Case Law Corner
Wiltonpark operates table and lap dancing clubs. The dancers are self-employed and are paid directly by customers for their services. Payment is either by cash or by vouchers (called "Secrets Money") which Wiltonpark sells to customers. When a dancer encashes vouchers with Wiltonpark, it retains a commission of 20%.
If you want to appeal to the Tax Tribunal against a decision of HMRC then, in most cases, you are required by S84(3) VAT Act 1994 to deposit (with HMRC) the amount of disputed tax as a pre-condition of appealing.
Totel (who had been assessed by HMRC as owing almost £1.5M in wrongly claimed input tax) didn't want to pay that amount of money up front so they argued that the pre-payment requirement breached the EU legal principle of "equivalence".
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HMRC ruled that tax advice given to a company (which helped the sole director to reduce his income tax and NIC liabilities) was not obtained for the purpose of its business because it was for the financial benefit of the director. Input tax incurred on the fees was therefore not deductible.
The Tribunal disagreed

This case was about the acquisition of a former public house and its conversion in two phases into a ground floor children's nursery and the upper floor to apartments. A lease on commercial terms was granted to an associated company for the ground floor.  Two building contracts were entered into for the conversion work to be done in two distinct phases, one for the alterations to form a nursery and the other for the development of three flats. The ground floor was opted to tax. read on click here
February 2017
A warm welcome to all our readers to the latest edition of The Eye.  Special thanks this month to Nigel Gibbon for supplying additional legal material.  Nigel is a solicitor practising exclusively in indirect tax and our 'go to' advocate of choice. 
Reduced Relief

Scope of the 5% VAT rate for conversion and renovation projects  

Whilst there have been no particular sea changes in the VAT legislation or policy announcements by HMRC other than perhaps the changes to the Flat Rate Scheme announced last year, one area of interest seems to have come to fore over the past year. This is the scrutiny of the 5% reduced rate construction work.

... continue to full text

Discretion - the lesser part of valour

Input Tax deduction - alternative evidence

In G B Housley Ltd v HMRC, the Court of Appeal (CA) considered the issue of HMRC's power to exercise discretion in cases of input tax deduction. Housley had used the self-billed invoices which it had issued to itself to reclaim input tax.  However, no formal self-billing agreement existed between Housley and its supplier - a requirement stipulated in the VAT Regulations. HMRC disallowed the input tax claim - on the basis that it would be inappropriate for it to exercise discretion in such circumstances. continue reading click here

VAT on the ground

Changes to the Flat Rate Scheme


From 1 April 2017 a flat rate of 16.5% will apply to all "limited cost traders" which will be businesses mainly supplying services.   


A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either:
  • less than 2% of their VAT inclusive turnover in a prescribed accounting period
  • greater than 2% of their VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000)

This is an attempt to curb certain practices which involve the use of the FRS by employment businesses managing the affairs of self-employed contractors.  The practice leads to a net tax loss for the exchequer whilst generating income for the employment business.


For full details click here 


Disclosure of Schemes 


Following the recent HMRC consultation exercise, it is expected that there will be radical changes to the current indirect tax disclosure regime, presumably to bring VAT in line with  DOTAS. It is possible that even the most minor VAT mitigation initiatives could be brought into the scope of the regime increasing compliance costs to businesses.


Full details of the responses to the Consultation can be found here 


Pre-registration VAT - RCB 16 


Revenue and Customs Brief 16/16 restates HMRC's policy in respect of goods & services used prior to registration for VAT.     


There has been some confusion, not least from officers attempting to apply the rules for fixed assets used both before and after the effective date of registration (EDR).  In short, VAT incurred on fixed assets purchased up to 4 years in advance of the EDR is wholly recoverable (partiallly exempt businesses excepted), provided the assets are still in use by the business. 


HMRC's original guidance on this matter suggested perhaps the correct treatment was to apportion VAT recovery based on use prior to the EDR.   

HMRC has invited claims from busineses which may have underclaimed VAT incurred on pre-registration goods and services.


Full details here  




HMRC is still enthusiastic about raising penalties and it is definitely worthwhile challenging them even to reduce the percentages. OMNIS has long experience of dealing with assessments and penalties. If we cannot assist in mitigating or removing a penalty we won't charge!


If you need to discuss any of the above items please contact Nick or Alan.