Case Law Corner

Wilson Leisure Developments Limited


'Agent or principal in the supply of holiday accommodation' 
WLD sold holiday lodges to investors and subsequently agreed to pay lodge owners a guaranteed return on their investment in return for them reassuming responsibility for bookings.
WLD contended that in providing their booking & managment service they were simply acting as the lodge owner's agent.  The advantage of agency was of course that they would not be required to declare VAT on the rent receipts.  
The Tribunal disagreed.  Analysis of the contractual position identified a number of inconsistencies which were not sufficient to persuade Judge Bishopp  that WDL was acting merely as agent. 
What is perhaps more of interest here is the remarks made by the eminent Judge Bishopp.  It does appear that if the contractual position had been more clearly defined that the result could have been different.
Mercedes-Benz Financial Services UK Ltd
Contract Hire - A supply of goods or services?
The longstanding orthodoxy on credit sale type transactions is that the supply is one of goods where the contracts speifically contemplate title to the goods passing to the 'consumer' on completion of the credit terms (e.g. Hire Purchase); and that the supply is one of services where the contracts do not contemplate the transfer of title.
MBF sold one particular product, 'Agility', which offered consumers an option to purchase their vehicle at the contract end. Typically consumers would have to pay 40% of the vehicle's residual value to take up the option.
MB argued that the product was not a supply of goods because it was unknown at the time the agreement was signed whether the customer would purchase the vehicle.  
Following their defeat in the upper tier, HMRC had appealed.  The court of Appeal then requested a preliminary ECJ ruling to assist.   
The ECJ held that it must be inferred that the supply was of goods where the 'option to purchase' was the only rational choice open to the consumer at the contract's end.
The Ice Rink Co Ltd & anor.

Single & mulitple supplies

The appellants operated ice skating rinks
Both businesses had treated elements of their junior admission charges as zero-rated - to reflect the children's skate hire fee.

HMRC had assessed on the basis that a single supply of standard rated admission, the skate hire being ancillary to that principal supply. 

The judge found for the appellant noting that a separate entry price existed for customers who brought their own skates.
October 2017
Apologies to all our readers for the lack of a mid-summer istalment of the Eye - there's quite a bit to catch up with! 
There have have been quite a number of interesting developments.  So without further ado..
Definitive proposals for EC VAT system outlined 
It is no small irony that, at the very moment the UK is gearing up to leave the EU, the Commission is finally ready to roll out details of the definitive VAT system promised all those years ago. 

The idea was always, of course, that cross border transactions would be taxed identically to domestic transactions - with VAT being charged, collected and recovered as per the normal rules.  The advent of the single market which suggested a major step towards a fully harmonised VAT system was in reality an indefinite postponement.  Now in a comeback of Lazarus like proportions the idea is back on the agenda!

The driving force behind the announcement appears to be the tax leakage caused by Missing Trader type frauds which rely on the input tax being reclaimed against zero-rated EC sales.
Pierre Moscovici, Commissioner for Economic and Financial Affairs has stated that he expects the new system to be in operation by 2022.  Legislative proposals will be sent to member states with a view to amendments to the VAT directive being set in motion next year.    

Full details can by clicking the link below.
How do you take your Brexit?
A new white paper sets out the government's approach to the VAT, customs and excise regimes in the post-brexit landscape.  There is also a contingency scenario for those who like their brexit a little harder!  
The Treasury invites comments on the paper, preferably before 3 November 2017, although no strict deadline is imposed. 

Input tax deduction - 3rd party beneficiary
The recent Bulgarian case (Sofia v 'Iberdrola Inmobiliaria Real Estate Investments' EOOD) highlights an interesting issue. Namely the right to deduct input tax where expenditure is incurred on property owned by a third party.
In this particular instance the appellant intended to build a holiday village. To ensure the holiday units were equipped with waste water provision, the appellant agreed to pay for extensive modifications of the local council's water pump. After the modifications both the appellant and the local council would benefit from the water pump.

The issue had been referred by the domestic court to the advocate general for a preliminary ruling on the right of the appellant to deduct input tax . The AG decided that, as there was no 'direct and immediate' link between the works and the appellant's taxable outputs input tax deduction could not be permitted.

The CJEU decided not to follow the AG's decision noting that there was likely to be a direct and immediate link between the expense and the appellant's taxable activities. However it also commented that deduction should be confined only to that expense which was necessary for the appellant to conduct its economic activities.

VAT & Duty on the ground

Where are HMRC currently spreading their net?
Customs Duty - Valuation on 3rd country 'assists'
We have to report a number of instances in which HMRC Customs officers have raised the issue of third country 'assists' in respect of valuation figures for import purposes

Many businesses pay to have their products manufactured abroad.  Some however might pay further charges or royalties to other persons or businesses for design, engineering or development works etc.which relate those products 

Where payments for such 'assists' are made to non-EC suppliers, the Union Customs Code stipulates that the value of the 'assists' should be added to the import value of the products themselves.

This can be a nasty shock particularly where a highter rate of duty is involved.

Distance Selling Thresholds
We've had enquires from a number of internet / mail order retailers who have been contacted by EU government departments with regard to VAT registration.

Distance selling concerns intra-EC sales of goods to private customers.  Ordinarily, a UK business selling to an private customer in France is required to charge UK VAT.  Once, however, sales to a member state exceed the annual distance selling threshold the business willl be required to register and account for VAT in that member state.

Member states set their own thresholds - some start as low as €35,000.  Tripping the threshold in one year normally requires that the business remains registered for the following calendar year also.  This can be costly when factors such as interests, penalties and the current exchange rate are brought into the equation.

Assessments, Penalties & Surcharges
A simple plea.  Let us check them for you.  The law is the law and if HMRC make mistakes in issuing such notices they can be removed or reduced.
If we cannot assist in mitigating or removing a charge we won't charge!
If you need to discuss any of the above items please contact Nick or Alan.