Welcome to the July edition of our monthly VAT update, including a selection of news and updates relating to the world of VAT.
Only two things to be sure of
One of the exemptions in VAT legislation is the ‘making of arrangements for or in connection with the disposal of the remains of the dead’.
In this case, a company that constructs and installs burial vaults where the soil is unstable to prevent subsidence was contracted to install a large number of these vaults in grounds set aside for burials, and exempted the supply. HMRC challenged this on the basis that the exemption only applied to ‘the disposal of the remains of a particular dead person’. The First-tier Tribunal disagreed with this and saw that the preparation for future burials were also subject to the exemption.
HMRC referred to sections within the public notice. Yet, as it knows, HMRC does not have force of law unless specifically noted, and as such these were given short shrift by the tribunal.
Are you being served?
Representations have been made by the accountancy’s professional bodies to HMRC about the services levels for response to or actioning requests for group registration changes, options to tax, etc. Apparently, HMRC has said that it plans to be ‘operating normally’ by August.
You may remember a landfill case we covered a few months back, mainly because the assessment was £99 million. The upper tier appeal has been heard with a reported ‘partial’ success for the taxpayer where assessments and penalties on specific uses but not on others. How this affected the overall figure was not explained, but it shows that decisions of the tribunal in whatever tax are not infallible.
The (100-year) sausage war
The UK Government has issued a bill and press release about proposed changes to the existing Northern Ireland (NI) protocol and why (in its view) this does not transgress international law.
The proposals are for a ‘green channel’ for goods that will remain in the UK. In addition, there are proposals to introduce a new model for NI, which would impose UK rules on VAT and subsidy controls as well as removing the European Court of Justice from its role of arbiter of disputes. The EU has in turn issued infraction proceedings against the UK for not resourcing the border posts in NI properly and publishing guidance contrary to EU law.
The real victims of this political fracas will be the businesses who move goods into and out of NI and beyond and need clarity and certainty to enable them to make clear, calculated, commercial decisions.
Plastic Packaging Tax
When Plastic Packaging Tax (PPT) was introduced in April this year, some businesses found that they had to register for the tax from day one (April Fool’s Day). With the PPT returns being fixed for calendar quarters a number of businesses are now coming to the end of their first PPT period; yet HMRC is not going to open the portal to allow businesses to see what the new return looks like until 1 July 2023.
Anyone who had a heart
A case heard at the Upper Tribunal has confirmed that when a plastic heart is intended for use in a teddy bear there is duty at 4.7%, whereas if it were intended for use in a doll it would be free of duty.
The main purpose of reporting this is to highlight the issues businesses may face when looking to import goods that originate outside the EU and therefore may have duty applied, and how complex (and absurd) the correct outcomes could be.
Writing this newsletter in our Chelmsford offices, it’s notable that Chelmsford City Council (CCC) has won its case against HMRC with regards to admission fees for certain sporting facilities.
CCC argued that the fees charged did not cover the costs of providing the facilities, but it acknowledged the benefits of raising fitness in the local population; and that CCC was doing so under a special legal regime that meant that VAT was not due on these fees.
HMRC had lost the first hearing, and then lost this one too, with the tribunal agreeing that CCC was not operating as a taxable person.
However, one of the issues remains to be tested in whether not charging VAT will lead to distortion of competition.
No SDP? Still no VAT
For many years, HMRC has (mostly) successfully argued that where an insurance policy for a car includes social domestic and pleasure (SDP) then the input tax is blocked.
Some details of the tribunal appear counterintuitive. A business bought two cars during the 2020 lockdown. The business said that they intended to operate the vehicles for private hire (i.e. a taxi service) even though one was an Audi TT, which is effectively a two seater. The initial insurance included SDP as it is difficult to get car insurance without it, but did not provide for use as a taxi. However, the business said that as one of the partners had arthritis and it was lockdown, they did not look to change the insurance details, as the cars were to remain on the business property.
The same return also had claims for a private registration plate for a motorbike used in the business and exercise clothing for one of the partners who was looking to set up a Pilates business (which must be good for arthritis as it was the same partner).
Prior to HMRC’s assessment, the business sent evidence of one of the partners applying to the local authority to work as a taxi driver. Updated insurance was provided but again included SDP and excluded use for private hire. Then at the hearing, the business said that it was never the intention to use the cars for private hire.
The tribunal agreed with HMRC that the VAT on the car purchases, customised number plate and exercise equipment was not reclaimable. The business had also built a lockable compound for the vehicles, but it was not reported if VAT was incurred, or reclaimed.
This is the first time we have seen lockdown used to defend the claiming of VAT on a car purchase, but HMRC has maintained their inflexible view – where private use is available, input tax is most often denied.
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