Education

In 2008, the Colchester Institute Corporation reclaimed VAT for redevelopment costs. This was under the Lennartz principle, which allowed full recovery for non-business costs with a balancing payment for output tax over a ten-year period. (Since then, Lennartz is rarely used when it was judged that non-business use actually meant personal private use, putting it outside the realm of corporate use.) Since the first use of Lennartz, the Institute has taken the view that the provision of education for pupils paid for by state grants was in fact consideration for an exempt supply of education. As an exempt supply, the institute stopped paying the output tax balance under Lennartz (but on the point that Lennartz was not applicable). This had already been agreed upon at the Upper Tier, so the assessment by HMRC of this “unpaid” output tax was bound to fail as the Upper Tier had created a precedent. So why did HMRC take this hopeless case to appeal? If they then appeal it to the Upper Tier and it is ruled that the provision of education via grant funding is an exempt business activity, this would impact the education sector’s ability to get VAT reliefs for Relevant Charitable Purpose buildings and supplies of fuel and power.

Don’t show your workings

Aspire had never registered for VAT. As a state-regulated provider of residential care and services for those with specific needs, it treated the welfare exemption to the supplies it made. At a VAT Tribunal, another provider was ruled to make taxable supplies for the elements that were not under state regulation, and such charges to the relevant local authority were taxable (which the authority could recover) and enabled the welfare provider to recover an element of VAT incurred on expenses. Therefore, Aspire arranged to make taxable supplies, registered for VAT, and recovered an element of the VAT incurred. However, some of this VAT relates to the period prior to their VAT registration. HMRC allowed a proportion of this pre-registration VAT to be reclaimed. The taxpayer wanted to see the documents that showed how HMRC had reached their decision. HMRC refused, and the case went to Tribunal. The Tribunal agreed with HMRC that as the repayment of pre-registration input tax is at their discretion, and as that discretion was made in favour of the taxpayer, the amount recoverable was a different question from that of how the discretion was exercised.

Mere confectionery

VAT and food again. In 2021, the First Tier Tribunal ruled that “Nakd” and “Organix” bars were confectionery (and so standard-rated). This decision was appealed to the Upper Tier, who ruled that the First Tier had failed to take into account a number of factors for the specific products, namely the perceived healthiness of the product and the absence of certain ingredients (cane sugar, flour, and butter), so they referred it back to the First Tier to “review” their initial findings. This they have done, and having found nothing wrong with their initial findings, they have again ruled the products to be confectionery.

What a difference a day makes

In March, HMRC announced some substantial changes to their helpline opening times, including the VAT helpline only being open in the five working days prior to the due date of the VAT returns (which itself is at least two dates). This was due to come into effect on 8 April 2024. Then, a day later, HMRC effectively cancelled the decision, saying that they were doing so “in response to the feedback.”

Timing

A member of a VAT group supplied investment management services to the representative member of the VAT group (supplies within a VAT group are essentially ignored for VAT purposes). However, some of the fees were payable on the basis of the performance of a fund, and it took several years to establish the value of the payment. By then, the supplier of the investment advice had left the VAT group. The parties decided that the payment was related to a supply made at the time both entities were within a VAT group, and as such, there was no VAT payable on the supply. HMRC took the view that this was a continuous supply of services, and as such, the time of supply was when payment was made, so it was a supply between separate entities and subject to VAT. As the net payment exceeded £9m, the amount of VAT at stake is considerable.

The First Tier Tribunal agreed with the taxpayer. The case was appealed to the Upper Tier, which decided that the First Tier had erred in law and overturned the ruling in favour of HMRC.

Hail to the CHIEF

CHIEF (Customs Handling of Import and Export Freight) keeps going. Despite its end first being set out in 2019, HMRC has just announced that the use of CHIEF for exports must end on 4 June 2024. From that date on, the “new” Customs Declaration Service will be used, but this is the fifth time in the same number of years that the “death” of CHIEF has been announced.

CDS and Postponed VAT Accounting Scheme (PVA)

In dealing with the use of the CDS forms to inform HMRC that the importer wishes to use the PVA scheme (where the import VAT is accounted for as accounting entries on the relevant VAT return), the “old” way of setting the Method of Payment code to “G” is no longer the way to do this. If you are importing using CDS forms, please ensure that the information given enables HMRC to treat it as such.

Get in touch

If you would like to discuss any of these VAT updates in more detail, please contact Ian Marrow via ian.marrow@rickardluckin.co.uk

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