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

Steve Allen

Tribunal says supply of room was ancillary to a taxable supply of ‘office services’

Pethericks & Gillard (P&G) were a firm of chartered accountants, with four directors, three of whom took an active role in the business.

The three active directors all had their own one-man companies that were operating from the same location, with the building in question being owned by P&G, a company they all had a shareholding in. At any given time, they may be working for P&G or for their own companies. P&G also employed various staff and a receptionist.

P&G argued that an annual charge to the three active directors for the use of the premises was a single supply of an exempt grant of a licence to occupy land, whereas HMRC contended that the interest in land was merely an ancillary element of a single supply of ‘office facilities’, and was, therefore, subject to VAT at the standard rate.

Whilst the Tribunal ruled that there was a single supply, and that many of the additional services were ancillary to the provision of the room (such as heat, use of office equipment, mail sorting), they ruled in favour of HMRC. They stated that the combination of these elements, provided together with minor secretarial services, whilst not essential to the directors’ companies, was nonetheless very convenient, and could not be split from the use of the room. The supply of land, while the dominant supply, did not dominate the other services sufficiently for it to fall within Article 13B(b) of the Sixth Directive. P&G was sharing all its office facilities in some measure with the companies, not just supplying the use of the room. Therefore the supply was subject to VAT at the standard rate.

Pethericks & Gillard Ltd (VTD 20,564)

Tribunal says garage was acting as agent in relation to its MOT referral income

Another Tribunal case concerning MOTs, which comes hot on the heels of the HMRC’s losses in the similar cases of Duncan (VTD 20,100) and Jamieson (VTD 20,269) last year. As in all these cases, the Appellant could not carry out MOTs itself. Therefore, in order to not lose trade, the garage used an approved centre. Typically, the MOT centre will offer garages discounts.

The Tribunal Chairman set out the ‘normal VAT position' as part of his decision, and how this all hinges on the garage acting as agent for the MOT provider. Effectively, the MOT centre provides a discount, say £8, on the normal maximum statutory MOT charge of £44. The garage, acting as agent, passes on the £36 to the customer and charges £8 for its (taxable) services.

The common trap, as the Tribunal Chairman refers, is where the garage contracts as principal or fails to treat the disbursement element correctly. Then VAT becomes due on the full £44 charged to customers, resulting in a VAT cost for the garage. In this case, the scenario was identical to the above, except that it was the MOT centre who paid the garage to pick up and deliver the cars.

The Tribunal allowed the appeal, finding that there was an agency relationship between the garage and the car owner, and dismissed HMRC's argument that there was only a single supply rather than two separate ones. The Chairman went into great detail, and at times, great criticism of HMRC, even going to the trouble of providing a template notice for similar garages to display prominently in their garage reception areas!

Lower & Anor (VTD 20,567)

Tribunal says input VAT is not deductible on supplies that are received after disposal of an opted property

The Matrix Dudley Trust (MDT), an Enterprise Zone Property Unit Trust (EZPUT) was set up to take advantage of enterprise zone allowances. The disputed issue in this Appeal was whether MDT was entitled to recover VAT on supplies made to it after it disposed of the property on which there was a option to tax (by means of a grant of a long lease) and ceased to make taxable supplies. MDT submitted three arguments in favour of being able to recover the input VAT:

1) The cost of supplies received after disposing of the property was a cost of MDT's business of letting an enterprise zone property as an EZPUT

2) MDT's retention of the reversionary interest was an inevitable cost of having financed its business through the issue of units.

3) HMRC's refusal of the claim for input tax breached the principle of neutrality.

However, the Tribunal was not persuaded by any of these arguments, and re-iterated HMRC's view that the second and third were indistinguishable from the first. It was held there was no direct and immediate link with the letting business and that the disputed supplies were in fact new services brought in to carry out a new exempt activity, namely the retention of the freehold reversion, the investment of retained sums and the receipt of interest on those retained sums. The appeal was dismissed.

Royal Bank of Canada Trust Corporation Ltd (as trustee of the Matrix Dudley Trust) (VTD 20,520)