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VAT Voice by Steve Allen

Steve Allen, Director of VAT Solutions (UK) Ltd, provides an update including three-year ‘capping’ of VAT refunds, the definition of ‘premises’ for catering purposes and on theatre production costs.

Three-Year Capping

Following the 2006 Court of Appeal losses in Michael Fleming t/a 'Bodycraft' and Conde Nast Publications Ltd, HMRC have recently issued Business Brief 13/06 outlining a revised position from their perspective.

Initially, HMRC sought to have the effect of the Fleming case set aside pending their application to have the matter appealed in the House of Lords. However, they have now dropped this, and accept that in the meantime, the lack of a properly implemented transitional period means that three year cap is invalid in respect of overpaid output tax prior to 4.12.96 and underclaimed input tax prior to 1.5.97. (N.B. the three-year cap is still valid and legal for output tax post-4.12.96 and input tax post-30.4.97). HMRC say that taxpayers may now submit claims for refunds, to which a claim for statutory interest may also be added by claimants. HMRC point out, however, that if they win their appeal at the House of Lords, any amounts paid out to claimants must be repaid to HMRC plus interest for the loss of the money by the Exchequer.

In short, if a business has an amount of VAT overpaid prior to 4.12.96, or has pre-1.5.97 input tax that it has never reclaimed, they should consider lodging a claim. Alternatively, businesses may choose to await the outcome of the HoL case on the basis that HMRC might ultimately win. Please be aware that any refunds of overpaid output tax are subject to the usual unjust enrichment provisions.

Definition Of 'Premises' For Catering Purposes

Following their recent Court of Appeal (CoA) loss in a case concerning the VAT treatment of cold food supplies made by Compass Catering Services from 6 retail units within the BBC Television Centre building, HMRC have now issued revised policy in Business Brief 12/06 on the definition of premises.

In the CoA case, Compass successfully argued that even though the BBC Television Centre was a 'restricted access' building (as would also be the case for secure office buildings, sports stadiums, amusement parks, cinemas etc.), its supplies of cold food were nonetheless supplied for consumption away from their retail units (i.e. elsewhere in the building). The finding of the court thus conflicted with HMRC policy hitherto, which said that only 'unrestricted access' sites such as restaurants, shopping malls, hospitals, bus & train stations etc., could limit catering to onsite consumption (which also included any tables and chairs outside or adjacent to the site).

HMRC have now revised their policy to treat restricted access sites in the same way as unrestricted access sites. Businesses that have been supplying cold food in restricted access sites should now consider lodging a refund claim for overpaid VAT subject to the three-year capping limits. HMRC say they will accept such claims subject to the unjust enrichment provisions.

Theatre Production Costs

HMRC announce that they are appealing the CoA following the recent loss at the High Court in Mayflower Theatre Trust Ltd. The case concerned the VAT recovery of theatre production costs, and whether they were attributable solely to admission charges (which were exempt), or are 'residual' costs (i.e. partly recoverable) because they also related to taxable programme sales, catering, and corporate sponsorship. The High Court went for the latter argument on the basis that the corporate sponsorship packages included an entitlement to tickets.

HMRC still believe the production costs relate only to exempt admissions charges, but agree in the meantime that refund claims can be made. Claimants can choose to have the claims held over by HMRC pending the CoA's decision, or have them repaid immediately. Where an immediate repayment is made, and HMRC subsequently win, the amount will be repayable to HMRC plus interest.

Private Tuition

There is still no decision from the Scottish Court of Session in this eagerly-awaited case. However, bearing in mind the fact that the case was heard almost two months ago, a decision is surely imminent. We will likely issue a separate Client Bulletin on this case once it has been decided.

Missing Trader ('Carousel') Fraud

A guidance leaflet has just been issued by HMRC entitled 'How to Spot Missing Trader Fraud'. The leaflet outlines possible indicators of a fraudulent transaction or business, and can be downloaded from the HMRC website using the link below:

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&propertyType=document&id=HMCE_PROD1_025808

Authority To Act In Matters Relating To VAT

A revised form 64-8 has been released by HMRC on 1.9.06 which now incorporates authority of agents to act in relation to VAT matters. Following the merger of the two former IR & C&E departments, HMRC thought it was an appropriate time to overhaul the long-standing Revenue form and extend it to cover VAT agents as well. The revised form will still be known as a 64-8 going forward, and can be downloaded from the HMRC website using the following link:

http://www.hmrc.gov.uk/forms/64-8.pdf

This should bring a degree of uniformity to matters, as previously, VAT advisers had to ask clients to send HMRC bespoke headed letters or faxes granting them authority to act. HMRC say that where is 64-8 is being completed in relation to a VAT application, it should be sent with the VAT1 to the relevant VAT Registration Unit. They also say that any standing 64-8 authorities will remain valid, and point out that where a taxpayer has several advisers dealing with different taxes (and/or VAT), a separate 64-8 should be sent in respect of each adviser.

Steve Allen
September 2006

VAT Solutions (UK) Ltd
1 Dundonald Avenue
Stockton Heath
Warrington
WA4 6JT

(T) 01925 212244
(F) 01925 212255
(M) 07810 433927
(W) www.vatsolutions-uk.com

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: