Deeks VAT News Issue 23
Keeping you up to date on VAT Changes
Keeping you up to date on VAT changes
Welcome to the latest edition of Deeks VAT News.
In this edition, we cover the following:
- Upper Tribunal – Rules on VAT grouping conditions
- First Tier Tribunal (FTT) – Julie Lalou T/A Dogs Delight v HMRC  TC08380
- HM Treasury – Online Sales Tax: policy consultation published
- Revenue and Customs Brief 3 (2022): postponed VAT accounting and businesses registered under the Flat Rate Scheme
- Revenue and Customs Brief 4 (2022): end-customer claim refunds of VAT wrongly charged
- Revenue and Customs Brief 5 (2022): revised guidance on dealing with VAT grouping registration
- HMRC Compliance Checks: Factsheets
- Final Call – HMRC Webinar – Making Tax Digital for VAT
- Final Call – HMRC Webinar – How to apply the VAT reverse charge for construction services
- VAT telephone helpline closures
Upper Tribunal rules on VAT grouping conditions
In HSBC Electronic Data Processing (Guangdong) Ltd & Ors v HMRC  UKUT 00041, the Upper Tribunal (UT) found that, in terms of VAT grouping, the terms ‘established’, and ‘fixed establishment’ should be interpreted in accordance with CJEU case law concerning the place of supply rules, while bearing in mind that their meaning is highly fact-sensitive.
HSBC Electronic Data Processing (Guangdong) Ltd and four other companies within the HSBC group provided global services for the group.
In December 2017, HMRC issued decisions to affect the removal of the companies from HSBC’s UK VAT group on the basis that the companies had not been established or had a fixed establishment in the UK since at least 1 October 2013. This would mean they ceased to be eligible to be members of the UK VAT group from that date.
HMRC had made decisions to remove the companies from the HSBC VAT Group with effect from January 2018 under their powers for the protection of the revenue (s.43C(1) VATA 1994).
The companies Appealed to the First Tier Tribunal (FTT) which directed that there should be a preliminary hearing of issues by the Upper Tribunal (UT) as an appeal from any decision of the FTT on the identified points would be inevitable and the UT’s binding guidance on the law and its application would assist the FTT in making its decision.
The UT concluded that when interpreting ‘established’ or ‘fixed establishment’ in s.43A VATA 1994, Articles 10 and 11 of Council Implementing Regulation 282/2011 “provide a helpful starting point, when read in the light of the CJEU case law”.
The precise meaning of the terms ‘established’ and ‘fixed establishment’ in any given case is highly fact-sensitive.
When considering the phrase ‘persons established in’ (Article 11 of the Principal VAT Directive), it is necessary to consider whether the prospective VAT group members, individually, have a fixed establishment in the UK and not whether the collective of persons forming the VAT group has a fixed establishment in the UK.
HMRC’s ‘necessary for the protection of the revenue’ power is not limited to abusive practices under Halifax principles: it has a wider application.
When considering s.84(4D) VATA 1994, it is only necessary to examine whether HMRC could reasonably have decided upon the date of removal from the VAT group specified in the notice, not whether it had reasonably done so in the given case.
S.84(4D) states that where an appeal is made against the removal of a member from a VAT group and the appeal includes the date of removal, the appeal in respect of the date should only be allowed where the tribunal considers that HMRC could not reasonably have been satisfied that it was appropriate.
The case will now return to the FTT for a full hearing following the UT’s determination of the preliminary issues. The full UT judgement can be read online.
UK First Tier Tribunal (FTT) – Julie Lalou T/A Dogs Delight v HMRC  TC08380
In this case the Appellant was represented by Jane Deeks of Deeks VAT Consultancy. While this was a disappointing decision, it may be possible to appeal to the Upper Tier Tribunal.
In Julie Lalou T/A Dogs Delight v HMRC  TC08380, the First Tier Tribunal (FTT) found that the supply of dog grooming courses was not exempt from VAT as it was not demonstrated that it was a subject ordinarily taught in schools or universities.
Ms Lalou ran a business providing dog grooming services and dog grooming courses. From 1 July 2006, she was Registered for VAT.
Ms Lalou later formed the view that her supply of dog grooming courses was exempt from VAT.
In December 2017, Ms Lalou sought to Deregister from VAT on the basis that her only taxable supplies, those of dog grooming, fell below the VAT Registration threshold.
In September 2018, HMRC determined Ms Lalou could deregister from VAT from 18 December 2017.
In October 2018, Ms Lalou submitted an Error correction notice to HMRC, seeking Repayment of £102,301 relating to historically treating the supply of dog grooming courses as standard rated rather than exempt.
HMRC responded in July 2019, advising that the supply of dog grooming courses was in fact standard rated. In addition, HMRC notified Ms Lalou’s that her VAT registration would be reinstated, which it was in the following month.
Correspondence between Ms Lalou and HMRC continued. A Review by HMRC in October 2019 upheld the decision that the dog grooming courses were not exempt. HMRC rejected the error correction notice accordingly.
HMRC raised an assessment of £12,203 in relation to the VAT quarter ended September 2019 for which a return had not been made.
Ms Lalou Appealed to the First Tier Tribunal (FTT).
The supply of Private tuition, in a subject ordinarily taught in a school or university by an individual teacher acting independently of an employer, is exempt from VAT under Item 2, Group 6, Schedule 9, VATA 1994.
The FTT found that:
The dog grooming courses involved the supply of tuition: Ms Lalou transferred skills and knowledge to her students.
The supplies of tuition were made on Ms Lalou’s own account and at her own risk: tuition was given privately.
Ms Lalou was the only person supplying the tuition.
The courses Ms Lalou provided were educational and not purely, or even predominantly, recreational. They generally lead to recognised qualifications.
The FTT dismissed Ms Lalou’s appeal that her supply of dog grooming courses fell within the VAT exemption.
It followed that Ms Lalou’s appeal against HMRC’s VAT assessment and refusal to accept the error correction notice failed, as these relied on the supplies being exempt from VAT.
Similarly, as the level of Ms Lalou’s taxable supplies, including courses, was not in dispute, her appeal against HMRC’s reinstatement of her VAT registration failed.
Insufficient information was given for the FTT to consider whether HMRC’s actions had breached the principle of fiscal neutrality.
The case can be read in full online.
HM Treasury – Online Sales Tax: policy consultation published
HM Treasury has published a consultation document on a potential Online Sales Tax (OST).
This is an open consultation, exploring the proposal for an OST as a means to rebalance the taxation of the retail sector between online and in-store retail. Questions cover several areas around any potential OST. These include the different forms an OST could take and how to define an online sale reflecting the range of transaction, delivery, and collection options. This consultation explores these issues and the potential impacts of an OST to help the Government assess the case for and against implementing such a tax.
The consultation closes on 20 May 2022 and is available here.
Revenue and Customs Brief 3 (2022): postponed VAT accounting and businesses registered under the Flat Rate Scheme
On 17 February 2022, HMRC published its latest Revenue & Customs Brief, announcing that imports accounted for under postponed VAT accounting are to be dealt with outside the flat-rate scheme from 1 June 2022.
HMRC also updated associated cross-references in other guidance sources to reflect the change:
• VAT Notice 733 – Flat Rate Scheme for small businesses
• VAT Notice 700/12 – How to fill in and submit your VAT Return
• Guidance Page – Complete your VAT Return to account for import VAT
Revenue and Customs Brief 4 (2022): end-customer claim refunds of VAT wrongly charged
On 1 March 2022, HMRC published its latest Brief on the recovery of wrongly charged VAT by an end customer in the EU. The Brief says that, following the UK’s exit from the EU, there is no right for an EU customer to make a claim against HMRC for overcharged VAT where it is proving impossible or excessively difficult to obtain a refund from the supplier.
Revenue and Customs Brief 5 (2022): revised guidance on dealing with VAT grouping registration
On 2 March 2022, HMRC published Revenue & Customs Brief 5/2022, which focusses on how to deal with applications for group registration where HMRC has yet to confirm that the application has been accepted.
HMRC also published an updated version of VAT Notice 700/2 – Group and divisional registration with guidance mirroring this brief in paragraph “2.17 What to do while you wait for a response to your application”.
HMRC Compliance Checks: Factsheets
On 27 February 2022, HMRC updated several factsheets on compliance checks. We are mindful that while compliance checks seem to take less of a starring role given HMRC resourcing and workload, the potential for unanticipated disruption should be kept in mind when performing your annual business checks and maintaining records.
You can read more about the updates and materials online, but we felt this a useful information source to include here as a point of reference, and furthermore, a reminder that Deeks VAT Consultancy is always happy to hear about your experiences with HMRC in this area. You can read more about our core services on our website.
- About compliance checks – CC/FS1a
- General information about checks by Campaigns and Projects
- Compliance checks for penalties of inaccuracies in returns or documents – CC/FS7a)
- Compliance checks: penalties for not telling HMRC about an under-assessment – CC/FS7b - Information about asking someone else to represent the taxpayer in dealings with HMRC, the taxpayer’s rights when HMRC is considering penalties and if the taxpayer is unhappy with HMRC’s services has been updated.
Final Call – HMRC Webinar – Making Tax Digital for VAT
We have previously circulated details of HMRC’s series of webinars on MTD for VAT. Below is an update list of dates when this webinar will be run. It should provide some of the basics of Making Tax Digital for VAT and include what’s changing, using software, and keeping digital records, plus an introduction to penalty reform. From April 2022, these requirements will apply to all VAT-registered businesses, to include those that have a turnover below the VAT threshold.
The final webinar will be held on 18 March 2022 at 09:45–10:45.
You can register to attend the webinar online.
Final Call – HMRC Webinar – How to apply the VAT reverse charge for construction services
In this additional webinar HMRC will explain when to apply the VAT reverse charge, how to show the reverse charge on your invoices, and what to do if you make a mistake when applying the reverse charge.
The webinar will be held on 10 March 2022 at 11:45–12:45.
You can register to attend the webinar online.
And finally – VAT telephone helpline closures
HMRC has announced that following the trial of closing the VAT helpline to allow it to concentrate on reducing the post backlog, there will be a further series of the helpline closing on a Friday during February and March. The trial in December 2021 enabled HMRC to clear far more of the post backlog than it predicted.
The helpline will be closed on the following dates:
• 11 March 2022
• 18 March 2022
• 25 March 2022