VAT update April 2018

In this month’s update we report on the publication of the draft agreement on the UK’s withdrawal from the EU; the Government’s “split payment” collection model for online sales by non-UK sellers; and HMRC’s revised guidance on the cost sharing exemption.

We also comment on three recent cases involving the VAT recovery of input tax in relation to fund management charges; clarification on the time limit for input VAT recovery; and the scope of the VAT exemption for payment services.

News

Draft agreement on UK’s withdrawal from EU

On 19 March 2018, the European Commission published the draft legal text of a withdrawal agreement. The draft highlights the progress which has been made in the negotiations which took place between the UK and the Commission on 16-18 March 2018. If agreed and ratified in its current form, Article 121 provides for a transitional period for Brexit to 31 December 2020.

Consultation on VAT split payment collection model

On 13 March 2018, HMRC and HM Treasury launched a consultation on a “split payment” model for collecting VAT on online sales by non-UK sellers. This is in response to the growth in online shopping which, in the view of the Treasury, is resulting in significant losses of VAT to the Exchequer. The aim of the consultation is to explore possible options for how a potential split payment mechanism could work to combat online VAT fraud.

Revenue & Customs Brief 3/18 – revised HMRC guidance on VAT cost sharing exemption

On 22 March 2018, HMRC published Revenue & Customs Brief 3 (2018), which sets out changes to the VAT exemption for cost sharing groups following various CJEU decisions on its scope.

Cases

University of Cambridge – VAT recovery of input tax in relation to fund management charges

In HMRC v The University of Cambridge [2018] EWCA Civ 568, the Court of Appeal has decided to refer a number of questions to the CJEU, concerning whether a university was entitled to recover a proportion of input tax incurred on the payment of professional fees for the management of its endowment fund.

Volkswagen – CJEU provides guidance on the time limit for input VAT recovery

In Volkswagen AG v Finančné riaditeľstvo Slovenskej republiky C-533/16, the CJEU has confirmed that Member States cannot impose time limits on input tax recovery that deny claims before the taxable person is in a position to exercise its right to recover.

DPAS – AG opinion on scope of VAT exemption for payment services

In HMRC v DPAS Ltd (Case C-5/17) the Advocate General (AG) has opined that dental payment plan administrative services are not exempt from VAT under Article 135(1)(d) of Directive 2006/11/EC (the Principal VAT Directive).