Deeks VAT News Issue 37

October  2023 – Issue 37 Keeping you up to date on VAT changes  In this months newsletter we cover the following:  Difficulties with DIY Housebuilders’ claim – The Spani case Bull Brand Ltd v HMRC [2023] UKFTT 748 (TC): Request for an appeal out of time Partial exemption guidance updated Alternative Dispute Resolution (ADR) What […]

October  2023 – Issue 37

Keeping you up to date on VAT changes 

In this months newsletter we cover the following: 

Difficulties with DIY Housebuilders’ claim – The Spani case

Bull Brand Ltd v HMRC [2023] UKFTT 748 (TC): Request for an appeal out of time

Partial exemption guidance updated

Alternative Dispute Resolution (ADR) What is it? How does it work?

Changes to agent authorisation

Powers of HMRC – The Impact Contracting Solutions Limited UT case

eInvoicing Glossary

A VAT Did you know?

Dance classes in some EU countries are subject to different VAT rates depending on whether the dance style is considered artistic or entertainment. In the UK, belly dancing and ceroc lessons are standard rated, but ballet is exempt.

Difficulties with DIY Housebuilders’ claim – The Spani case

Latest from the courts

In the First Tier Tribunal (FTT) case of Spani v HMRC [2023] UKFTT 00727 (TC) the issue was whether a claim under the DIY Housebuilders’ Scheme (the scheme) was valid.

Mr Spani appealed against HMRC’s decision to refuse a claim. It was rejected as the respondents concluded that the property was to be used for business purposes because Planning Permission was for a holiday let rather than residential own use. To claim under the scheme, the relevant the property must be used “otherwise than in the course of furtherance of business” – VAT Act 1994, section 35)


The cottage was constructed in Seaford – within the Souths Down National Park and, in order to obtain planning consent, it was required to be made available for letting on a commercial basis for 140 days a year. The appellant contended that it was his primary residence in the UK and any letting (which was interrupted by covid in any case) was/would be incidental to this primary purpose.

The property was listed on Air BnB in order to satisfy the requirements of the planning consent, but the property had not been actively marketed and no lettings had taken place.

Mr Spani contended that the use of the cottage “falls far short of the HMRC’s position that it was the appellant’s intention to use the property for a wholly commercial purpose”. It was simply the appellant’s home in the UK and that an identical property built outside the National Park would not have the Planning Permission holiday let requirement.

Further, if it was a commercial enterprise, Mr Spani could have could have used another reclaim route, viz: registering for VAT and recovering an element of the input tax incurred.


The appeal was dismissed – The judge opined that “none of these events subsequent to the grant of the Planning Permission and completion certificate detract from the fact that the property was built to be a holiday let (as stipulated by the planning consent) and was therefore constructed in furtherance of a FHL* business”.

Additionally, the FTT stated that: it is plain that the appellant’s plan to live in the property within the FHL regulations does not (and cannot) alter the property into a dwelling… when there is the express prohibition placed on the property to be a dwelling.

The conclusion was that the property was built in furtherance of a business which prohibited a claim.


Yet another case highlighting precise requirements of a claim under the scheme and HMRC’s strict application of the rules. Care must always be taken in such cases and we advise professional advice is sought prior to a submission of a claim.

Furnished Holiday Let

Bull Brand Ltd v HMRC [2023] UKFTT 748 (TC): Request for an appeal out of time 

Bull Brand’s permission to appeal late against a decision to reject protective error correction notice (“ECN”) for overpaid VAT has been refused by the First-tier Tribunal (“FTT”) 

Bull Brand is a wholesale supplier of e-cigarettes (and tobacco products) which was made aware of a lead case regarding whether the VAT rate for e-cigarettes should be 5% rather than 20%. Bull Brand submitted a claim for overdeclared output tax in October 2018, on the basis that VAT at 5% is the correct rate of VAT for e-cigarettes. 

HMRC rejected the claim in December 2018, but Bull Brand claimed it did not receive the letter. 

In the FTT’s opinion, the letter rejecting the ECN had probably been lost in the post, but this was not a sufficient reason for submitting an appeal three-years late. Bull Brand should have contacted HMRC for an update on its claim. 

Anne Fairpo Tribunal Judge concluded that:

“I do not consider that the failure to receive that letter amounts to a good reason for the significant delay in appealing. I consider that a reasonable taxpayer would have made enquiries of HMRC or an adviser when it had not received any response to the claim and so would have realised sooner that the claim had been rejected and should be appealed. They would not have assumed it reasonable to hear nothing from HMRC with regard to the claim for over three years. This is particularly the case given the significant value of the claim in relation to the general finances of the business. … Taking all of the circumstances together, in the light of the very substantial delay and given that I do not consider that the appellant has established that there was a good reason for the delay, I do not consider that the potential financial consequences for the appellant and the limited prejudice to HMRC resources is sufficient to displace the starting point that time limits should be respected and that permission to appeal out of time should not be granted.”

The decision demonstrates that, when product liability is being contested, parties throughout the supply chain may need to take steps to protect their position. It also illustrates that where any claim for overpaid or under recovered VAT has been submitted it is prudent to follow up with HMRC for updates on the claim. 

HMRC’s decisions must be appealed to the tax tribunal within 30 days of the date of the decision. It is possible to request leave to appeal out of time, but you must have a good reason to persuade the Tribunal Judge that your appeal should be allowed.

Partial exemption guidance updated.

VAT Notice 706 has been updated on 14 September 2023 and the option to send an email to get an approval for a partial exemption special method has been removed from sections 6.2, Appendix 2 and how to apply.

Para 6.2 – “Get approval for a special method. You cannot change your method without our prior approval. You must continue to use your current method, whether that is the standard method or a special method, until we approve or direct the use of another method or direct termination of its use.

You can get approval for a special method by using the online service.

If you are unable to use the online service, contact VAT Written Enquiries team by post.

You must explain clearly how your proposed method will work, you should see Appendix 2 in this guide.

When you propose a special method you must include a declaration that the method is fair from its effective date of application, and for the foreseeable future so that from its effective date a fair amount of input tax is recovered”.

Examples of special methods (PESM) are:

  • sectors and sub-sectors
  • multi pot
  • time spent
  • headcount
  • values
  • number of transactions
  • floor space
  • cost accounting system
  • pro-rata
  • combinations of the above methods

Alternative Dispute Resolution (ADR) What is it? How does it work?

What is ADR?

ADR is the involvement of a third party (a facilitator) to help resolve disputes between HMRC and taxpayers.  It is mainly used by SMEs and individuals for VAT purposes, although it is not limited to these entities.  Its aim is to reduce costs for both parties (the taxpayer and HMRC) when disputes occur and to reduce the number of cases that reach statutory review and/or Tribunal.

The process

Practically, a typical process is; HMRC officials and the facilitator meet with the taxpayer and adviser in a room, and agree on what the disputes are.  They then retire to two separate, private rooms, and the facilitator goes between the two parties and mediates on a resolution.

ADR is a free service and the only costs the taxpayer will incur are fees from their advisers on preparation and any representation they require on the day.

Features of ADR

  • Without prejudice discussions – Anything said or documents produced during the ADR process cannot be used in future proceedings without the express consent of both parties subject to the obligations placed on the parties by the operation of English law
  • Evidence is that ADR can work for both VAT and Direct Taxes disputes both before and after an appealable decision or assessment has been made. However, ADR for VAT disputes is more suited to post appealable decision and assessments
  • Memorandum of Understanding (MOU) and a Code of Conduct – a MOU is created to commit taxpayers/agents to the requirements of the ADR process
  • The average time for all completed ADR cases is 61 days. This figure is from application to resolution.  The average elapsed time for VAT it is 53 days
  • The average age of VAT disputes is eight months
  • An ADR Panel has been created to accept or reject applications for ADR. It screens all applications and not just those where ADR was thought to be inappropriate.
  • Customer / Agent Questionnaire Summary – Findings from customers and agents included:
  • An appreciation of the personal interaction that the ADR process allowed
  • Facilitators were even handed and impartial in all cases and kept the taxpayer well informed
  • ADR was particularly well suited to resolution of long-standing disputes.

Is Tribunal preferable?

Taking a case to Tribunal is often an expensive, complicated and time-consuming option, but used to be the only option open to a taxpayer to challenge a decision made to HMRC.  From personal experience, the number of cases from which HMRC withdraw “on the steps of the court” illustrate a weakness in their legal procedures and possibly a lack of confidence in presenting their cases. This is very frustrating for our clients as they have already incurred costs and invested time when HMRC could have pulled out a lot earlier.  Of course, our clients cannot apply for costs.  The sheer number of cases going through the Tribunal process means that there are often very long and frustrating delays getting an appeal heard.

 A true alternative?

Therefore, should we welcome ADR as a watered-down version of a Tribunal hearing?  Or is it actually something else entirely?

HMRC say that “ADR provides an excellent opportunity for Local Compliance to handle disputes in a modern and collaborative way.  It is not intended to replace statutory internal review which is an already established process aimed at resolving disputes without a tribunal hearing. Review looks at legal challenges to decisions whereas ADR is more suitable for disputes where there might be more than one tenable legal outcome”.

Results so far

After an initial two-year pilot which shaped the final programme, and was guided by a Working Together group that included CIOT, AAT, ICAEW and legal representatives HMRC concluded that “ADR has shown that many disputes, where an impasse has been reached, can be resolved quickly without having to go to tribunal.” And “ADR is a fair and even-handed way of resolving tax disputes between HMRC and its customers and helps save time and costs for everyone.”  Ignoring the dreadful use of the word “customers”… what has the profession made of the scheme?

Hui Ling McCarthy – Barrister has reported “HMRC’s ADR studies have produced extremely encouraging and positive results – owing in large part to HMRC’s willingness to engage with taxpayers, advisers and the professional bodies and vice versa. Taxpayers involved in a dispute with HMRC would be well-advised to take advantage of ADR wherever appropriate”.


So what was the outcome of the two year scheme?  The headline is that 58% of cases were successfully resolved, 8% were partially resolved and 34% were unresolved.

Of the fully resolved facilitations:

  • 33% were resolved by educating the taxpayer/agent about the correct tax position.
  • 24% were resolved due to the facilitator obtaining further evidence.
  • 23% were resolved by educating the HMRC decision maker about the correct tax position.
  • 20% were resolved through facilitators restoring communication between both parties.


These figures are encouraging and the conclusion that; well planned, constructive meetings, with the intervention of an HMRC facilitator, do increase the chances of dispute resolution, appear to be well founded.

Further, the fact that the project team saw no evidence of any demand from HMRC, taxpayers or their agents for access to external mediators and that there is also conclusive evidence from taxpayers that HMRC facilitators have acted in a fair and even-handed manner add to the feeling that ADR is a useful new tool.


The comments from HMRC on ADR is (probably understandable) positive.  However, reactions from the profession and taxpayers who have gone through the process are equally generous on ADR as a mechanism for settling disputes.

My view is that any alternative to a Tribunal hearing is welcome and even if ADR works half as well as reports conclude then it should certainly be explored.  It should definitely be considered as an alternative to simply accepting a decision from HMRC with which a taxpayer disagrees.

Changes to agent authorisation 

Making Tax Digital (MTD)

HMRC has stated that from October this year it is removing the functionality to copy across existing VAT clients to agent services account (ASA).

When using ASA, agents can copy over existing client relationships for VAT and Income Tax Self Assessment (ITSA) customers from their old Government Gateway ID. HMRC will be removing this functionality to copy across existing VAT clients to ASA . It is important to ensure that existing VAT clients are copied across to ASA before this date.

Once this functionality is removed VAT clients can be authorised using the digital handshake authorisation route available in your ASA.

The copy functionality will remain for ITSA taxpayers.

Definition of insurance

Further to my article on insurance and partial exemption, HMRC has published a new definition of what insurance means for VAT as a consequence of the CJEU United Biscuits (Pension Trustees) Ltd and another v HMRC [2020] STC 2169 case.

It is set out in para 2.2 of Public Notice 701/36

What insurance is

There is no statutory definition of insurance, although guidance can be gained from previous legal decisions in which the essential nature of insurance has been considered.

The Court of Justice of the European Union , in the case of United Biscuits (Pension Trustees) Ltd & Anor v R & C Commrs (Case C235-19) [2020], upheld the definition given in the case of Card Protection Plan Ltd v C & E Commrs (Case C-349/96) [1999] which concluded that:

“…the essentials of an insurance transaction are… that the insurer undertakes, in return for prior payment of a premium, to provide the insured, in the event of materialisation of the risk covered, with the service agreed when the contract was concluded”.

HMRC also accept that certain funeral plan contracts are insurance (and therefore exempt from VAT), even though they are not regulated as such under the FSMA insurance regulatory provisions.

Vehicle breakdown insurance is also seen as insurance even though providers are given a specific exclusion under the FSMA from the requirement to be authorised.

Late payment interest rates rise to 5.25%

HMRC late payment interest rates for late payments will increase following the Bank of England interest rate rise to 5.25%. These changes will come into effect on:

14 August 2023 for quarterly instalment payments

22 August 2023 for non-quarterly instalments payments

Powers of HMRC – The Impact Contracting Solutions Limited UT case

Latest from the courts

In the Impact Contracting Solutions Limited (ICS) Upper Tribunal (UT) case the issue was whether HMRC had the power to cancel the VAT registration where that person has facilitated the VAT fraud of another ie; the scope of the “Ablessio” principle. It also illustrates the impact of EU cases on UK courts.


ICS’s customers were temporary work agencies, and its suppliers were approximately 3,000 mini-umbrella companies (“MUCs”) which supplied labour. HMRC decided to cancel ICS’s VAT registration number with reliance on the principle in the decision of the Court of Justice of the European Union (CJEU) in Valsts ienemumu dienests v Ablessio SIA (C-527/11) (“Ablessio”). HMRC considered that ICS was registered for VAT principally or solely to abuse the VAT system by facilitating VAT fraud, and that, in such circumstances, they were empowered by the principle in Ablessio to cancel the registration. In particular, HMRC considered that the arrangements between ICSL and the MUCs were contrived, with the effect that the MUCs failed properly to account for VAT on their supplies to ICS.

ICS appealed against HMRC’s decision to cancel its registration.

The Issues

Does the principle in Ablessio apply only to a party that has itself fraudulently defaulted on its VAT obligations, or does it similarly apply to a party who has facilitated the VAT fraud of another party?

If the Ablessio principle does apply to a party who has facilitated the VAT fraud of another party, is simple facilitation sufficient, or must it additionally be proved that:

  • the facilitating party was itself dishonest, or
  • the facilitating party knew that it was facilitating the fraud, and/or
  • the facilitating party should have known that it was facilitating the fraud?

The First Tier Tribunal (FTT) decided that Ablessio applies both to a party that has fraudulently defaulted on its VAT obligations and to a party who has facilitated the VAT fraud of another party. Further that simple facilitation by a party of the VAT fraud of another is not sufficient to apply the Ablessio principle. However, it is not necessary to prove that the facilitating party was itself dishonest. It must, however, be proved that the facilitating party knew or should have known that it was facilitating the VAT fraud of another party.


The appeal was rejected an the FTT’s decision was upheld. HMRC powers are not contrary to UK VAT legislation.

The application by HMRC of Ablessio is not contra legem or otherwise prohibited by the VAT legislation where it is applied to deregister a taxpayer who has either fraudulently defaulted on its VAT obligations or facilitated the VAT fraud of another party and at the relevant time has also made taxable supplies unconnected with such fraud or facilitation of fraud and which would result in a liability to be registered.

Ablessio applies to the deregistration by HMRC of a person as well as to a refusal by HMRC to register a person. It also provides for the deregistration of a person who has facilitated the VAT fraud of another, where the person to be deregistered knew or should have known that it was facilitating the VAT fraud of another.


This decision was released this month and illustrates the ongoing influence of EU legislation and cases, “despite” Brexit.

EU legislation does not, by itself, fall within the scope of retained EU law (see below). However, domestic legislation implementing EU rules forms part of EU-derived domestic legislation and is preserved in domestic law.

The VAT Act 1994 is not affected by Brexit because it is an Act of Parliament and, therefore, remains effective unless it is changed by Parliament.

Overview of the impact of EU legislation

Post-Brexit, the UK could have decided that UK courts should not be bound by EU case law. However, this would have resulted in a situation where the UK courts effectively had to begin with a blank piece of paper in deciding how a piece of retained EU law should be interpreted or applied. This approach would have resulted in considerable uncertainty for business over how retained EU law would operate. In order avoid this, section 6 of the European Union (Withdrawal) Act 2018 provides that:

  • CJEU judgments made on or before 31 December 2020 are binding on UK courts
  • CJEU judgments made after that date are not binding, but the UK courts are free to have regard to them, so far as they are relevant to the matter before the court

Going forward

Helpful guidance is provided in the e-Accounting Solutions vs Global Infosys case (not a VAT case).

The Retained EU Law (Revocation and Reform) Act 2023 means that the principle of EU-law conforming construction is a corollary of the supremacy of EU law (which is abolished under Section 3 of the Act) and will therefore no longer apply from 2024.

The principles of statutory construction under English Law require a purposive interpretation of legislation, whether or not EU law principles are engaged. This involves considering the context in which the legislation was made. Depending on the legislation concerned, this process may be guided by “external aids”. External aids referred to in the judgment include Explanatory Notes and Government White Papers, and could also presumably include references to Hansard where seen as appropriate by the courts. To the extent that domestic enactments were made for the purpose of implementing EU law, the EU law position is such an “external aid” and the UK law should be construed accordingly.

Where Parliament used the same language as the Directive, one may assume that it intended to mean the same – accordingly, the CJEU interpretation of Directive-terms informs the interpretation of the UK statute.

However, the statutory language remains paramount – “external aids”, to which EU law instruments are effectively downgraded in UK law from 2024, cannot displace unambiguous statutory language in UK enactments that is inconsistent with EU law.

eInvoicing Glossary

Further to my article on eInvoicing, I thought it may be helpful if I compiled a Glossary of terms used in connection with the subject. These definitions have been compiled from various sources and I have tried to keep them as “non-techy” as possible.

Accounts Payable Automation (APA)

An automated management of accounts payable by dealing with invoices received and payments sent. It requires integration of the invoicing process with accounting software.

Accounts Receivable Automation (ARA)

As APA but for accounts receivable (dealing with invoices sent and payments received).

Acknowledgement Of Receipt

The acknowledgement of receipt of an EDI message – the syntax and semantics are checked, and a corresponding acknowledgement is sent by the receiver.

Advanced Electronic Signature

A digital signature based on an advanced certificate uniquely identifying the signer. The signature keys are used with a high level of confidence by the signatory, who has sole control of the signing key.

Agreed Format

The electronic data format that businesses have agreed to treat as the data format of the original electronic invoice for tax purposes. 

Audit Trail

The system which traces the detailed transactions relating to any item in an accounting record.


The process of verifying a claim that a system entity or system resource has a certain attribute value.

Authenticity Of Origin

Assurance of the identity of the supplier or issuer of the invoice and that the document is the true original.


Business to business.


Business to consumer

Biller Portal

Invoice providers’ web portal where invoice receivers can log on with a username/password to check and manage their invoices.

Billing Service Provider

A provider offering services to senders and receivers which involves the sending, collection and administrative processing of eInvoices.

Certification Service Provider

An entity which issues digital certificates or provides services related to electronic signatures.


A tax authority approval being a precondition for the validity of a document.

Clearance Model

A tax authority is involved in the invoice data exchange between the vendor and the customer as a third party. It allows the tax authorities a real-time insight into the business transactions. The eInvoice must be approved by the tax authority before being sent to the recipient.

Continuous Transaction Controls (CTC Reporting)

Obligations requiring a taxpayer to submit relevant data to the relevant tax authority before, or shortly after, a transaction.

Data Integrity

Checks that data has not been changed, destroyed, or lost in an unauthorised or accidental manner.

Digital Certificate

A file or electronic password that proves the authenticity of a device, server, or user via cryptography and the public key infrastructure.

Digital Reporting Requirements (DRR)

The obligation for a taxable person to submit digital data on their transactions to HMRC.

Digital Signature

A technique used to validate the authenticity and integrity of a digital document, message or software.


The requirement for a taxable person to submit digital business records to a tax authority platform.


Storing electronic documents as evidence for a prescribed period of time according to the relevant HMRC regulations.

Electronic Data Interchange (EDI)

An intercompany communication of business documents in a standard format. EDI is a standard electronic format that replaces paper-based documents such as purchase orders or invoices.


Details here.


Electronically issued customer receipts.

EU eInvoicing

Details/how to here.


The method of presentation of electronic data in an electronic document.

Four Corner Model

A process where suppliers and customers have one or several service providers that ensure the correct processing between them.

Invoicing Directive

The eInvoicing Directive which requires EU entities to receive and process all electronic invoices – compliant with the European standard.

Mandatory eInvoicing

The obligatory use of eInvoicing by business which is imposed by the country’s authorities. Around 80 countries mandate eInvoicing.

Pan-European Public Procurement On-Line (Peppol)

An EDI protocol, designed to simplify the purchase-to-pay process between government bodies and suppliers. It facilitates electronic ordering, invoicing and shipping between government organisations and businesses.

Periodical Transaction Reporting

An obligation for a taxpayer to submit transactional data on a monthly, quarterly or annual basis.

QR Code

eInvoice verification which allows users to verify the authenticity of an eInvoice based on the QR code appearing on it. The QR code is used to provide information related to a particular invoice.

Qualified Electronic Signature

An electronic signature which is compliant with EU Regulation 910/2014 for electronic transactions within the internal European market. It enables verification of the authorship of a declaration in electronic data exchange over long periods of time.

Post Audit eInvoicing

An invoice is sent to the tax authorities only after the transaction has been completed. The business must guarantee the authenticity and integrity of the invoice and archive the document to satisfy audit requirements. This is being overtaken by the Clearance Model (above). 


The ability of a tax administration to interpret the content of an eInvoice.

Real-time reporting

An obligation for a taxpayer to submit fiscal data to a tax authority platform immediately, or shortly after, a transaction.

Transactional Data

Information that is captured from transactions. It records the time of the transaction, the place of supply, the value of the supply, the payment method, discounts if any, and other quantities and qualities associated with the transaction.

Three Corner Model

A process where invoice senders and receivers are connected via a single service provider for the sending and receiving of messages.

Two Corner Model

A process where invoice senders and receivers are connected directly for the sending and receiving of messages.


The United Nations’ Centre for Trade Facilitation and Electronic Business has a global remit to secure the interoperability for the exchange of information between private and public sector entities.

Unstructured Invoice Document

An invoice that is created manually or automatically from a system and is not in a database. An Unstructured Document may contain data, but the data is not organised in a fixed format. Consequently, it is difficult to find and capture the data for use.

VAT Listing

An obligation for a business to submit VAT transactional data according to a domestic format. The data includes: information on values and recipients, as well as data which is required to be included on an invoice. The data are submitted on a periodic basis, often jointly with the VAT return.

Web Payment

An online service that manages the transfer of funds from a customer to the merchant of an e-commerce website.

Web Publication

A method of exchanging invoices with a buyer by placing an original electronic invoice on an agreed web site, in a secure closed environment operated by the supplier.

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