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Andrew Needham, Director of VAT Solutions (UK) Ltd, summarises more recent VAT decisions.

Court of Appeal says the printed matter supplied with a CD did not make it become zero-rated

A case concerning the VAT liability of 'The Classic Composers CD books' consisting of a hard back cover, in which a plastic case for the CD is affixed, and twelve bound pages of written information on the composer.

The VAT Tribunal previously found this to be a standard-rated supply of goods, and all three Court of Appeal judges decided the Tribunal was entitled to reach the conclusion that it did.  One judge, Lord Justice Rix, did express some sympathy with the Appellant's position in noting that the CD books cost around double what one would expect to pay for a CD on its own.  LJ Rix also noted that the Tribunal could only rightly reach the conclusion it did against the background of the way in which the Appellant argued the case, the inference being that a different presentation of the arguments might have resulted in a more sympathetic result.

It appears from the judgment that there was some interim application to the Administrative Court, including an application for judicial review of a refusal by HMRC to extend an ESC (presumably the minor promotional items concession) to the taxpayer.

International Master Publishers Ltd v HMRC, Court of Appeal, 8 November 2006

Tribunal says taxpayer's supply of foster care is not outside the care exemption

This was a somewhat unusual case in that the Appellant was arguing that it fell outside an exemption and hence its supplies were taxable, whilst HMRC were arguing that it fell within the exemption (the assumption being that the Appellant made supplies to bodies who were entitled to a refund of any VAT charged).

The Appellant is an independent fostering organisation and the exemption to hand is the one introduced from 31 January 2003 for the supply by a ‘state-regulated’ private welfare institution or agency of welfare services connected with the care and protection of children and young persons. That revision to the law sought to apply UK national law more correctly in line with Article 13A(1)(h) of the Sixth Directive. The Appellant had been before the Tribunal in February 2005 (VTD 18,937) and had three arguments rejected that it was not a fostering 'agency', that the 2003 law change was deficient under UK law, and that the 2003 law change was also incompatible with the Sixth Directive. The Appellant's fourth argument in that hearing revolved around the UK interpretation of 'recognised as charitable' within Article 13A(1)(h). As this question was, in 2005, pending in the ECJ referral of ‘Kingscrest Associates’ (C-498/03), the earlier Tribunal adjourned the matter pending issue of the ECJ judgment which took place on 26 May 2005. This hearing was reconvened solely to consider the 'recognised as charitable' argument in the light of the Kingscrest ECJ judgment, and in fact, also considered if there was any relevance in another ECJ judgment issued in the interim, that of Stichting Kinderopvang Enschede (C-415/04).

The Tribunal Chairman saw no reason why the findings of these two referrals should cast any doubt on HMRC’s operation of the
exemption and its conclusion that the Appellant's supplies have been exempt since the UK law change. He said the appeal was therefore dismissed, and refused to allow the Appellant to introduce two further arguments that it does not independently carry out economic activity, and that it and its foster carers are ‘bodies governed by public law’.

Families for Children (No 2) (VTD 19,857)

Tribunal says taxpayer can recover VAT on invoices raised joint venture partner

The Appellant was a property developer whose owner entered into what was termed a ‘joint venture agreement’ with a project management company. The agreement involved the project manager obtaining the necessary planning permissions, and one planning application went to appeal. The services of an outside firm were used in the appeal, and it issued its invoices to the project manager, albeit that it was fully aware that, on the success of the appeal, the fees would be payable by the Appellant. The appellant sought to deduct the VAT on the firm’s fees but HMRC refused the claim on the grounds that the services had been supplied to the project manager. It appears the firm refused a request to readdress its invoices to the Appellant, and that the project manager was not prepared to treat the services as rendered to it and onwards by it, involving the issue of a mirror image invoice from it to the Appellant. The Appellant argued the project manager was acting as its agent in procuring the services in question, and that the VAT on the firm's services was therefore its input tax.

The Chairman admitted some difficulty in determining the true relationships from the agreement, and criticised the Appellant for not calling witnesses that could have clarified his questions. Despite all this, he still allowed the appeal.  How curious!

Hamsted Holdings Ltd (VTD 19,867)