VAT Bites – Summer 2012

VAT Bites is a bi-monthly newsletter produced by Ellis Chapman & Associates, an independent firm of VAT specialists who work alongside Forbes Dawson; highlighting and commenting upon interesting developments from the world of VAT.


  • News from HMRC
  • VAT cases
  • Partial Exemption for Gaming operators

News from HMRC

Summary of main HMRC Budget U-turns

  • Hot food, such as a pasty, that is naturally cooling when sold can be zero-rated.
  • Static caravan sales will only attract 5% VAT from 6 April 2013.
  • First grant of a major interest in a substantially reconstructed protected building will remain zero-rated.
  • Transitional arrangements for completion of certain zero-rated approved alteration projects will now be significantly extended.

VAT cases

Golf club visitors’ fees

In Bridport & West Dorset Golf Club Ltd, where the First Tier Tribunal agreed that green fees charged by a non-profit making body to visitors should be treated as exempt from VAT; it has now been agreed that the matter can be referred to the European Court of Justice for a ruling.  Watch this space!

Care with options to tax

Where an option to tax is required to be submitted by the purchaser of a property in order to secure VAT-free transfer of a going concern status, care must be taken to ensure it is made and notified to HMRC prior to the transfer. In Atchem Ltd, the Tribunal refused to allow a belated notification of an option to tax.

In RCB 22/12, HMRC confirm amended treatment for certain supplies relating to land:

  • Exhibition space – This is only a supply of land when provided without anything else. It is not a supply of land when supplied as a package with other services.
  • Storage space – This is only a supply of land if it is a supply of exclusive space.
  • Airport lounges – A charge for access is a supply of land.

This is significant as the place of supply of land is where the land is situated, whereas most other supplies will fall within the general rule; where the business customer is situated. This has implications for suppliers getting their VAT treatment right and customers being aware when to account for the reverse charge.

For example, a UK business buying solely exhibition space in France from a French exhibition company would not need to account for reverse charge VAT. However, if the supply includes additional services such as power, design or telecoms, this would be subject to the reverse charge.

The old rules can still be applied until 2 November 2012.

Grant of a new sub-lease – transfer of a going concern?

The grant of a new sub-lease of a tenanted commercial building is excluded from treatment as the transfer of a going concern for VAT purposes on the basis that a newly created asset has been sold.  However, in Robinson Family Ltd, the Tribunal ruled that this could be treated as a TOGC in a case where a sub-lease had to be created to enable the sale because of restrictions within the Head Lease. he Tribunal Chairman stated that the principles of ‘substance over form’ should be considered and applied in such cases.

It is not clear as yet whether HMRC will appeal against this decision, or whether policy will have to be amended.  This is an important consideration in many property and tax planning arrangements.

Sale of pub with accommodation

In Enterprises Inns, the Tribunal confirmed that an option to tax did not apply to the residential part of the pub. The old 90/10 split of the business / residential parts of the property for VAT purposes prevails at least for now.

Single purpose face value vouchers.

These are vouchers issued for use to purchase a single type of goods or services that could not be of different VAT liabilities.

Examples include:

  • Prepaid telephone card that can only be used to purchase telecom services.
  • Voucher for downloading electronically supplied services eg movies, games.
  • Voucher for beauty treatments.

Not included examples are:

  • Cinema vouchers that can be used to buy tickets or other items such as food/drinks
  • Shop/restaurant vouchers allowing purchase of items at different VAT rates.
  •  Book tokens allowing purchase of books or e-books.

In RCB 12/2012, HMRC confirm that the VAT treatment of the sale of single purchase face value vouchers has changed from being accounted for when redeemed to being accounted for when issued.

IFA introductory services

In Bloomsbury Wealth, the Tribunal ruled that services provided by an IFA in introducing clients to fund managers was a supply of exempt financial intermediary services. This included the initial general advice part of the process.  The Appellant’s claim for a refund of VAT was therefore approved for repayment.

Default surcharge appeals –mixed success

An overall view is that unforeseen circumstances, particularly with a cumulative effect, seem to find more sympathy with Tribunals than arguments that a surcharge is disproportionate.

Flat Rate Scheme – clients’ responsibilities

In Yeabsley Financial Solutions, the Tribunal confirmed HMRC’s view that it is the taxpayer’s responsibility to assess the implications of using the Flat Rate Scheme.  No retrospective removal from the Scheme should be allowed.

DIY Housebuilders – make sure planning permission is valid

In Maurice Francis, the Tribunal ruled that the Appellant had made a valid claim, as his retrospective planning permission had been made effective from the start of the works.  This is not automatically approved by an awarding Council; reference the Watson case where the Appellant lost his appeal on that basis.

Disposable BBQ’s – a lesson against trying to split a single supply

In the Tribunal of WM Morrison’s Supermarkets Ltd, it was ruled that the sale of disposable BBQ’s was a single standard-rated supply. It was not, as the Appellant had argued, a mixed supply including that of charcoal subject to the reduced rate of VAT.

The Tribunal Chairman took the opportunity to comment in general on attempts to re-categorise supplies. He said that it is “not open to a taxpayer to carve out an element of what would otherwise be treated as a single supply in order to apply a reduced rate to that element of the supply”.

Gaming machine operators – partial exemption?

From 1 February 2012, Machine Games Duty will replace the dual tax regime of Amusement Machine Licence Duty and VAT.  This means that gaming machine income will be treated as exempt from VAT and may cause the operator to become partially exempt for the first time.

This has potential implications of restricting VAT recovery on costs incurred that may wholly or partially relate to this newly designated exempt income. There may also be capital goods scheme implications.




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