VAT Case Update II - November / December 2008

Steve Allen, director of VAT Advisers Ltd, highlights a further selection of recent VAT cases.

Court says HMRC must issue monthly returns to taxpayer pending outcome of the case

This case is a long-running battle concerning HMRC’s refusal to grant the use of monthly VAT return periods. [For further background on this case, see one of Andrew Needham's previous articles - VAT Case Update July-August 2008 - Part I - Ed.]

In May 2008, the Appellant won a Judicial Review of HMRC’s withdrawal of monthly accounting for some export companies in the automotive industry. The High Court reviewed in detail HMRC’s decision to withdraw monthly VAT accounting for the Appellant’s export company. In reaching its decision, the Court ruled that whilst HMRC do have the power to direct quarterly returns, it granted permission for the Appellant to apply for an order to quash HMRC’s decision letter on the basis that HMRC’s decision-making process was flawed. Later, in June 2008, HMRC were given permission to appeal this decision and a ‘stay’ of the judge’s decision was ordered.

The ‘stay’ essentially means that HMRC could continue to issue quarterly returns until the case is concluded (due in the Court of Appeal in December 2008). The Appellant applied to the Court of Appeal to have this ‘stay’ lifted, which is the centre of this dispute.

HMRC argued that the lifting of the stay would create a significant administrative burden for both sides. HMRC went to great length to detail the issues around the reissuing of historic monthly returns, the recalculation, adjustments and manual interventions on systems and payments etc. HMRC even pointed out that any previously issued assessments would be invalid and may be time barred. The Appellant, however, a repayment business, was suffering the cash flow disadvantage of quarterly returns, and successfully argued the accepted principle that a successful litigant is entitled to receive the fruits of his success. The court, whilst accepting HMRC would suffer an administrative burden, and would have to spend time which ‘it might wish to devote to other activities’, ordered the stay to be lifted.

BMW AG, Court of Appeal [2008] EWCA Civ 1028

ECJ says sports club can interpret the term 'persons' as including both corporate and non-incorporated bodies

The ECJ has recently released its judgment in a case concerning whether the Appellant, a hockey club, could treat its affiliation fees to England Hockey (a non-profit-making body) as exempt under EU law. This was on the basis that the term ‘persons’ was not limited to natural persons. HMRC argued that these fees were not consideration for supplies to the persons taking part in sport, but for supplies to the club.

The ECJ has broadly found for the taxpayer, concluding that the sporting services exemption can include services supplied to corporate bodies and non-incorporated associations, provided that:

• the services are closely linked to and essential for sport,
• the supplier is a non profit making body, and
• the true beneficiaries of the services are persons taking part in sport

The UK court must now decide if the services supplied by England Hockey to the club meet the conditions for exemption. The Court may well decide that some do and some do not, but nevertheless, the ECJ has clearly indicated that the UK's approach of limiting the exemption to supplies to individuals is wrong and overly restrictive. In answer to the second question, the ECJ made it clear that the discretion afforded to Member States in applying the Article 13A exemptions is limited to the conditions set out in Article 13A(2) (now Article 133), and can not encompass any discretion about who can receive the exempt supplies.

Canterbury Hockey Club (C-253/07)

Tribunal finds for HMRC on the ratio of zero-rated sales made by newly-opened cafe

On set-up, the Appellant, a cafe selling crepes, beverages and smoothies, established its split of sales as being 25% standard-rated and 75% zero-rated, by comparison with take-away sandwich and bagel bars. However, after a visit from HMRC, in which, till receipts were analysed found that the true apportionment was 49.56% standard-rated sales for the period examined. HMRC therefore raised an assessment for the difference in VAT.

The Appellant disputed the typicality of the period analysed, but examination of two further periods at different times of year showed that eat-in sales alone accounted for 47.9% of till receipts in one week and 62% in another. As such, HMRC felt that the assessment of 49.56% was not only fair and reasonable, but generous. The Appellant continued to dispute the accuracy of this assessment, arguing in favour of the initial 25:75 split, but crucially, it failed to provide any evidence in support of this to either HMRC or the Tribunal. This left the Tribunal with little alternative but to uphold HMRC's assessment, and dismiss the appeal.

R Jamison & N Patton t/a 'Flour' (VTD 20,818)

Article Added Saturday, 10 January 2009

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