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

Tribunal says penalty due for failure to register as a 'high value dealer'

The appellant, a high quality second-hand car dealer, appealed against a penalty imposed by HMRC under the Money Laundering Regulations 2003. This was the first such appeal to be heard before the VAT and Duties Tribunal.

The penalty came about from a VAT audit, where, although no VAT issues arose, it was found the appellant acted as a ‘high value dealer’ after the 1 April 2004 start date of the Regulations without first registering with HMRC. Under the Regulations, a high value dealer is defined as a person who carries on ’the activity of dealing in goods of any description by way of business (including dealing as an auctioneer) whenever a transaction involved accepting a total cash payment of 15,000 euros or more’. The appellant questioned the power of HMRC to charge a retrospective registration fee, as well as a penalty, for not registering.

HMRC’s argument for this rested on two points;

(a) that the terms of the regulation imposes the right to charge a fee and

(b) the fact that HMRC does not keep any penalty but passes it on to the Treasury.

The Tribunal did not take a general view of this policy by HMRC, but commented that (b) was not relevant as nothing in European Regulation 2001/97/EC empowers or imposes these funding arrangements. However, the Tribunal did agree with HMRC that a penalty should be imposed as Car Sales failed to make an application to register in good time ahead of undertaking a high value transaction.

James Paul (Car Sales) Ltd (VTD 20,833)

Tribunal agrees with charity that it was making taxable supplies to local authority

The appellant was a registered trust charity acquired from the Bath Festival Society in 1993, from which it also acquired the intellectual rights to the Bath International Musical Festival. Bath City Council, the predecessor to Bath and North East Somerset Council (B&NES), was keen to ensure the survival of the festival and entered into a number of agreements with the appellant, which was funded by the council and the Arts council. The issue at dispute was the treatment of amounts received by the appellant, and whether they were grants or consideration for a supply of services.

HMRC argued that the sums paid were not consideration with a direct link to an identifiable service, but were a grant, and that the supply made by the appellant was to the local community. Both parties accepted the key issue in the case was whether the appellant was providing services to B&NES. In reaching a decision, the Tribunal Chairman noted that the legislation gives the concept of supply a broad meaning. She added that the continuation of the festival was considered to be a matter of importance to the B&NES. If the appellant was not providing these services, B&NES would be required to supply the same services in-house. The Chairman also referred to the Business Brief regarding the facts of Edinburgh Leisure which states ‘The payments from local authorities to the appellant constituted consideration for a supply, that of agreeing to take over the provision of leisure services previously supplied by the local authority’.”

The Tribunal concluded that this suggests HMRC accept that agreeing to take over a job previously undertaken by an authority can amount to a supply of services. The Tribunal therefore found that the payments were within the scope of VAT, and allowed the appeal.

Bath Festivals Trust Ltd (VTD 20,840)

Tribunal agrees with HMRC that lease of land was a barter for use of facilities

The appellant, a sports and leisure business, leased sports fields and sports facilities from King’s School, Gloucester, for a peppercorn rent. The school was allowed at certain times to use the leisure centre, which the appellant otherwise exploited commercially.

HMRC treated the transaction as the barter of taxable leisure centre services by the appellant in return for the VAT-exempt grant of a lease by the school, and various assessments were raised. The appellant argued that there was no supply of leisure centre facilities back to the school, as the school had retained its rights to the leisure centre under the demise of the lease.

The Tribunal subsequently found for HMRC, largely on the documentary evidence that underpinned the aforementioned lease. The case is interesting because it gives thought to the matter of calculating a price where there is no cash consideration for the services rendered. Reference was made, in this case, to the list price of leisure centre services offered to the general public (adjusted for any block-booking discounts) on a period-by-period basis.

Riverside Sports & Leisure Ltd (VTD 20,848)