Budget news

A belated VAT news this month in case there were any VAT announcements in the Budget, and there was! The VAT registration threshold (and de-registration threshold) will increase by £5,000 to £90,000 and £88,000 respectively. In Northern Ireland, these threshold changes will be to registration and de-registration for acquisitions and dispatches.

Afternoon tea test

Another example of the rather odd world of VAT and food concerns the distinction between a cake (zero-rated) and confectionery (standard-rated).

The manufacturer established that this health product was best consumed in two stages: a small flapjack before exercise (to provide energy) and a small cake after exercise (to provide protein). The business had designed both products with a view to being zero-rated and made a submission to HMRC to confirm this. HMRC responded by saying that the products did not have the appearance or design required to be a cake, and as such, they were standard-rated as confectionery.

The First Tier Tribunal then set about to define what a cake is. They saw it as a sweet, high-calorie food made from a batter containing eggs and flour. It was usually served as a treat and eaten sitting down with a cup of tea. This was the “Afternoon Tea Test." Based on the facts that the ingredients for the cake element were not the usual batter of eggs and flour (here it was water, oil, and brown rice syrup); it was not designed to be eaten with a cup of tea (they were silent on whether you would be sitting down or not); the “cake” element was not a cake. For the flapjack element (which is usually seen as a cake), the Tribunal seemed less sure why it failed to be zero-rated (it had the same ingredients and cooking process as a “normal” flapjack), but it decided that it also failed the afternoon tea test as well. A clearer rationale was that prioritising the nutritional content of the product took precedence over its taste appeal.

That said, the referral of last year’s case regarding the “Nakd” and “Organix” bars has recently been reconsidered at the First Tier (case report awaiting), which could show this decision to be an outlier.

What can be said is that the food sector continues to be one where VAT treatments cannot be assumed, especially for products diverging from traditional ingredients and purposes.

Export evidence

This case was not about bad faith or fraud but about a taxpayer failing to acquire and keep relevant records. The exports in question took place in 2016 and were sales made within the single market, as this was pre-Brexit.

Although evidence of goods being dispatched was lower than it is for exports (which is what all movements of goods from Great Britain are now), HMRC and the Tribunal agreed that what the taxpayer presented (invoices, bank statements, weighbridge documents, ferry boarding passes) was insufficient to prove that the goods had physically left the UK.

The evidence related to 72 transactions with a VAT value in excess of £1 million.

Businesses involved in cross-border supplies should review their procedures and processes to ensure that the correct documentation is retained to satisfy requirements.

Electronic sales

Late last year, the Government had a consultation regarding “Electronic Sales Suppression” (ESS). ESS is a method to exclude or reduce the value of sales for businesses using an electronic till or EPOS system. An ESS can be a physical device, software, other digital methods, etc. to manipulate electronic records.

New powers make it an offence to possess, manufacture, create, supply, or promote an ESS tool.

Wrong time, wrong Court

A German company incurred UK VAT. As this was in 2019/20 (while the UK was still part of the single market), it made an application to HMRC to reclaim this VAT. After receiving the application, HMRC said that the VAT was incorrectly charged and they should go back to the supplier to get a credit. The supplier did not respond, so the German company looked to HMRC to repay this under established EU case law. However, by the time they did this, it was after the implementation period (31/12/2021) and HMRC considered that as the EU Withdrawal Act had now been implemented, the relevant EU case no longer applied. The First Tier said that the case should be struck off as any such repayments have to be decided by a County Court not a VAT Tribunal. HMRC also said that due to the implementation of the EU Withdrawal Act, the business could not make an application via the Court either. In view of the amount at stake, £1,300, it’s unlikely that this will be the case to test HMRC’s thinking, but it’s likely that there will be a case that, due to the amounts involved, warrants a challenge.

Double-cab, double interpretation, double back

HMRC recently announced changes to the direct treatment of most double-cab pickup trucks (click here for our article on the matter). However, the VAT view remained the same: if the payload of the vehicle exceeds one tonne, it is classified as a commercial vehicle for VAT. So, a vehicle can now be a car for direct tax purposes and a commercial vehicle for VAT.

Then HMRC reversed their view on the direct tax treatment.

In recent years, HMRC has been known to challenge the full VAT recovery on such purchases when the business doesn’t seem to warrant it (primarily service providers such as consultants) and take the view that the primary purpose is personal, not business, and seek to recover a percentage of the VAT reclaimed on the purchase.

Live streaming of funerals

An increasingly popular option for undertakers to provide is the live streaming of the funeral service. This allows those not able to attend due to distance, infirmity, or restricted numbers at the location to feel part of the event. HMRC’s first brief for 2024 has confirmed that the provision of this service is exempt. Therefore, funeral businesses that have bought audiovisual equipment for this purpose are likely to be challenged on VAT recovery. However, the provision of the service by a stand-alone audiovisual business does not fall within the exemption, so it would be subject to VAT.

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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