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Steve Allen, Director of VAT Solutions (UK) Ltd, reports a further selection of recent VAT case decisions.

Steve Allen

Tribunal says HMRC caused the surcharge on missed VAT return after stagger change

The Appellant wrote to HMRC in July 2006 requesting a change of VAT stagger from normal calendar quarters to periods ending January, April, July, October. HMRC responded on 11 October approving the request. The letter also pointed out that a return may be issued under the old arrangements in which case this should be submitted and paid as normal. The Appellant received a 1 month VAT return for October which it completed and submitted as a four month period to October. HMRC claimed a September return was issued on 11 September which should have been submitted and paid at the end of October, and imposed a default surcharge. The Appellant said that it did not receive the September return, and had put this down to the change in periods.

The Tribunal accepted that the Appellant did not receive the return, and that post can get mislaid. The Chairman criticised HMRC for the uncertainty around whether a return under the old stagger would have to be made, as at the time of writing to confirm the change in October, the September return had already been issued.

Rumline Ltd (VTD 20,406)

Tribunal says software for insurance database enabled exempt intermediary status

The Appellant is an insurance comparison website for a number of insurance providers, and receives a commission for completed insurance contracts that originated from it.

The issue was whether the Appellant is an insurance agent for VAT purposes, and therefore, within the exemption.  When the Appellant was originally created, it was bound to refer people to the Cox panel of insurers. On this point, the Tribunal held that the Appellant acted merely as an introducer for Cox, and that its services could not be distinguished from those of an advertiser.

As the company developed, more insurance companies were added to its database, and the Appellant created the ‘Wizard’ application which enabled it to direct customers more accurately to the appropriate insurers. The Tribunal concluded that, for the period after the introduction of Wizard, the Appellant acted as an insurance intermediary, not an agent.

The appellant had submitted that Public Notice 701/36/02 ( here ) did not differentiate between the concept of an insurance agent and an intermediary. However, the Tribunal decided that the VAT Act does distinguish between the two, and that the law must have authority over the Public Notice.

Comment: We understand that HMRC do not think the case is a material departure from their wide interpretation of an insurance agent, and will shortly be issuing a Revenue & Customs Brief to set out their views. HMRC believe this decision merely confirms the position on the VAT treatment of marketing services supplied via the Internet, and does not affect the VAT treatment of third parties selling insurance who rely on meeting the three stage test (i.e. targeting own customer base, endorsing the product, and paid per successful take-up) for insurance introductory services.

Insurancewide.com (VTD 20,394)

Failure to register in Belgium made customer's purchase of UK goods standard-rated

The Appellant sold electronic goods to a customer whose business was registered in Gibraltar. The customer requested for the goods to be delivered to Belgium, and the Appellant did not charge UK VAT. Despite being liable to register for VAT in Belgium, the customer had not done so, and so was unable to provide a VAT number. HMRC accordingly assessed for VAT on the supplies.

The case concerns the condition imposed in Notice 725, ( here ), which says to avoid charging VAT, a supplier must “obtain and show on your VAT sales invoice your customers VAT registration number including the two letter country code prefix…”  This condition was referred to in the case as ‘Condition 1’. The High Court upheld the Tribunal’s decision against the Appellant that  Condition 1 fell within phrase “conditions which they shall lay down for the ensuring….the prevention of any evasion, avoidance or abuse” within Article 28c.  In making its decision, the High Court made the following observations:

• customer was a taxable person within the meaning of Article 28c, despite not actually being VAT registered
• Condition 1 was a legitimate condition under Article 28c to assist in the straightforward and correct application of the exemptions and for prevention of evasion, avoidance and abuse
• Condition 1 is not disproportionate
• Condition 1 does not offend the principle of effectiveness – its purpose is not to swell the coffers of the UK, but to ensure transactions are carried out with VAT registered customers. The effectiveness lies in its deterrent effect.

JP Commodities, High Court, 24 October 2007