V@ update - November 2024

Welcome to the November 2024 edition of RPC's V@, a monthly update which provides news and analysis from the VAT world.

News

• The Independent Schools Council (ISC) is to launch legal action against the government's decision to levy VAT on independent school fees.
  
  The ISC's press release can be viewed here. 
  
  
• HMRC recently published a series of guidelines and guidance notes under its new Guidelines for Compliance (GfC) banner which includes GfC8 which sets out its expectations for taxpayer VAT compliance processes and procedures.
  
  GfC8 can be viewed here.

   

• HMRC's late payment interest rates have been revised after the Bank of England lowered the base rate from 5.0% to 4.75%.
  
  HMRC's press release can be viewed here.

Case reports

R (on the application of) Midlands Partnership University NHS Foundation Trust) v HMRC [2024] UKUT 334 (TCC)

Following changes in the Health and Social Care Act 2012 (HSCA 2012), local authorities in England assumed responsibility for a range of health-related services previously commissioned and provided by NHS bodies, such as NHS clinical commissioning groups. This judicial review concerned the VAT treatment of arrangements by which such local authorities commissioned the claimant, Midlands Partnership University NHS Foundation Trust (the Trust) to provide various, free at point of use health services to the public. Those free services comprised health visiting services for children, integrated sexual health services, and services relating to infection prevention and control (IPC).

The Trust’s case was that its provision of such services to the local authority were 'non-business' supplies. They were not 'for consideration' under Article 2 of the Principal VAT Directive (PVD) and even if they were, they were not 'economic activity' (under Article 9 PVD). As such, they were outside the scope of VAT and Contracted Out Services VAT under section 41, Value Added Tax Act 1994 (VATA), and as such the Trust could obtain a refund of input VAT on the supplies.

The Trust also argued that, even if they were not 'non-business' supplies, it was not a taxable person under Article 13 PVD because the supplies  were made by the Trust as a public body pursuant to a special legal regime. 

HMRC rejected these arguments and refused the Trust's refund claim. The Trust challenged this decision by way of judicial review proceedings (there being no statutory right of appeal against that decision).

HMRC’s position was that the provision of sexual health and health visiting services are exempt supplies (such that no deduction of input tax is available) and that the IPC services were business supplies and standard rated (such that the Trust was liable for output VAT but could deduct input tax).

The judicial review claim was transferred to the Upper Tribunal (UT) for determination.

The UT considered whether:

1. the provision of services was in return for consideration?

2. the provision of services constituted economic activities?

3. the Trust was providing services as a public body?

On the first issue, the UT held that the Trust's provision of services were supplied for consideration even though the consideration was paid from public funds.

With regard to the second issue, the UT held that the Trust was carrying out economic activities. The UT followed the Court of Appeal's decision in Wakefield College v HMRC [2018] EWCA Civ 952, in which it was held that provision of services constituted a business activity if it resulted in consideration and is carried out for the purpose of obtaining income.

Finally, on the third issue, the UT concluded that the Trust was not subject to a special legal regime.

The Trust was therefore liable to VAT on the taxable services it provided.

Why it matters:

This case serves as a reminder that when determining whether services provided constitute an 'economic activity', taxpayers need to carefully  consider the test expounded in Wakefield College.

The decision can be viewed here.

Procurement International Ltd v HMRC [2024] UKFTT 949 (TC)

Procurement International Ltd (PIL) supplies goods to customers who run reward recognition programmes on behalf of their customers, who in turn wish to reward their customer and/or employees. The reward programme operators (RPOs) provide a platform through which rewards can be chosen. Those operators then place orders with PIL for the goods requested.

HMRC formed the view that PIL had incorrectly zero-rated certain supplies. It therefore issued VAT assessments to PIL, under section 73, VATA, on this basis. PIL appealed to the FTT.

The FTT had to determine whether the supplies made by PIL which it had treated as zero-rated, were properly zero-rated. Those supplies were made outside the EU prior to 31 December 2020 and outside the UK from 1 January 2021.

Both parties agreed that PIL supplies goods to the RPOs, which are then delivered directly to the reward recipients outside the UK. The goods meet export documentation requirements and all deliveries were handled by PIL's agent, United Parcel Service, under DDP/DAP terms. PIL retained economic ownership and risk until delivery.

The FTT concluded that PIL's supplies involved the removal of goods to a place outside the UK, making them zero-rated exports under section 30(6), VATA. PIL arranged and paid for transportation and the RPOs did not control the movement of the goods. The supplies were not indirect exports requiring RPO involvement. The appeal was therefore allowed.

Why it matters:

This case demonstrates the importance of ensuring that contracts record clearly the parties' respective responsibilities. This will assist in  determining the parties' obligations and the VAT consequences which flow from those obligations.

The decision can be viewed here.

Treasures of Brazil Ltd v HMRC [2024] UKFTT 929

Treasures of Brazil Ltd (ToB) applied for voluntary VAT registration on 21 September 2022, requesting an effective start date of 1 October 2022.

ToB received an email from HMRC in response to this application on 21 September 2022, in which it was stated that:

"You should wait until your VAT registration is confirmed before you:

• get any software

• charge customers for VAT"

Relying on this email, ToB did not charge its customers VAT until it received its VAT registration number in late December 2022. ToB's VAT return reflected this.

HMRC queried why ToB had not charged output VAT from 1 October 2022, notwithstanding that it wished to recover input VAT from that date, and sought payment from ToB by way of assessment under section 73, VATA.

ToB appealed to the FTT.

ToB considered it unfair that it should be penalised for what it considered to be poor communication on the part of HMRC, and raised a legitimate expectation argument in its appeal.

The FTT considered firstly whether it had jurisdiction to hear a legitimate expectation argument and secondly whether this amounted to a legitimate expectation by ToB that it did not have to charge customers VAT until its VAT registration had been confirmed.

The FTT held that it had jurisdiction to hear the legitimate expectation argument following KSM Henryk Zeman SP z oo v HMRC [2021] UKUT 182 (TCC), where the Upper Tribunal confirmed that legitimate expectation issues could be considered by the FTT.

On the second issue, the FTT concluded that ToB did have a legitimate expectation that it did not need to charge its customers for VAT until its VAT registration had been confirmed by HMRC. This was because the email it had received from HMRC superseded any other general HMRC guidance available. The email was clear, unambiguous, and unqualified.

The appeal was therefore allowed.

Why it matters:

Whilst legitimate expectation arguments are generally reserved for the High Court to consider, as this case demonstrates, taxpayers can, in certain circumstances, raise legitimate expectation arguments on appeal before the FTT.

The decision can be viewed here.