrect. It is beyond doubt that Document 6 is an enforceable contract in relation to the loan made. Further, the annex to Document 6 is also an admission against interest by GLS that it had received additional loans from MF and is liable to repay them. HMRC had been provided with all the relevant bank statements to be able to verify whether the sums had been advanced. This would have been sufficient evidence to demonstrate the relationship of lender and borrower between MF and GLS.

    During a site visit HMRC had considered Documents 1 to 5 (which are signed only by GLS) as not being sufficient evidence of the relationship of lender and borrower between MF and GLS. However, the FTT held that as a matter of law, a lender who makes payments into a borrower's bank account and has a memorandum signed and dated by the borrower has an enforceable contract with the borrower. HMRC had incorrectly concluded that Documents 1 to 5 were insufficient evidence that the payments were by way of loan.

    Allowing the appeal, the FTT held that GLS had discharged the burden of proving that the payments were by way of loan and not consideration for taxable supplies. As the provision of loan finance is an exempt supply for VAT, GLS was not obliged to include the payments in its VAT returns.

    Comments: This case demonstrates the importance of ensuring appropriate records are maintained to evidence the nature of payments received.

  • Supplies of conservatory insulated roofing systems are not the ‘installation of insulation’ and are not subject to VAT at the reduced rate

    Conservatory Roofing Systems Limited

    The First-tier Tribunal (FTT) has released its decisions in this case concerning a decision by HMRC to treat insulated roofing as standard-rated for VAT purposes.

    Conservatory Roofing Systems Limited (CRSL) supplies insulation to existing conservatory roofs. In approximately 80% of cases, it does not remove existing poly-carbonate roof panels or the roof spars. Instead, a new external light-weight roof tile system is secured to the outside, whilst on the inside, insulating material is provided, and plasterboard is applied to a bespoke timber frame ready for the application of decorative finishes and the insertion of LED downlights. In the remaining 20% of cases, roof panels are removed because they are too heavy to safely leave in-situ. Otherwise, no alteration is made to the existing conservatory roof structure.

    In 2018, CRSL submitted a VAT Return detailing an input tax claim for £15,618.86 for the 01/18 period, based on the assertion that approximately 90% of its sales were subject to VAT at the reduced-rate (5%).

    Following a site visit, HMRC concluded that the service CRSL provided was a ‘replacement roof’, which was chargeable at the standard-rate of 20%, rather than an ‘installation of insulation’ which would have been chargeable at the reduced-rate of 5%.

    The FTT was asked to consider whether the work completed by CRSL can be classified as ‘installation of insulation for roofs’ within the meaning of Note 1(a) of Group 2 to Schedule 7A, VATA94 and charged at 5%.

    Considering the facts of this case to be similar to those heard by the Upper Tribunal in Wetheralds (available here ) the FTT held that the supplies extend far beyond installing insulation to a roof. The work is, materially, the construction of an entirely new roofing system. The ‘specialist energy saving products’ which CRSL says are ‘fitted to existing conservatory roofing structures’ is only one component part of a new roof.

    The FTT considered that CRSL supplies a composite insulated roofing system. Although there are several elements to the supply to the customer, they are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split. The express purpose of the supply is to provide insulation in cold weather and keep the conservatory cool in hot weather. If only insulation material was supplied without the installation of a timber, plaster boarded sub frame and tiles to the roof exterior, that purpose would not be achieved.

    The FTT suggested that the majority of materials and services that were provided by CRSL are not covered by the exhaustive list set out by Note 1(a), as they are materials for the construction or reconstruction of a roof, rather than insulation, and cannot therefore be classified as reduced-rate supplies. The scope of reduced rating for supplies within Note 1(a) is not determined by whether or not the materials are ‘attached to or applied’, but by whether what is supplied is confined to insulation or extends further than that, as in this case, to a new roof or replacement roof.

    A typical consumer would, on the basis of both CRSL's marketing material and the nature of the finished product, consider that they were receiving a new roofing system.

    In conclusion, and dismissing the appeal, the FTT held that CRSL does not make a supply of ‘insulation for roofs’ within the meaning of Note 1(a) of Group 2 Schedule 7A, VATA94 and that as such its supplies cannot be classified as reduced-rated for VAT purposes.

    Comments: A similar decision was also reached by the FTT in 2020 in the case of Greenspace (UK) Limited where the supply and installation of conservatory roof insulation in the form of insulated roof panels was held to be a standard-rated supply.

    For further information please contact James Buckland.

HMRC Material

  • Update – Agricultural Flat Rate Scheme (VAT Notice 700/46)

    This Notice explains who can use, and how to apply to join, the Agricultural Flat Rate Scheme, an alternative to VAT registration for farmers. This revised notice replaces the October 2012 edition and includes details of the entry and exit criteria for the Scheme.

    This follows previous updates due to the end of the transition period which included reference to businesses based in Northern Ireland and supplies to/from the EU.

  • Update – Check if you’re established in the UK for customs

    A person or business needs to be established in the UK to meet a number of customs rules. This includes being able to access a wide range of customs authorisations and simplifications This Guidance explains how to find out whether you are established in the UK for customs purposes and has been updated under ‘evidence of establishment’, which includes:

    • A certificate of registration issued by the Registrar of Companies
    • Details of where staff are employed and the work that they carry out
    • Physical premises owned or leased by the business
    • Details of contracts, orders or invoices held or issued by the business
    • Proof that the business has its own accounts

    If you have a UK VAT or UK Economic Operator Registration and Identification (EORI) number, this does not necessarily mean or provide sufficient evidence you are established in the UK.

EY Global Tax Alerts

  • Kenya

    Kenya – The Kenyan President has assented to the Tax Law Amendment Act (No. 2) of 2020 (the Act). The Act amends the Income Tax Act and the VAT Act of Kenya.

    The Act has amended the VAT Act 2013 to allow manufacturers who have made taxable supplies to official aid funded projects, as may be approved by the Cabinet Secretary for the National Treasury, to claim the associated input tax.

    Also, through a legal notice, the VAT rate has been reinstated to 16% from 14% and a Voluntary Tax Disclosure Program will run for a three-year period with effect from 1 January 2021, which will cover income taxes, VAT and excise duty.


  • US

    US – The United States Trade Representative (USTR) has released the findings in its investigations of the Digital Services Tax (DST) regimes adopted by India, Italy, and Turkey, initiated under Section 301 of the Trade Act of 1974 (Section 301). The USTR determined each DST to be discriminatory against US companies, inconsistent with prevailing principles of international taxation, and burdensome or restrictive to US commerce. While the USTR is authorised to act under Section 301 as a result of the findings, it noted in the announcement that no specific actions in connection with the findings would be taken at this time.

    The USTR has also announced the suspension of punitive tariffs on certain French origin goods in relation to the Section 301 investigation of France's DST that were set to take effect on 6 January 2021.

  • Netherlands

    Netherlands – The Dutch State Secretary of Finance has issued a new Decree providing guidance on various topics concerning fixed establishments for Dutch VAT purposes, including:

    • The VAT treatment of transactions between a head office and its fixed establishment where either one of them is part of a Dutch VAT group (Dutch view on the Skandia case, section 1)
    • The introduction of ‘a purchase fixed establishment’ (section 2)
    • Details on how a service provider may identify which establishment of its customer it provides its services to. This is also relevant for VAT recovery purposes in the financial sector (section 3)
    • Determining the entitlement to recover Dutch VAT on costs incurred by a Dutch fixed establishment or head office where these costs partially relate to foreign establishments of a taxpayer, with reference to the Morgan Stanley case (section 4)
    • Other topics, including the force of attraction rules (i.e., when does the reverse charge mechanism apply) and the virtual warehousing rules for foreign taxpayers that have a fixed establishment in the Netherlands (in Dutch: niet-plaatsgebonden entrepot)

    The new Decree replaces the Decree that was released in 2002 and updates Dutch policy to include various developments in case law and EU legislation since 2002.

    Please refer to our alert for further details.

  • EU

    EU – The European Commission (Commission) has published a roadmap including a public consultation for the introduction of a digital levy. In July 2020, EU leaders requested the Commission to propose such a levy as a new EU-own resource to support the EU's borrowing and repayment capacity in the context of the EU's recovery package, the Next Generation EU.

    The roadmap informs citizens and stakeholders about the Commission's plans and invites feedback on the intended initiative. The first feedback period for the initiative ends on 11 February 2021, and a 12-week public consultation period will follow. The Commission expects to put forth a proposal for a Directive during the first half of 2021.

    The roadmap highlights that the EU is still committed to reaching a global agreement, and that the roadmap and consultation should be seen as supplementing ongoing work at the G20 and Organisation for Economic Co-operation and Development (OECD) level on a reform of the international corporate tax framework.

  • Italy

    Italy – The Government has published a press release setting out, among others, a deferral of the forthcoming Italian Digital Services Tax (DST) payment deadlines. These measures will be implemented by a Law Decree, which is expected to be issued shortly.

    According to the press release, the Law Decree will provide that for the first year of application of the Italian DST (i.e., financial year 2020):

    • The deadline for the payment of the DST, which would ordinarily be due on 16 February 2021, is deferred to 16 March 2021
    • The deadline for the filing of the DST return, which would ordinarily be due on 31 March 2021, is deferred to 30 April 2021

    In addition, the Tax Authority has published an Implementation Draft Decree for public consultation, which contains certain guidelines for the application of the DST. It is expected that a final version of the Draft Decree will be released in the next few weeks, following the consultation process.