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VAT Voice by Steve Allen

A selection of recent VAT cases, reported by Steve Allen, Director of VAT Solutions (UK) Ltd.

VAT Tribunal says football club has no right to deduct vat incurred on agent fees

The Tribunal has found for HMRC in the long-awaited test case of whether the VAT paid on fees to players’ agents in football transfers, where the purchasing club pays the fee, is input tax of that club (a similar case involving Glasgow Rangers was pulled at the eleventh hour by HMRC in 2005 - the view of the Edinburgh Tribunal was clearly that HMRC decided at the last minute that they were likely to get a more favourable ruling in a Tribunal South of the Border).

With a few limited exceptions, the Chairman supported the HMRC argument that the supply of the agent’s services is made to the player and hence the VAT thereon, albeit paid by the football club, is not input tax of the club. The Chairman also rejected a more detailed argument that, even if the supply is primarily to the player, the football club received sufficient benefit to give a right of input tax deduction under the ‘Redrow’ principle. The Chairman thus dismissed the appeal (N.B. although this decision received widespread press coverage, the Tribunal says the decision as currently issued should be disregarded because amendments need to be made. However, the nature of the amendments has not been specified).

Newcastle United plc (VDT 19,718)

VAT Tribunal says escort services were provided by individuals, not the agency

The Appellant is an escort agency based in London. The disputed matter is the standard one, already widely aired in areas such as hairdressing and driving schools, as well as lap dancing clubs and massage parlours, of whether the 'agency' is merely providing an introductory service (i.e. the value of its supply is the introductory commission charged to the customer). Consequently, the principal supply of the escort service is provided by the self-employed escort to the customer. HMRC argued that the 'agency' is providing the principal supply of the escort service to the customer using the services of the self-employed escort (such that the value of its supply is the total amount charged to the customer as well as the introductory commission).

The Appellant had implemented extensive documentation, both in terms of the written contract with the escort and for the individual bookings, and it appeared generally accepted that the documentation pointed towards the principal relationship argued by HMRC. However, the Chairman had to grapple with the question of whether the documentation truly reflected the legal relations between the parties, or whether, in reality, the actual supply structure was something different. Despite the obvious doubts created by documentation showing customers with names like ‘William Tell’, the Chairman was clearly influenced by the fact that the escorts alone were responsible for agreeing with the customer what they will do, where they will do it, and how much they will charge. The Chairman concluded that the documentation did not realistically reflect the supply structure, and that the reality was that the Appellant performed an introductory service with the principal escort services supplied under a separate contract between the escort and the customer. The appeal was thus allowed.

Of note is the fact that the Chairman allowed an Appellant witness, who described herself only as ‘Caroline’, to give evidence without revealing her true identity. This was in spite of HMRC's objections to her anonymity.

Portman Escort Agency (VTD 19,728)

VAT Tribunal says adviser’s unauthorised option to tax was not invalidly made

This case illustrates the disasters that can still occur when the option to tax position for a building is not fully considered.

The Appellant purchased a non-opted tenanted commercial property with the intention of obtaining planning permission for residential conversion. The Appellant's advisers submitted a VAT 1 and VAT 1614 option notification, both signed by the Appellant (the decision suggests a number of reasons why it may have been thought necessary to apply for VAT registration and opt). The Appellant subsequently completed a questionnaire, and answered telephone questions on the application from HMRC. However, the major tenant was a charity whose lease provided that, if the landlord opted to tax, the rent would be deemed VAT-inclusive. When it came to invoicing for rents, the significance of the option was brought into focus, and the Appellant instructed the managing agents not to charge VAT.

The Appellant argued to HMRC that the option notification was invalid on the basis that the adviser did not have authority to lodge it (or at least not at the time it was lodged) and that the Appellant had not intended an option to take effect as evidenced by its subsequent actions. HMRC rejected this argument.

The Tribunal held that, notwithstanding the clear misunderstandings, the two actions necessary for a valid option - the act of opting and the notification of it - were present at the time on the part of the Appellant, who could not 'hide behind' his advisers. The appeal was thus dismissed.

Windsor House Investments Ltd (VTD 19,666)

VAT Tribunal says ciabatta melts were kept warm for their aroma and freshness

Appellant is a retail baker with 30 outlets in North and West Yorkshire. Dispute concerns a product known as ‘ciabatta melts’, on which the Appellant accounted for output tax for three years after their introduction, but then submitted a claim for overpaid output tax on the grounds that the product was zero-rated.

The case focuses on why the ciabatta melts, having been cooked in the bakery at 85 degrees, were kept in the shops on hotbeds at a temperature of 63 degrees, which is above ambient air temperature. HMRC argued that the reason was to enable customers to consume the ciabatta melts at that particular temperature, which was a supply of catering and standard rated. The Appellant argued that the reason was to hold the ciabatta melts at a controlled temperature of optimum freshness, and use them to create an appealing aroma of fresh bake in the shops. The Appellant further argued that it had no interest in, nor control over, the temperature at which the customer chose to consume the ciabatta melts after purchasing them in the shop.

The Chairman concluded that the dominant purpose of placing the ciabatta melts on the hotbeds was as argued by the Appellant. The appeal was thus allowed.

The Appellant had also sought to draw a comparison with its sales of sausage rolls and pasties, which had always been accepted by HMRC as zero-rated. This caused HMRC to argue at the Tribunal that the sausage rolls and pasties should be standard-rated, which raised a question of jurisdiction as no assessment had been raised by HMRC. Nevertheless the Chairman commented, probably as an aside, that the production process and sale from the hotbeds of these products did not appear to differ materially from the ciabatta melts.

Ainsleys of Leeds Ltd (VTD19,694)

October 2006

Steve Allen
Director, VAT Solutions (UK) Ltd
Email: steveallen@vatsolutions-uk.com


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VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via their website: