News & Articles


Monthly VAT Update: May 2022


Welcome to the May edition of our monthly VAT update, including a selection of news and updates relating to the world of VAT.

Let them eat flapjack

It has long been agreed that a ‘traditional’ flapjack is seen as a cake for VAT purposes, so even a chocolate coating would be zero-rated for VAT.

The taxpayer in question was seen to have ‘moved away’ from the traditional flapjack (containing oats with perhaps the addition of dried fruit) and was seen as being used in assisting in recovery from exercise, focusing on the protein element of the products.

The tribunal decided that all 36 products were standard rated. The tribunal report is interesting in how the tribunal came to its decision and is too detailed to summarise effectively here; but one point really stood out where it said:

“If held up to a group of contestants in a game where a point is awarded to the first contestant to call out correctly what the object is, the tribunal is satisfied that the majority of contestants would say spontaneously that the product is a ‘bar’, or a ‘fruit bar’, or an ‘energy bar’.”

It seems the man on the Clapham omnibus has a modern equivalent; a game show panellist.

However, this does highlight the complexities of VAT and food. If you have any queries about products, new or old, you should seek professional advice. For more information, please contact us.

Have I got some old news for you?

A letter in the press recently was from a member of the team drafting the original UK VAT legislation in the early 1970s. They were told by their political masters that they had no problem with VAT being added to a meal at the Savoy Grill but it must not impact ‘the working man’s fish and chips’.

So, the legislators came up with the distinction between eat in and takeaway for VAT treatment, which even more than 30 years after hot takeaway food also became standard rated, still creates numerous VAT cases to this day.

Judgment day

To illustrate, this case involved a taxpayer supplying hot and cold food and drink for eat in and takeaway. The taxpayer did have some seating outside which was seen as part of the premises. A VAT visit resulted in an officer making a ‘best judgement’ assessment in excess of £20,000, for under-declared VAT. This was a combination of the taxpayer not charging VAT on eat in sales, hot takeaway food or cold takeaway drinks.

The main focus of the case was whether the officer’s assessment constituted ‘best judgement’ in view of the evidence presented. The tribunal agreed that a recalculated assessment of £18,000 was in best judgment.

A key issue here was the use of food delivery services where the business did not correctly account for VAT on the hot food and drinks (hot and cold) elements. Given the incremental increase in such supplies over the last few years, HMRC may look to target such businesses to ensure that the correct VAT is being declared.

Just robbing Peter?

A government body, the Mayor’s Office for Policing and Crime (MOPAC) sells some impounded vehicles for scrap. It charged VAT on these sales but then realised that as a body governed by public law operating under a special legal regime, VAT was not due. So, it submitted a VAT claim for £1.7 million of overpaid VAT.

HMRC rejected the claim on the grounds of ‘unjust enrichment’. MOPAC argued that - as both they and HMRC were ‘emanations of government’ - the funds would remain in the public purse.

The tribunal rejected this argument and the repayment claim was rejected. This shows the importance of establishing if HMRC could challenge a claim on unjust enrichment grounds.

Knowingly done

A taxpayer incurred a cost from an associated business on which VAT was charged. The VAT was reclaimed as input tax, but the supplier went into liquidation and did not declare the VAT as output tax.

HMRC refused to allow the reclaim as, due to the relationship of the two businesses (they had common directors), the business making the claim knew that the business making the supply would not declare the output tax due.

The tribunal accepted that the financial pressures on the supplier business were real, but also took the view that the business making the claim knew the VAT situation well enough for both and was therefore being dishonest. The fact that the supplier did not seek to advise HMRC of its position was commented on as a point against the appeal. The tribunal also referred to the fact that, of its debts, the supplier owed trade creditors £1,684, but HMRC £318,755, of which the VAT was £268,000.

We've been here before

A taxpayer was a car dealer who was assessed for under-declared VAT and given a ‘deliberate’ penalty percentage. HMRC said that the reason for the assessment was ‘bumping’ (the artificial inflation of a part exchange car value to meet finance requirements). As this was the reason behind an earlier assessment the taxpayer had not changed their systems, so were acting deliberately.

Every Englishman to pay his duty

In 2021, UK duty revenues were £4.8 billion, compared to £2.9 billion in 2020. Whilst not the sole reason, the report acknowledges the impact that Brexit has had on duty costs for UK businesses and customers.

It’s also been announced that the introduction of full checks on fresh food imports (requiring vet certificate, etc.) will not be implemented ‘this year’. The fourth delay to this procedure.

If you are dealing with international transactions, a Rickard Luckin health-check can help identify areas for potential costs reductions. For more information, please contact us.

Overseas VAT consent

When a business makes a claim to an overseas VAT authority to reclaim overseas VAT, they need to submit a VAT66 as part of the process. HMRC has announced that it is to digitise the VAT66 process with applications and responses made by email.

However, it also asks for an informed consent form to be completed, but the hyperlink on HMRC’s website, and the separately searched for page (which seems to have a slightly different format to HMRC’s usual email addresses) refuses to bring the form forward.

It's not VAT, Jim...

Landfill tax doesn’t often make its way on to the newsletter, but the figures involved in cases reported are astounding.

This is owing to the difference between the current lower rate, £3.15 per tonne, and the standard rate, £98.60 per tonne. Substances subject to the lower rate are referred to as ‘qualifying materials’.

Although the disputed loads contained non-qualifying elements, the percentages were so small (<5%) they were ruled to be effectively ‘deminimis’. But, the law requires correctly completed ‘transfer notices’ for each load of qualifying material.

Because of this administrative error, the loads could not be treated as qualifying and were therefore subject to the standard rate.

The result? An assessment of £546,000.

This article is from the latest issue of our VAT newsletter. To receive future copies of any of our newsletters directly to your inbox, please visit our preference centre to register your interest.

Find out more
If you have any questions about the above, or would like more information specific to your circumstances, please enter your email address below and we will get in touch:

Our Accreditations and Memberships