VAT Cases & News

In Vehicle Control Services Limited v HMRC [2016] UKUT 0316 (TCC) the Upper Tribunal (UT) has held that input VAT on overheads has to be apportioned where a business makes both taxable and outside of scope supplies.

HMRC have published a brief clarifying their position on the VAT treatment of the conversion of non-residential properties into dwellings where statutory planning consent is no longer required.  

In Languard New Homes Ltd v HMRC [2016] TC04917 the First Tier Tribunal (FTT) allowed the sale of a converted mixed-use property to be zero rated, contrary to HMRC’s longstanding interpretation of the legislation. Stop press: HMRC is appealing this decision.

In HMRC v Frank A Smart & Son Ltd (Respondent) (Scotland) [2019] UKSC 39, the Supreme Court upheld the decisions of all earlier courts and dismissed HMRC's continued appeal: a company was entitled to a repayment of VAT paid when acquiring Single Farm Payment (SFPE) units as a fund raising exercise.

The long running saga of Associated Newspapers and its VAT treatment of retail vouchers given away to customers has finally come to an end in the Upper Tribunal after two earlier visits to the First Tier Tribunal.

Associated Newspapers ran two business promotions:

• In the first, customers who bought the Newspaper for a certain period of time would receive a free high-street voucher worth between £10 and £100. Associated Newspapers would buy these vouchers directly from the retailer.
• In the second, customers accumulated loyalty points which they could later exchange for high-street vouchers.  Associated Newspapers acquired these vouchers from an intermediary who managed the scheme.

The tribunal decided that:

• When the vouchers were given away by the Newspaper this constituted the use of goods for a business purpose and was not a supply.  As a result, no output VAT was due.
• When the vouchers were acquired by the Newspaper directly from the retailer, the Newspaper did not incur any input VAT and therefore no input VAT could be reclaimed.
• When the vouchers were acquired by the Newspaper from an intermediary, input VAT was incurred. This cost was a directly attributable cost of its taxable supplies of newspapers.  This input VAT could therefore be reclaimed in full.

Comment

The question of business promotions, giveaways and vouchers can be a complex one and it is gratifying that the Upper Tribunal have provided a straightforward answer in this case.

HMRC’s guidance on this topic is contained mainly in VAT notice 700/7: business promotions and is consistent with the Upper Tribunal view as far as it relates to the input VAT on the retail vouchers.

However, at the time of writing, the VAT notice had the following to say with regard to the VAT treatment of the vouchers that are given away at paragraph 8.13:

“Where face value vouchers are purchased by businesses to give away for no consideration, for example as part of a promotions scheme, the VAT incurred may be recovered as input tax subject to the normal rules. However, VAT also has to be accounted for on vouchers given away for no consideration to the extent of the input tax claimed.”

Although is to be hoped that HMRC will be updating and clarifying their guidance in light of this decision shortly, both parties have been given leave to appeal to the Court of Appeal and so this matter might not yet be settled.

Links

For case decisions see the following links:

Upper Tribunal decision HMRC v Associated Newspapers Limited [2015] UKUT 0641 (TCC)

First Tier Tribunal decisions Associated Newspapers Ltd v HMRC [2014] UKFTT TC03256 and Associated Newspapers Ltd v HMRC [2015] UKFTT TC04586

For HMRC guidance see VAT notice 700/7: business promotions.

In Farmyard Funworld Ltd v HMRC [2015] TC04741 the First Tier Tribunal (FTT) agreed that a lack of funds caused by an unexpected heatwave could constitute a reasonable excuse for a late VAT payment.