VAT update June 2018

In this month’s update we report on HMRC’s consultation on draft legislation imposing VAT reverse charge on the construction industry; the European Commission’s proposal concerning the taxation of intra-EU supplies; and HMRC’s recently published guidance on the VAT treatment of goods supplied on approval.

We also comment on three recent VAT cases on the supply of services in relation to the construction of a building designed as a dwelling; whether a bottle of wine included in an M&S promotional scheme is a gift; and a ruling of the CJEU that taxpayers may deduct input tax on payments on account for goods that are not delivered.

News

HMRC consultation on draft legislation imposing VAT reverse charge for construction services

On 7 June 2018, HMRC published a consultation seeking comments on a draft HM Treasury order and related documentation for a VAT reverse charge for construction services.

Commission proposes amendments to the Principle VAT Directive for reform of intra-EU B2B supplies of goods

On 25 May 2018, the European Commission released a further proposal concerning the taxation of intra-EU supplies, intended to prevent VAT fraud, which is expected to come into effect on 1
July 2022.

Revenue and Customs Brief 5 (2018): VAT liability on goods supplied on approval

On 18 June 2018, HMRC published Revenue and Customs Brief 5 (2018): VAT liability on goods supplied on approval.

Cases

Summit Electrical Installations: VAT zero-rating of student accommodation not defeated by “separate use” exclusion

In Summit Electrical Installations Ltd v HMRC [2018] UKUT 176 (TCC), the Upper Tribunal (UT), agreeing with the First-tier Tribunal (FTT), has held that VAT zero-rating of supplies in the course of constructing student accommodation was not precluded by the “separate use” requirement in note 2(c) to Group 5, Schedule 8, Value Added Tax Act 1994 (note 2(c)).

Marks and Spencer: “Free” wine not free for VAT

In Marks and Spencer Plc v HMRC [2018] UKFTT 0238 (TC), the FTT has held that where a retailer’s promotional offer invited customers to buy three specified food items for £10 and receive a “free” bottle of wine, output tax was payable on the wine element of the promotion.

Finanzamt Dsachau: Input VAT recovery permitted for payments on account of undelivered goods

In Finanzamt Dsachau v Achim Kollro and Finanzampt Goppingen v Erich Wirtl (joined cases C-660/16, C-661/16) the the Court of Justice of the European Union (CJEU), agreeing with the Opinion of Advocate General Wahl (AG), has ruled that taxpayers may deduct input tax on payments on account (POA) for goods that are not delivered and that national legislation may make any subsequent adjustments to deductions conditional on the POA being refunded.