VAT Insights - December 2023

An important feature of the VAT system is the single or multiple supply rule. The rule is well-established and has been heavily litigated with many high profile cases setting out well-understood principles and factors, but it can still be difficult to predict the outcome of the balancing of these factors in individual cases. Moreover, the recent decision in Gap Group shows that there is still room for novel approaches and factors to be taken into account by the tribunals. In this case, the FTT held that the fact that fuel was only supplied at the end of the plant hire period meant that it could not be considered merely a means of better enjoying the plant hire - the plant hire had finished by that point in time. 

As well as looking at the decision in Gap Group, in this edition we also cover the following recent VAT and indirect tax developments:

• a case on the correct VAT procedures where importing items belonging to a third party, which also highlights HMRC's obligations to treat taxpayers equally;
• a case concerning the (lack of) ability to amend the date of a VAT grouping application;
• an FTT decision on the scope of the VAT exemption for the supply of admission to a performance of a cultural nature in the context of remote, live screenings, and
• the (paucity of) VAT announcements in the Autumn Statement.

We also have updates from across our European network, including Spain and Luxembourg.

In addition, we produce more detailed reports on the most significant tax developments so if you scroll to the bottom, there's a list of the most important issues we have covered, with links to our more detailed reports.

If you are interested in finding out more about the below or have a specific indirect tax query, please don't hesitate to get in touch.

Finally, we have a new member of the VAT and indirect taxes team in our London office. Joao Martinho has joined us from an in-house role in a major bank and also has a wealth of indirect tax experience from his earlier roles at Big 4 firms in a number of European jurisdictions.

Single or multiple supplies

It is perhaps difficult to think of an item that is more integral and essential to the use of plant than the provision of fuel to use that plant effectively. So it is perhaps not surprising that HMRC considered that when fuel was provided to a customer who also hired plant that this amounted to a single supply of plant hire with the provision of fuel merely ancillary. Gap Group, however, considered that its supplies of fuel (which were optional and separately invoiced) should be accounted for separately and since the fuel was red diesel, they only accounted for VAT at the reduced rate of 5%.

The FTT agreed with Gap Group's approach in this case. Whilst customers were provided with plant with a full tank of red diesel, in general they were expected to return the plant with a full tank - in which case no separate charge for fuel arose. However, if the plant was returned with less fuel, then a charge arose. The FTT noted that the charge only arose at the end of the plant hire contract, that it was based on the price of fuel at that time and so the supply of fuel only arose at that point. It was entirely at the option of the customer whether to accept a charge (or return the plant with fuel). These features pointed to a separate supply of fuel at the reduced rate. Moreover, the FTT noted that, on their analysis, the supply of the plant had ended by the time the supply of fuel was made such that it could not be said that the supply of fuel was merely a means of better enjoying the main supply of plant.

Read our Insights article here

Import VAT and equal treatment

The decision of the FTT in Piramal Healthcare is interesting on two levels. Firstly, it confirms that import VAT incurred by a business importing goods owned by a third party with a view to carrying out processes on those goods does not qualify as input VAT of that business. In order for VAT on goods to qualify as input VAT of a business, the goods must be a cost component of that business' onward supplies and this is equally the case with import VAT on imported goods. The decision confirms that the approach set out by HMRC in their 2019 R&C Brief to that effect is correct.

However, secondly, it highlights that HMRC must treat taxpayers equally. This doesn't necessarily mean exactly the same, however. In this case, HMRC generally gave taxpayers three months to adapt their processes on imports to the publication of the 2019 R&C Brief. Piramal Healthcare wasn't given the same period of grace, since they were already the subject of an assessment by HMRC. The FTT held that whilst HMRC did not need to allow the same period of grace to Piramal Healthcare, in order to treat them equally it did need to give them a three month grace period from the date that HMRC notified them of their failure to treat such imports correctly.

Read our Insights article here

Amending the date of a VAT grouping

Once a group has applied for an entity to become a VAT group member and that application has been accepted, is there any way to apply to amend the date for the VAT grouping to take effect? The Upper Tribunal in Dollar Financial has held not - at least from a statutory perspective. It is not possible to read the VAT legislation in a way that provides a right to apply to make such an amendment and therefore there is no right to appeal the refusal of such a decision. Dollar Financial had sought to have the VAT grouping apply from an earlier date to avoid the need to separately register the relevant entity after discovering that it had made earlier supplies of management services. However, there was simply no basis for making such an application.

The Upper Tribunal did point out that their decision did not leave VAT groups without any recourse to a remedy in those circumstances. It would be open to the taxpayer to invite a decision from HMRC in the exercise of their discretionary care and management responsibilities. A decision would not give rise to a statutory right of appeal under VATA 1994 s.83, but could, in principle, be challenged by applying for judicial review. Applications for judicial review are, however, subject to more stringent criteria and it is far from clear that a taxpayer would be successful in any such application.

Read our Insights article here

VAT and live theatre screenings

The FTT in Derby Quad Ltd v HMRC has held that the VAT exemption in VATA 1994 Schedule 9 Group 13 item 2 for the supply of admission to a performance of a cultural nature does not extend to the live transmission of such an event. This is another case in which the taxpayer has sought to rely on the "always speaking" doctrine to apply a VAT exemption to a technologically advanced method of providing an service which may not have been contemplated when the provisions were introduced.

The FTT was not persuaded that the live screenings provided by DQ were the same as a "theatrical performance", giving it its natural meaning. The FTT considered that the interactions between the audience and performers were a critical feature of a "theatrical performance" such that attendance at a remote screening of a live performance could not qualify. The natural meaning of the phrase involved an inherent sense that place is an essential aspect and, despite technological advances that may seek to recreate that experience, the always speaking doctrine could not assist the taxpayer.

You can read the case in full here

VAT and the Autumn Statement

You will be forgiven for having failed to spot any relevant announcements in the Autumn Statement relating to VAT. There were one or two, but not ones to set the heart racing... Zero rating for energy saving materials will be extended to additional technologies, such as water-source heat pumps and HMRC indicated that they will continue to receive representations on the Retail Export Scheme.

Finally, the Autumn Statement included the announcement that the government will consult on the VAT treatment of private hire vehicles in early 2024. The decision follows the High Court ruling in Uber Britannia Ltd v Sefton MBC, where Uber successfully sought a declaration that all private hire operators in the UK should be subject to the same rules as Uber on classification of workers and status as principal. The has resulted in a requirement to charge VAT on such services not only for Uber but other operators in the same position

Read our Insights article here

Other issues we have recently covered

Autumn Statement 2023: harvesting Hunt's windfall

Our review of the main business and personal tax announcements from the 2023 Autumn Statement. You can also find the rest of our Autumn Statement content from this link, including comments from a macro-economic perspective, a video and podcast on the key takeaways from a tax and macro-economic perspective, and our HLS and TMT focussed items.

Tax Disputes Quarterly: Winter 2023

The inaugural issue of Tax Disputes Quarterly from Simmons & Simmons, in which we summarise the best of our tax disputes content. Sign up to receive future editions.

Scope of APAs and accounting periods

The Upper Tribunal has dismissed an application for judicial review of DPT notices issued by HMRC in R (on the application of Refinitiv Ltd) v HMRC [2023] UKUT 257. The tribunal rejected the argument that an Advance Pricing Agreement (APA) covering periods to 2014 prevented HMRC issuing DPT notices for the 2018 period calculated in part on services provided during the period covered by the APA and using a different basis of calculation (profit split versus cost plus). The tribunal's decision was that the APA only covered the taxation of profits in earlier periods and did not prevent HMRC taking a different approach to the transfer pricing of the same services for taxation in later periods.

Enforcement of foreign tax rules

The UK Supreme Court has held that a claim in the UK for repayment of monies by the Danish tax authorities alleged to have been fraudulently obtained by the appellants was not rendered inadmissible by the well-established rule (the revenue rule) that the courts of one country will not enforce the tax laws of another: Skatteforvaltningen v Solo Capital Partners LLP [2023] UKSC 40.

Capital allowances and wind farms

In a decision that is clearly disappointing from an environmental and net zero perspective, the Upper Tribunal has held that expenditure on environmental and technical studies in advance of designing and installing wind turbines on windfarms did not qualify for capital allowances as "expenditure on the provision of plant" for the purposes of the Capital Allowances Act: Gunfleet Sands Ltd v HMRC [2023] UKUT 260. The FTT had applied the incorrect test of looking to see whether the expenditure was necessary for the provision and installation of the plant. That was not sufficient. Expenditure needed to be on the provision (including installation) of the plant and the studies carried out by the taxpayer simply to enable the windfarm to go ahead did not qualify.

OECD crypto-asset reporting framework: joint statement

In an important step forward towards exchange of information on transactions in crypto-assets, 48 jurisdictions have released a joint statement confirming that they intend to implement the OECD crypto-asset reporting framework (CARF) by 2027. CARF provides for the automatic exchange of information on crypto-assets, similar to the way in which the Common Reporting Standard (CRS) provides for exchange of information on financial accounts. The signatories include the UK, USA, Canada and most EU member states.

Tax planning and main purpose

The Court of Appeal has held that arrangements entered into as part of a larger share exchange to ensure the part of the consideration was received in a tax efficient manner did not prevent the application of the roll over provisions in TCGA 192 s.135: HMRC v Delinian Ltd (formerly Euromoney Institutional Investor Plc) [2023] EWCA 1281. The exchange as a whole was entered into for bona fide commercial reasons and it could not be said that the more limited scheme or arrangements to avoid tax formed part of that exchange.

Luxembourg minimum net wealth tax declared unconstitutional

In a decision on the constitutionality of the provisions introducing the Luxembourg net wealth tax, the Luxembourg Constitutional Court has declared the fixed minimum net wealth tax of €4,815 levied on Société de Participations Financières (SOPARFI) to be unconstitutional.

Spanish Temporary Solidarity Tax upheld

The Spanish Constitutional Court has, in a split decision, rejected the appeal filed by the Governing Council of the Madrid region that the new Temporary Solidarity Tax on high net-worth individuals enacted on 29 December 2022 is unconstitutional.

Tax podcasts

Our contentious tax podcast series covering tax controversy and transfer pricing issues can be found here. More general tax podcasts can be found here.