Deeks VAT News issue 44

Welcome to this months Newsletter   

May 2024 issue 44

 Keeping you up to date on VAT changes   

In this months newsletter we cover the following:  

Fount Construction Ltd [2024] UKFTT 340 (TC)

Block-Aid Ltd [2024] UKFTT 339 (TC)

Business Brief on Tour Operators’ Margin Scheme B2B

Road Fuel Scale Charges from 1 May 2024

DIY Housebuilder Scheme updated 

New centralised HMRC website to manage imports and VAT 

Tax points and VAT groups – The Prudential Assurance Company Ltd CoA case 

Registration – New guidance for Non-Established Taxable Persons (NETP) 

A VAT Did you know?

The sale of a dead horse is VAT free, but a live horse is standard-rated.

This is not a recommended tax planning scheme!

Fount Construction Ltd [2024] UKFTT 340 (TC)

HMRC disallowed input tax on the basis that the descriptions on the invoice did not meet the requirement of the Value Added Tax Regulations 1995 Reg 14, which requires an invoice to contain a description. The Tribunal looked at whether description of services supplied to appellant was sufficient. The FTT concluded that “a general short description of the nature of the services (such as “Building Services”), along with some further identifying information such as the name of the site, the contract, or the date of works, will be sufficient to meet the requirements of regulation 14”.

Please see the link below to the full case.

View the decision on BAILII.

This case illustrates that invoices should include all the details required by law and to ensure there is a sufficient description of the goods/services provided. However, it also illustrates that HMRC are not always correct.

Block-Aid Ltd [2024] UKFTT 339 (TC)

The FTT has allowed the taxpayer appeal in part in Block-Aid Ltd v HMRC [2024] UKFTT 339 (TC).In relation to haulage invoices, the FTT found that the company had not provided evidence to support the nature of supplies made.

Similarly, in relation to tyres, the company had had several years to present evidence but had not done so.

Again, there was no evidence in relation to the ground works, or in relation to security supplies.

In relation to vehicles, however, the FTT was satisfied that V5C certificates provided evidence of the transfer of vehicles.

Please see the link below to the full case.

View the decision on BAILII.

VAT Treatment of Private Hire Vehicles

On 18 April 2024, HMRC published a constulation on the potential the potential tax impacts of recent High Court judgments, Uber Britannia Limited v Sefton Borough Council and Uber London Limited v Transport for London on transport legislation on the private hire vehicle sector and its passengers.

This consultation invites views on potential Government interventions that could help to mitigate any undue adverse effects on the PHV sector and its passengers.

Whilst the Government is consulting on this issue, PHVOs and drivers can rely on existing HMRC guidance, which allows PHVOs to continue to account for VAT as agent if that is how their business is structured.

The period of consultation closes on 8 August 2024.

Business Brief on Tour Operators’ Margin Scheme B2B

HMRC have issued a BB 5(2024) on Tour Operators’ Margin Scheme (TOMS) for business to business (B2B) wholesale supplies.

This document:

• sets out the VAT accounting for TOMS B2B wholesale supplies
• explains that businesses may choose whether to apply TOMS to B2B wholesale supplies
• details a technical change to the treatment of B2B wholesale supplies in relation to TOMS

Ultimately, the policy allowing businesses to choose whether to apply TOMS to B2B wholesale supplies remains unchanged. 

Road Fuel Scale Charges from 1 May 2024

HMRC has issued its 1 May 2024 to 30 April 2025 Road Fuel Scale Charges (RFSC)

RFSC

A scale charge is a way of accounting for output tax on road fuel bought by a business for cars which is then put to private use. If a business uses the scale charge, it can recover all the VAT charged on road fuel without having to identify specific business and private use. The charge is calculated on a flat rate basis according to the CO2 emissions of the car.

A business will need to calculate the correct RFSC based on a car’s CO2 emissions, and the length of its VAT accounting period. This will be either one, 3, or 12 months. The CO2 emissions figure may be found here if the information is not available in the log book.

Alternatives to using RFSC

• use detailed mileage records to separate business mileage from private mileage and only claim for the business element
• claim no input tax

Business/private mileage calculation example:

• Total mileage: 4,290
• Business mileage: 3,165
• Cost of fuel: £368.
• Business mileage: £368 × (3,165 ÷ 4,290) = £271.49
• Claimable input tax: £271.49 × VAT fraction = £45.25

DIY Housebuilder Scheme updated

HMRC has updated its guidance for DIY Housebuilders.

The scheme enables people who build, or convert properties into dwellings for their own use to recover VAT incurred on the project.

New centralised HMRC website to manage imports and VAT

HMRC guidance

HMRC has published a website Manage your import duties and VAT accounts, which provides a centralised place from which businesses importing goods can manage payment and guarantee accounts, manage and view authorities, and download duty deferment statements, import VAT certificates, postponed import VAT statements, and notification of adjustment statements. The website can only be accessed via the Government Gateway.

From this site a business can:

• view and manage its cash account (top up and withdraw funds)
• set up a Direct Debit for, and top up a duty deferment account
• request older statements and certificates
• view and manage a general guarantee account
• manage the email address linked to an account
• access secure messages from HMRC related to the account
• set up, manage or view account authorities

Downloads are also available for:

• duty deferment statements
• import VAT certificates (C79)
• postponed import VAT statements
• notification of adjustment statements

To use the service a business must be subscribed to the Customs Declaration service.

Tax points and VAT groups – The Prudential Assurance Company Ltd CoA case

Latest from the courts

In the The Prudential Assurance Company Limited (Pru) Court of Appeal (CoA) case the issues were the “difficult” questions in respect of the relationship between the VAT grouping rules and the time of supply (tax point) legislation. Is VAT is applicable on a continuous supply of services where these services were supplied while the companies were VAT grouped, but invoices were issued after the supplier left the VAT group?

Background

Pru was at the relevant time carrying on with-profits life and insurance business. Silverfleet Capital Limited (Silverfleet) provided Pru with investment management services. Under an agreement dated 30 August 2002, the consideration which Silverfleet received for its services comprised a management fee calculated by reference to the amount of investments made during the period in which services were provided and performance fees, payable in the event that the performance of certain funds exceeded a set benchmark rate of return.

When Silverfleet was rendering its investment management services, Pru was the representative member of a VAT group of which Silverfleet was also a member. However, in 2007 a management buy-out was effected, as a result of which Silverfleet ceased to be a member of Pru’s VAT group. It also ceased to provide management services to Pru.

During 2014 and 2015, the hurdle rate set under the 2002 agreement was passed. Silverfleet accordingly invoiced Prudential at various dates between 2015 and 2016 for fees totalling £9,330,805.92 (“the Performance Fees”) plus VAT at 20%.

The Issues

The CoA considered whether the Performance Fees are subject to VAT.

The First-tier Tribunal (FTT) decided the point in favour of Pru. However, HMRC succeeded in an appeal to the Upper Tribunal (UT). In a decision that decision, the UT concluded that VAT was chargeable on the Performance Fees.

In its decision, the FTT queried whether regulation 90 of the VAT Regulations went so far as to direct that Silverfleet’s services had not been provided within a VAT group and had been “supplied in the course or furtherance of a business that in the VAT group world was not being carried on”. Further, the FTT was “unable to see what feature distinguishes [Prudential’s] case from that of the taxpayer in [B J Rice & Associates v Customs and Excise Commissioners]”.

In contrast, the UT considered that, pursuant to regulation 90 of the VAT Regulations, Silverfleet’s services were to be treated as having been supplied when invoiced and, hence, at a time when Silverfleet and Prudential were no longer members of the same VAT group. That being so, section 43 of VATA 1994 was not, in the UT’s view, in point. The UT also considered that the FTT had erred in regarding itself as bound by B J Rice & Associates v Customs and Excise Commissioners [1996] STC 581 (“B J Rice”) to allow the appeal. Unlike Mr Rice, the UT said in its decision, Silverfleet “was not entirely outside the scope of VAT when the Services were rendered, but rather it was subject to a specific set of assumptions and disregards”.

Pru contended that Silverfleet should not be considered to have made the supply in the course or furtherance of any business carried on by it. The business will instead be assumed to have been carried on by Pru. This was important because if VAT was applicable to the services Pru would not be in a position to recover it (in full at least) due to partial exemption which represented a large VAT cost.

Unsurprisingly, HMRC considered that output tax was due because at the tax point, Silverfleet as no longer part of the VAT group. 

Legislation

The VAT Act 1994, section 43 lays down the rules in respect of VAT groups, and The VAT Regulations 1995, regulation 90 makes provision with respect to the time at which continuous supplies of services are to be treated as supplied for VAT purposes.

Section 43 explains that any supply by one member of a VAT group to another is to be “disregarded” and that “any business carried on by a member of the group shall be treated as carried on by the representative member”. Does this mean that no VAT is chargeable on an intra-group supply regardless of whether the supplier has left the group by the time consideration for the supply is the subject of a VAT invoice and paid? Or is section 43 inapplicable in respect of continuous supplies insofar as the consideration is invoiced and received only after the supplier is no longer a member of the VAT group because regulation 90 provides for the services to be treated as supplied at the time of the invoice or payment?

Decision

The appeal was dismissed and HMTC’s assessment was upheld. It was not possible to disregard the supply as intra-group and the tax point rules for the continuous supply of services meant that it was a taxable supply. The decision was not unanimous, with the decision by the judges being a 2:1 majority.

Commentary

This was a close decision and highlights the necessity of considering the interaction between VAT groups and tax points and the implications of timings. The case makes interesting reading in full (well, for VAT people anyway!) for the technical discussions and the disagreement between the judges.

Registration – New guidance for Non-Established Taxable Persons (NETP)

HMRC has published an updated version of Notice 700/1: Who should register for VAT.

Information about non-established taxable persons (NETPs) has been updated to include guidance on when they need to apply for VAT.

Other updates include:

• a definition of what a UK establishment is
• when and how NETPs registers for VAT
• how NETPs who are overseas sellers register for VAT
• what happens when NETPs do not comply with VAT requirements
• guidance for when NETPs can register voluntarily has been removed
• guidance for Making Tax Digital (MTD) for VAT Returns
• penalties for late notification to HMRC
• new European threshold for distance selling into an EU Member State

Thankyou for reading this months news. We hope you enjoyed it and found value. If you have any queries regarding VAT or Tax please contact Jane Deeks directly on:

jane@deeksvat.co.uk

‭+44 7710 553831‬