VAT Cases & News

The case of Richard J Finney v HMRC [2015] TC04667 has highlighted the importance of understanding how the sale of an MOT certificate with a second hand car should be treated for VAT purposes.

Mr Finney had incorrectly calculated the margin on some of his sales by deducting the costs of MOT tests, but his helpful attitude and well-kept records enabled him to escape penalties and minimise his additional VAT liability.

The sale of a second hand car with an MOT test is generally treated as a single supply.  The sum attributable to the MOT certificate is therefore not deducted from the sales price when calculating the margin.

Mr Finney had wrongly treated the MOT tests as disbursements and excluded them from his margin in about 30% of his sales.

Useful links:

Case reference: Richard J Finney v HMRC [2015] UKFTT TC04667

See our Margin Scheme guide for a more detailed consideration of the case and guidance on the second hand goods scheme.

In Hayley's Hair Design v HMRC [2015] TC04505 the first tier tribunal (FTT) upheld the decision by HMRC that the taxpayer should be de-registered for VAT from the date that they received her application rather than the date that her turnover fell below the relevant threshold.

Facts:

The facts of the case are relatively straightforward:

• Hayley Mundy ran a hairdressing salon, which she expanded to include a beauty salon
• The turnover of the combined business exceeded the VAT threshold and so she registered for VAT
• At Eastertime 2013 she sold the beauty salon
• On 8 April 2014 she noticed that her turnover had fallen below the de-registration threshold and she contacted her accountant who sent her a de-registration form to complete on 13 May 2014
• Mrs Mundy completed the form and dropped it off with her accountant on 20 May 2014
• HMRC did not receive it until 3 June 2014

Legislation:

The legislation in VATA 1994 Schedule 1 Paragraph 13 provides two routes to de-registration:

1. if she can show HMRC that she is no longer liable to be registered then registration is cancelled from the date the application is made 
2. if she can show HMRC that she has ceased to be registrable then registration is cancelled from the date that she ceased

Decision:

The FTT considered that Mrs Mundy made her request on the date that the de-registration form was received by HMRC i.e. 3 June and so her only possible recourse was under the second route.

The FTT considered that the meaning of 'ceased to be registrable' meant that she must have ceased to be liable to be registered, and ceased to be entitled to be registered.  

She was still entitled to be registered after 8 April 2014 as even though her taxable turnover had fallen below the threshold she was still making taxable supplies and therefore entitled to voluntarily register for VAT.

The FTT considered that as she could be voluntarily registered then she had not ceased to be registrable and so could only be de-registered under the first route, that is from 3 June when HMRC received her application. 

Comment:

The delay of almost two months between Mrs Mundy telling her adviser that she wanted to de-register for VAT and the application being received by HMRC could have been avoided had Mrs Mundy's accountant simply advised her to de-register using HMRC's online facility. VAT registration can be cancelled through the same account which is used for online filing of Returns.

Useful links and small print:

Case reference: Hayley Mundy trading as Hayley's Hair Design v HMRC [2015] UKFTT TC04505

Legislation: VATA 1994, Schedule 1, Paragraph 13

In Simon Coates v HMRC [2015] TC04628 the first tier tribunal (FTT) agreed that the appellant had taken reasonable care when he signed an inaccurate form presented by his accountant.

In Merlin Scientific LLP v HMRC [2015] TC04441, the First Tier Tribunal (FTT) overturned HMRC's refusal to allow a deduction against taxable profits and a credit for input VAT in respect of corporate meeting services.

In Bedale Golf Club v HMRC [2015] TC04619, the First Tier Tribunal (FTT) dismissed an appeal against a VAT assessment, finding that costs relating to the clubhouse bar and lounge were not incurred exclusively for the purpose of making taxable supplies.

Background

Bedale Golf Club (BGC) is a partially exempt business.

BGC made a voluntary disclosure on its VAT return to reclaim input tax suffered over a number of years on costs relating to the items in its clubhouse bar and lounge area, and maintenance for the lift which could be used to access the bar and lounge area.

BGC claimed that the costs related wholly to the taxable supplies of food and drink and so reclaimed all of the input VAT.  The club's arguments included the fact that the clubhouse was being used less by members, and that they were increasingly relying on non-members and private hire occasions for turnover.

HMRC raised an assessment for VAT, calculated on a partial exemption method, on the basis that these costs were not incurred exclusively for the purposes of making taxable supplies but for a mix of taxable and exempt supplies.  They contended that making the clubhouse bar attractive and accessible was at least in part to attract new members, and to entice existing members to use the facilities.

Decision

The key factor was whether or not the taxable provision of the food and drink service could be separated from the exempt provision of the golf club membership.

The FTT found that the members' use of the clubhouse was an intrinsic part of their membership.  The clubhouse bar and lounge was used for a variety of reasons, not just the sales of food and drink.  It was also used for team meetings, entertaining other teams after competitions and for trophy presentations as well as the annual general meeting.

The FTT concluded that although there might be a closer link between the costs and the taxable supplies, this does not mean that there is no link between the costs and the exempt supplies, and accordingly dismissed the appeal.

Comment

It is interesting to note that the original refurbishment of this clubhouse was the subject of a previous appeal by BGC after they claimed the whole of the input tax on that part of the refurbishment relating to the first floor of the clubhouse where the bar and lounge are situated.

HMRC considered that the input tax should be treated as residual but in view of the amounts involved allowed it to be treated as if it related to taxable supplies.  They expressly stated at the time that this was not a concession for the future.

Although Bedale appealed this decision by HMRC the case was dismissed at tribunal as the input tax had been repaid so the tribunal had no jurisdiction.

Useful links

Bedale Golf Club v HMRC [2015] UKFTT TC04619

In Intrinsys Ltd v HMRC [2015] TC04611 the first tier tribunal (FTT) has allowed an appeal against a default surcharge, holding that the appellant had a reasonable excuse for missing the bank cut-off time for same day transactions.

Background

• Intrinsys is VAT registered. It has one employee who handles VAT matters, and he is the only one with the expertise to do so.  
• He became ill during the week the return in question was due, meaning that the return was prepared later than was usual.
• As a direct consequence, the amount to be paid was not known until 6 March (a Friday) which was the last working day a payment could be made on time.
• The appellant’s bank had a 3.30pm cut off time for same day transactions involving a different bank.  
• The Finance Director had a genuine belief that the cut off was 4.30pm, which was the cut off time for same day transactions involving the same bank.
• The high value nature of the transaction meant it required electronic countersigning, and this was eventually done at 4.28pm as the person required was away in a meeting.
• As this was after the 3.30pm deadline the payment was not received by HMRC until the next working day, Monday 9th March.
• HMRC issued a surcharge penalty of £8,043 and the company appealed on the grounds that the circumstances meant that it had a reasonable excuse, and the penalty was disproportionate.

Decision

• The FTT held that the illness of the member of staff responsible for preparing the VAT return directly contributed to the late payment as there was no one else who could have prepared it.
• The tribunal also found that there was nothing on the banking platform that differentiated between the 3.30pm and 4.30pm deadlines, and so it was not unreasonable for the Finance Director to have believed he could make a same day transaction by 4.30pm as he had done so before.  
• The company therefore had a reasonable excuse and the appeal was accepted.
• The FTT also commented that it did not find the penalty to be disproportionate, though this was irrelevant as the reasonable excuse matter had already been decided.

Comment

It is important to note that had the Finance Director merely been incorrect in his belief that the cut off time for all same day payments was 4.30pm this would not have constitued a reasonable excuse.  

In fact, he was able to clearly demonstrate why he thought this, and the tribunal was therefore satisfied that it was not unreasonable for him to hold this belief.

Useful link

Intrinsys Ltd v HMRC [2015] UKFTT TC04611