This week’s edition begins with some updated guidance from HMRC on postponed accounting for import VAT. This just shows how bizarre VAT can be. If you are VAT registered and import services wholly for a non-business purpose you have to declare reverse charge VAT on the VAT return, which will be irrecoverable if there is no link to taxable supplies. However, if you import goods wholly for non-business purposes you have to pay the VAT at importation, though if the use is going to be mixed or unknown then the VAT can be declared on the return. This seems to just add another layer of complexity for no apparent reason.
So, it is Budget week and as ever the airwaves are rife with rumours. Will the period of the 5% leisure/hospitality VAT rate be extended – the sector is certainly lobbying for that to happen. Might the scope of the 5% relief also increase? I will stick my neck out and predict that this is not likely to be a Budget with major VAT changes – the fiscal climate is not really right for these given everything else businesses are having to deal with, but of course we will report on all the key Budget changes.
Elsewhere there was some fine semantics going on in the Eynsham Cricket Club Court of Appeal case. The question “when is a charity not a charity” was not the opening line of a riddle but a very serious question for the taxpayer. Although it was established for charitable purposes only, it was not a charity because it was a community amateur sports club (CASC) and so the Charities Act statement that a CASC is not a charity had read across to the FA 2010 definition of a charity for VAT purposes since there was nothing in the FA that disapplied that statement. Interpreting two Acts coherently is not easy but this decision looks right as there is less of a regulatory burden on CASCs than on charities and the price they pay for that easement is that they cannot access the VAT reliefs available to charities.
Another fine distinction (the difference between payment and consideration) was in play in the Imprimatur FTT case. For most of its activities the taxpayer was found by the FTT not to be making supplies for consideration, meaning these activities were not economic activities, so the taxpayer was not entitled to full input tax recovery.
And finally, in this rather surreal round up of cases we report on the Jota Jota FTT decision where HMRC attempted to refuse a portal claim for UK import VAT, on the grounds that the non-established taxpayer was making supplies in the UK. Nothing wrong with that you may say but the twist in the tale here is that this supposed UK supply was actually only a deemed supply (the movement of own goods from the UK to Spain) and the taxpayer had never wanted the goods to come to the UK at all, it was simply that shipping them via the UK was the quickest way to get them to Spain from Colombia. Fortunately, the outcome here was that no UK supplies were made as the import into the UK and subsequent despatch to Spain were simply part of the transit arrangements to ensure faster delivery, and the refund was therefore valid. The question of whether a deemed supply is the same as an actual one is fascinating though, if an entity only made deemed supplies, would it be eligible to register? Logic says no, but the arguments presented by HMRC in this case may cast some doubt on that conclusion!
HMRC’s guidance has been recently updated. The update was rather vague simply stating ‘There have been multiple changes to this guidance to help readers understand what they need to do and how to do it.’ In particular the point around postponed accounting not being permitted for goods imported solely for non-business purposes is causing an issue for many mixed activity clients, though at least if the use of the goods is not known at time of import postponed accounting can be used.
The main changes are as follows:
Additional paragraph added:
You can also account for import VAT for goods you move between Great Britain and Northern Ireland that are declared into a customs special procedure, when they are removed from that special procedure.
Additional text added:
If you import goods for both business and non-business purposes.
You can account for import VAT on your VAT return if you import goods which will be used for both business and non-business purposes. You can also account for the import VAT on your VAT return if you do not know if the goods will be used for business purposes at the time that you import them.
You cannot account for import VAT on your return if you import goods you know will be used solely for non-business purposes. Instead, when you complete your customs declaration, you should select that you’ll be making immediate payment or using a duty deferment account.
Additional text added:
You must also account for import VAT on your return if all of the following apply:
Additional text added:
If you get a person or business to import goods on your behalf (such as a freight forwarder, customs agent, broker or fast parcel operator) you will need to tell them how you want to account for import VAT on those imports, so they can complete the customs declaration.
If you already have someone you should contact them to tell them if you want to account for import VAT on your VAT Return on goods you import. You should keep a written record of what is agreed.
If your business receives goods through the post in consignments exceeding £135 using Royal Mail Group (including Parcelforce where they are not acting as a fast parcel operator) you will not be able to account for import VAT on your VAT return. This is because Royal Mail Group do not currently offer this facility.
Find out more in the guide for international post users (Notice 143).
Additional text added:
If you import goods into Northern Ireland from outside the UK and EU in consignments valued at £135 or less, and you provide your VAT registration number to the supplier, you must account for import VAT on your VAT Return. When you complete your customs declaration, you must select that you’ll be accounting for import VAT on your VAT Return.
Additional text added:
If you are importing commercial goods into Great Britain or Northern Ireland in your personal baggage or private motor vehicle and want to account for import VAT on your VAT return, you will need to make a full customs declaration.
If you are eligible to make a simple online declaration instead and choose to do so, you will not be able to account for import VAT on your VAT return.
Find out more about bringing commercial goods into Great Britain in your baggage.
Find out more about bringing commercial goods into Northern Ireland in your baggage.
Below is a reminder of some of the key upcoming dates:
Wednesday 3 March – Budget 2021 home page, click here. The Chancellor will make his statement after PMQ’s which starts at 12. Online information is normally published a short while after the Chancellor sits down. If there any major announcements these will be circulated.
Tuesday 23 March – Tax Day – Government to publish range of tax consultations and calls for evidence – see press release.
This is a complicated case but the core issue is whether the taxpayer – a community amateur sports club (CASC) – is a charity for VAT purposes and whether, if it is not a charity, there has been a breach of neutrality as other cricket clubs have had the benefit of the zero rate HMRC has denied to the taxpayer. The taxpayer had signed a zero-rate certificate for the construction of a new pavilion.
This is all about the interaction of the FA 2010 and the Charities Act 2011. The earlier UT found that the taxpayer was established for charitable purposes only but was not a charity (even though charity for VAT purposes is defined in FA 2010 as a body that is established for charitable purposes only and meets some other registration, jurisdiction and management conditions), as s 6 of the CA 2011 says CASCs are not deemed to be charities. Fiscal neutrality was not relevant as a charity is different from a non-charity so different treatment of the same supplies made to them is acceptable. The taxpayer appealed and the CoA has unanimously dismissed its appeal.
This was a case where two Acts had to be interpreted together coherently. There was nothing in the s 6 deeming provision of the CA 2011 that limited or defined the effect of that provision. S 6 therefore stood on its own and applied for all purposes unless specifically disapplied. There was nothing in the FA that disapplied it. Therefore, the taxpayer was not a charity. As such the different VAT treatment that applied to the same supplies made to it and to a club that was a charity could be objectively justified and fiscal neutrality was not breached by this different treatment. Charities and CASCs are different. Also, the CoA seems to have agreed with the UT that the principle of fiscal neutrality cannot extend to supply recipients. To access the judgment, click here.
This is a really complicated case about the right to input tax deduction and whether the necessary link between the VAT and actual or intended taxable supplies could be shown.
The taxpayer had five activities. It invested in portfolio companies that had been spun out of universities or research institutions, it was the holding company of a corporate group, and it provided services to group companies, third party clients and portfolio companies. The fees it charged for the latter (if fees were charged at all) were deferred until the portfolio company could afford to pay for the services. This broke the direct link and meant the services to portfolio companies were not provided for consideration. Its purpose was to invest in the companies and then sell the shares at a profit. It was not a HoldCo in respect of these companies as it only had minority shareholdings in them.
It did charge fees to group companies and intended to generate ongoing income from these services but the fee was unrelated to the value or cost of the services and was set at what the group company could afford and deferred until it could afford to pay. What was actually paid was much less than the agreed fee. So again, that meant the services were not made for consideration. Only the services to third party clients were made for consideration and amounted to an economic activity. Therefore, some of the input tax incurred was recoverable but the rest was not. The FTT was unable to indicate what categories of input tax would be deductible and this was left to the parties to agree. However, supplies to third party clients were not made in all of the years covered by the appealed assessments and as the charges that were made were sometimes for less than an arm’s length charge, any recovery calculation could not be based on turnover.
This case looks at what is termed the automatic satisfaction condition, which says that where a holding company is making supplies to subsidiaries for a consideration falling within Article 2 PVD, it is carrying on an economic activity for the purposes of Article 9 PVD. It is, effectively, one situation where the divergence between the two tests, which occurred in Borsele and in Finland, and was explored in Wakefield College (namely that although there can be no economic activity without supplies for consideration, supplies for consideration are not always an economic activity) cannot arise. To access the decision, click here.
Jota Jota Alimentos Global SL (“JJAG”) is a Spanish supplier and distributor of food with no UK establishment. It ordered goods from a supplier in Colombia and was informed that if it wanted the goods urgently there was a shipment planned to England. The container was shipped from Colombia to the UK, and then transported by road to Spain. The taxpayer incurred import VAT and UK VAT costs and made a Directive 2008/09 (the Refund Directive) portal claim to the UK via Spain.
The UK Overseas Refund Unit (ORU) refused the claim. This was essentially on the basis that the taxpayer made a deemed supply of a movement of own goods from the UK to Spain making it ineligible to make the claim.
The FTT noted that the transport of the goods was arranged by Britain & Latin America Logistics Ltd, and the transport arranged was for the goods to be sent from Colombia to Spain. The FTT added that the importation into the UK and subsequent despatch from the UK was no more than part of the transit arrangements in order to ensure fast delivery to JJAG in Spain in the light of available shipping routes. The FTT noted that the goods were delivered to Tilbury Docks with the party being notified named as the transporter, and another transporter then being named on the despatch documents – this is consistent with transit arrangements. The FTT accepted JJAG’s explanation that any arrangements for the supply of these goods to customers (whether in Spain, the UK or elsewhere) were made by JJAG in Spain. The FTT concluded that JJAG did not supply any goods or services deemed to have been supplied in the UK in the refund period and is therefore entitled to a refund of the UK VAT under the Refund Directive. To access the decision, click here.