In M Hodges v HMRC [2015] a taxpayer successfully reduced VAT penalties of £394,694 to £7,807. He was found guilty of dishonesty however HMRC had failed to exercise “best judgement” in assessing the VAT penalties as required by the law.
VAT Cases & News
Summaries of interesting VAT cases for the SME owner.
In Dazmonda Ltd t/a Sugar & Spice v HMRC TC 03473, the FTT held that, when an adult entertainment club allowed dancers to use booths at its premises, there was a standard rated single composite supply of services rather than an exempt supply of land.
In HMRC v Secret Hotels2 Limited [2014] UKSC 16, the Supreme Court held that a holiday company (SH2) was an agent for a disclosed principal (or “intermediary”), rather than a principal; and was not liable for the £7.1 million of VAT that HMRC had claimed.
- Secret Hotels2 (SH2) marketed and arranged holiday accommodation through an online website.
- 94% of its sales of hotel rooms were made to travel agents, with the rest made directly to holiday makers.
- Hoteliers, who wished their hotels to be marketed by SH2, entered into a written agreement ("the accommodation agreement”) with SH2 containing a number of provisions. The hotels were then advertised on the website.
- The accommodation agreement was very much in favour of SH2, but this reflected the powerful negotiating position of the large company (backed up, for instance, by Lastminute.com).
- Bookings were made using the website and customers paid in full (the” gross sum”) before the holiday. SH2 then paid a lesser sum (the “net sum”) to the hotelier, which was invoiced by the hotelier at the end of the holiday.
HMRC argued that SH2 was a “travel agent” and liable to account for VAT; whereas SH2 claimed that it was solely an “intermediary”, with the difference between the gross sum and net sum being its “commission”. If SH2 were correct, under the “reverse charge mechanism” it would be foreign hotelier who would account for VAT, rather than SH2.
The court held that it needed to identify the nature of the relationship of SH2, the hotelier and the customer by first considering the effect of the contractual documentation and only then consider whether its conclusion was changed by the commercial facts. It decided that the accommodation agreement (and the surrounding facts) both showed that SH2 was an agent for a disclosed principal.
Links:
Court of Appeal judgment in which the tribunal found in favour of HMRC.
UT judgment in which the tribunal found (correctly) in favour of Secret Hotels2.
FTT judgment in which the tribunal found in favour of HMRC.
Following Goals Soccer Centres plc v HMRC (TC 02253), the charge made by suppliers of indoor and outdoor pitches for league and cup competitions (including managing and administering these) now constitutes two separate charges for VAT purposes.
In HMRC v Esporta [2013] UKUT 0173, it was held that late paid gym fees are subject to VAT.
In Geoffrey Seeff t/a TPL Associates v HMRC TC02738 [2013] a Chartered Accountant was successful in a claim for retrospective authorisation to use the VAT Flat Rate scheme.
What's new?
Following the end of the transition period on 31 December 2020, the UK is a third country territory in respect of EU VAT. As such, the “Gelangensbestätigung” (below) is no longer relevant.
In the case of export declarations under customs law in the ATLAS electronic export procedure, the ‘exit note’ (Ausgangsvermerk) must be kept as evidence.
Intra-EU supplies from Germany: German tax authority evidential requirements
Since 1 January 2012, the German Ministry of Finance has required German suppliers to hold a “Gelangensbestätigung”, i.e. a confirmation signed by the recipient that the goods arrived in the country of destination, in addition to a copy of the invoice relating to the intra-EU supply, as evidence of the intra-EU transaction.
Depending on how the transport is arranged, the content of the Gelangensbestätigung differs, but it always needs to state when and where the goods were actually received by the purchaser.
The new requirement is subject to a transitional period lasting until 31 March 2012. Increasingly, German suppliers will be asking their customers in all Member States to complete the relevant form in relation to their purchases.
If you have any clients who buy goods from Germany they will have to be asked to comply with these new rules.