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EY VAT News - Week to 23 November 2015
Welcome to the latest edition of EY VAT News. Headlines include the following:

A reminder that the Chancellor of the Exchequer will deliver his Autumn Statement to Parliament on Wednesday, 25
November 2015.

On Thursday, 26 November 2015, the Court of Appeal will release its judgment in HMRC's appeal in the case of
Mercedes-Benz Financial Services UK Ltd (MBFS). As previously reported, it was confirmed at the hearing that a referral
is to be made to the CJEU for clarity on this matter and, in particular, on the meaning of the phrase “in the normal course
of events“. EY has advised on the case so if you would like to discuss the detail please contact Jamie Ratcliffe for further
information.

The Investment Trust Companies (ITC) case now has a scheduled Supreme Court hearing date of 17-19 May 2016. The
Court of Appeal judgment means that recipients of supplies may be entitled to make a direct and potentially uncapped
claim against HMRC in restitution where they can show that VAT has been wrongly charged in breach of EU law and they
are unable to recover such sums from their suppliers. Please contact Mitchell Moss for further information.
If you would like to discuss any of the articles in this week's edition of EY VAT News in more detail, please speak with your
usual EY indirect tax contact or one of the people below.
In this edition:
Autumn Statement : Access to tax related documents and other announcements
HMRC Material : Updated listing of significant pending VAT appeals : ITC case
HMRC Material : Consultation outcome : Non-inventory linked ports and airports
HMRC Material : Consultation : HMRC Indirect Tax receipts statistics
Legislation : Royal Assent of the Summer Finance Bill 2015
First Tier Tribunal : Strike out application : Penalties for failure to submit online tax returns
Upper Tribunal : Construction: Development of a new relevant charitable purpose building
Upper Tribunal : Supplies to members in return for subscriptions : Whether exempt
Court of Appeal : Liability of catering and other services linked to exempt education : Judgment due
Court of Appeal : Motor vehicle finance agreement : Whether goods or services : Judgment due
Court of Appeal : Wireless Wizards : Entitlement to deduct input tax : Alleged MTIC fraud
CJEU : Calendar update
Ireland : Revenue eBrief No. 111/15 : Enhancements to eRegistration
HMRC Material
Updated listing of significant pending VAT appeals : ITCs : Supreme Court hearing date
On 17 November 2015, HMRC published an updated VAT appeals listing which shows recent VAT cases decided against it at
the First Tier Tribunal, Upper Tribunal or higher courts, where HMRC considers that the case could have a wider impact and it
has taken a decision about whether to appeal the loss.
The listing reports a scheduled Supreme Court hearing date of 17-19 May 2016 in the Investment Trust Companies (ITC)
case. This case considers whether the ITCs, who were wrongly charged VAT on investment management services that should
have been treated as exempt, can bring a direct claim against HMRC to recover sums not repaid to them by their suppliers.
The effect of the Court of Appeal's judgment is that recipients of supplies may be entitled to make a direct and potentially
uncapped claim against HMRC in restitution where they can show that VAT has been wrongly charged in breach of EU law
and they are unable to recover such sums from their suppliers. Our tax alert provides further details about the Court of
Appeal's judgment.
Consultation outcome : Non-inventory linked ports and airports
HMRC has published a summary of responses to the consultation on the removal of non-inventory linked ports and airports,
launched in December 2014, which aimed to assess the impact on industry of a move to a wholly electronic environment for
the presentation and customs clearance of goods at all UK airports and ports.
The summary of responses confirms that the Government will be phasing out the facility to bring goods into non-inventory
linked ports and airports (i.e. ports and airports which do not digitally clear goods), in order to meet the requirements of the
Union Customs Code which comes into force on 1 June 2016. HMRC has stated that following the consultation, it favours
inventory linking at most locations with bespoke solutions in exceptional cases (i.e. where inventory linking is not possible).
Consultation : HMRC Indirect Tax receipts statistics
HMRC has launched a consultation which aims to assess how users would be affected if HMRC were to reduce the frequency
of their National Statistics bulletins on Indirect Tax receipts, and also to gauge how often those bulletins are currently being
used. The consultation is collecting responses through the completion of a short survey, averaging 5 questions, which will be
available until 5 February 2016.
The consultation document, which contains a link to the survey, can be accessed here.
Autumn Statement 2015
Access to tax related documents and other announcements
The Chancellor of the Exchequer will deliver his Autumn Statement to Parliament on Wednesday, 25 November 2015. Full
details of all announcements, supporting documents and other information will be available here after the Chancellor has
delivered his statement. All HMRC tax related documents and other announcements for Autumn Statement 2015 will be
available here.
Legislation
Royal Assent of the Summer Finance Bill 2015
The summer Finance Bill received Royal Assent on Wednesday, 18 November 2015, and is now enacted as Finance (No. 2)
Act 2015. Further details about the progress of the Summer Finance Bill can be found here.
First Tier Tribunal
Decision : Strike out application : Penalties for failure to submit online tax returns
TC04704 Nigel Thomas Organ and Terry Leslie Bryant T/A Additional Aids (Mobility) and others
HMRC applied for a strike out application in respect of an appeal against penalties incurred for late filing, on the basis that the
age of the appellants' agent did not equate to a reasonable excuse for submitting paper rather than online tax returns.
Due to the age of the agent and the lack of a computer and/or knowledge of how to use one, the appellants' agent had
submitted various tax returns in paper format rather than online. HMRC rejected the paper returns and imposed late filing
penalties on the appellants. The appellants instructed their agent to lodge an appeal against the penalties. HMRC applied for
three of the cases to be made lead cases and for those three cases to be struck out on the grounds that the appellants have
no reasonable prospect of success. The First Tier Tribunal decided instead to consider whether all or any of the appeals
should be struck out and only if they were not, would it then consider making a lead case direction.
In the First Tier Tribunal decision in L H Bishop and others, the first three appellants successfully claimed it was unlawful for
HMRC to compel them to file online because of their own old age and/or disability and/or remote location. In the current case,
the agent, on behalf of the appellants argued that this decision meant that HMRC could not require the agent to file his clients'
various tax returns online. HMRC contended that it is the appellants' individual positions and not the position of the agent
which is relevant. Therefore, the only defence available to the appellants, in HMRC's view, was one of reasonable excuse and
that defence on the legislation looks at whether the appellant has a reasonable excuse; not whether the agent appointed by
the appellant has a reasonable excuse. In summary, HMRC understood the appellants' cases as being a claim that they had a
reasonable excuse for failing to file their respective returns online.
The First Tier Tribunal struck out the appeals (save that part of one appeal concerning another issue and one appeal in
respect of which HMRC withdrew the application) on the basis that the appellants' cases did not have a reasonable prospect
of success. The First Tier Tribunal did not consider that the appellants had a reasonable excuse for not submitting their tax
returns online; even where the appellants were themselves elderly, the First Tier Tribunal considered that they could have
appointed an agent who was capable of submitting online returns.
Comment : This case serves as a useful reminder that all tax returns should be submitted online unless there are exceptional
circumstances. Where this is the case, the submission of paper returns should be agreed up front in writing with HMRC.
Upper Tribunal
Decision: Construction: Development of a new relevant charitable purpose building
New Deer Community Association v HMRC
The Upper Tribunal held that the First Tier Tribunal had not erred in law in concluding that the majority of the construction of a
new sports facility was not intended for use as a village hall or similarly in providing social or recreational facilities for the local
community and therefore largely failed to qualify for zero-rating.
The Upper Tier Tribunal released its decision on 12 November 2015 in this appeal by the taxpayer against First Tier Tribunal
decision TC04124 decided mainly in favour of HMRC. This case concerns whether the construction of a new sports pavilion,
car park and all weather pitch qualifies for zero-rating.
The taxpayer, a charitable, non-profit-making community association, appealed against HMRC's decision to refuse VAT zerorating for the construction of a new sports pavilion, car park and all weather pitch. Before the First Tier Tribunal, the taxpayer
contended that the construction of the new building qualified for zero-rating under Group 5 of Schedule 8 to the VAT Act 1994
on the basis that it was intended for use solely for a relevant charitable purpose, specifically for use by a charity as a village
hall or similarly in providing social or recreational facilities for a local community. HMRC refused zero-rating on the grounds
that the new development was effectively a sports facility with some availability for other community use but in a very limited
way and not as a village hall or similar. The First Tier Tribunal held that the new building was quite clearly built as a
replacement sports pavilion, primarily to replace the changing room facilities but also to provide a useful store for sporting
equipment. Consequently, with the exception of a small committee room situated in the kitchen, the First Tier Tribunal was
unable to accept that the new facility was used or could be used in a way that was similar to the use of a village hall. Only the
meeting room/kitchen was capable for use by the whole community for social or recreational facilities, such use being similar
to a village hall, and accordingly the First Tier Tribunal granted relief for this area (4%) only. Otherwise, the appeal was
dismissed.
The taxpayer appealed the First Tier Tribunal decision, on the basis that it had erred in law in its construction of Note (6)(b). In
particular, the taxpayer considered that by requiring a large multipurpose hall as a principal feature, the First Tier Tribunal had
unduly restricted the scope of the statutory provision. Further the taxpayer considered that the First Tier Tribunal erred in
holding that only the meeting room/kitchen was capable of use similar to a village hall in providing social or recreational
facilities for the local community. Even if the only use of the changing rooms was for changing, the taxpayer considered that
that of itself constituted use for a social or recreational purpose because sports activities on the pitch could not take place
unless changing facilities were provided for players and referees and the word “similarly” in Note (6)(b) encompassed use for
such a purpose. The taxpayer considered that the presence of the existing village hall was irrelevant to the question of
whether the new building fell within the scope of zero rating. HMRC contended that the taxpayer had identified no error of law
in the reasoning of the First Tier Tribunal and it had not erred in attaching weight to the physical attributes of the building.
(Although HMRC decided not to seek leave to cross-appeal against the First Tier Tribunal's decision that 4% of the building
cost qualified for zero rating, it did not accept that that decision had been correct).
The Upper Tribunal held that the First Tier Tribunal had focused correctly upon the potential uses of the building itself rather
than on the use of the sports pitch and agreed with the First Tier Tribunal that the design of the building was relevant to the
extent that it dictated what uses were reasonably practicable. On this basis, the First Tier Tribunal was entitled to find, on the
evidence before it, that a building used primarily to provide changing room facilities and storage for sporting equipment was
not used as a village hall or similarly. Further, the Upper Tier Tribunal considered that it was correct to hold that the statutory
definition would be extended to an unacceptable length if it were suggested that any room used for social or recreational
activities could be used as a village hall or similarly. Interestingly, the Upper Tribunal disagreed with the First Tier Tribunal's
view that the existence of a large multipurpose hall is a necessary feature in order to meet the legislative test. However, the
Upper Tribunal did not consider that this was critical to the First Tier Tribunal's conclusion that the building in the present case
failed to meet the test and dismissed the taxpayer's appeal.
Decision : Freemasonry : Whether supplies to members in return for subscriptions were exempt
United Grand Lodge of England v HMRC
The Upper Tribunal held that the Appellant did not qualify for exemption from VAT.
The Upper Tier Tribunal released its decision on 10 November 2015 in this appeal by United Grand Lodge of England against
the First Tier decision TC03302 decided in favour of HMRC. This case concerns whether the taxpayer, a non-profit making
unincorporated association which drew together those practising freemasonry, had aims of a philosophical, philanthropic,
religious or civic nature within the meaning of Article 132(1)(l) of the VAT Directive, in which case the supplies it made to its
members in return for their subscriptions were exempt from VAT.
The First Tier Tribunal concluded that the taxpayer had a variety of different aims, some of which fell within Article 132(1)(l)
and some of which did not. However, the aims which did not fall within the exemption were of sufficient magnitude to cause
the taxpayer to fall outside the scope of the exemption. The Upper Tribunal held that the FTT did not err in law in the way in
which it approached the statutory question and upheld the First Tier Tribunal's decision.
Court of Appeal
VAT liability of catering and other services linked to exempt education : Judgment due
The Court of Appeal will deliver its judgment in HMRC's appeal from the Upper Tribunal in the case of Brockenhurst College
on Wednesday, 25 November 2015. This case concerns the VAT treatment of certain supplies of catering and entertainment
services made by the taxpayer.
Catering students prepared and served meals to members of the public, who paid for their meal. Students studying for
qualifications in dramatic arts put on concerts and performances, for which tickets were sold to members of the public. This
practical training was a requirement of the examining body.
The Upper Tribunal considered that the First Tier Tribunal was right to conclude, on the basis of its findings, that the
restaurant and entertainment services were exempt as supplies of services and goods closely related to the provision of
education by the taxpayer.
Motor vehicle finance agreement : Whether goods or services : Judgment due
The Court of Appeal will deliver its judgment in HMRC's appeal from the Upper Tribunal in the case of Mercedes-Benz
Financial Services UK Ltd (MBFS) on Thursday, 26 November 2015. As previously reported, it was confirmed at the Court of
Appeal hearing that a referral is to be made to the CJEU for clarity on this matter and, in particular, on the meaning of the
phrase “in the normal course of events”. We await the judgment of the Court of Appeal. However, it is expected that the Court
of Appeal judgment will simply confirm the referral to the CJEU.
The MBFS case concerns the ‘Agility’ agreement; a hybrid variation of a hire purchase (HP) agreement under which a
customer makes monthly payments to MBFS but is not contractually obliged to pay the final balloon payment, and ultimately
purchase and take ownership of the vehicle. The crux of the case is the correct interpretation of Article 14(2)(b) of the VAT
Directive and whether it can be said that under Agility contracts “. . .in the normal course of events ownership is to pass at the
latest upon payment of the final instalment” and therefore are supplies of goods for VAT purposes, or whether this provision is
not applicable and Agility should be treated as supplies of services.
MBFS' argument is that Agility contracts do not fall within Article 14(2)(b), and therefore are to be treated as services rather
than goods, because the customer must effectively ‘opt in’ to purchase the car. The economic reality is that the customer has
a genuine choice of whether or not to make the final balloon payment, and therefore you cannot say that in the normal course
of events ownership is to pass. HMRC primarily argues that, based on the wording of the Article, one must look only at the
contract and the mere inclusion of a potential change in ownership clause within the Agility contract means that such contracts
fall under Article 14(2)(b). HMRC also makes a comparison between Agility contracts and HP contracts where a final balloon
payment is charged at the end of the contract period (currently treated as supplies of goods and not contested as part of the
case), arguing that economically they are the same because the only real distinguishing feature is the legal difference
between the ‘opt in’ to purchase under the Agility contract and the effective ‘opt out’ available from purchasing under an HP
contract by virtue of the protection provided under the Consumer Credit Act to voluntarily hand back the vehicle prior to the
conclusion of the contract.
EY has advised on the case. Please see our tax alert issued following the release of the Upper Tribunal decision which
provides further details.
Please contact Jamie Ratcliffe for further information.
Wireless Wizards : Entitlement to deduct input tax : Alleged MTIC fraud
Wireless Wizards Limited has applied for permission to appeal the Upper Tribunal's decision in favour of HMRC. This case
concerns a ‘knew or should have known’ appeal against a background of alleged MTIC fraud.
Court of Justice of the European Union (CJEU)
Calendar update
Wednesday 25 November 2015 - Opinion C-332/14 Wolfgang und Dr Wilfried Rey Grundstücksgemeinschaft GbR German referral concerning the calculation of the deductible proportion of input VAT paid in respect of the acquisition or
construction and ongoing maintenance of a building used for both taxable and exempt purposes.
Thursday 26 November 2015 - Hearing C-520/14 Gemeente Borsele - Dutch referral concerning whether the transport of
school pupils should be treated as carried out by a taxable person and if so, whether an assessment should be made
according to the arrangement as a whole or according to the distance of each journey.
Wednesday 2 December 2015 - Hearing C-40/15 BRE Ubezpieczenia Sp. z o.o. - Polish referral concerning the scope of the
exemption for insurance transactions and related services performed by insurance brokers and insurance agents contained
within Article 135(1)(a) of the VAT Directive, specifically whether that exemption covers services which are supplied in the
name and on behalf of an insurer by a third party who has no legal relationship with the insured person. Please contact David
Bearman for further information.
Wednesday 9 December 2015 – JudgmentC-595/13 - Fiscale Eenheid X - Dutch referral asking whether a property
investment company may be regarded as a ‘special investment fund’ for the purposes of Article 13B(d)(6) of the Sixth
Directive (now Article 135(1)(g) of the VAT Directive), the management of which qualifies for VAT exemption. Please contact
Simon Harris for further information.
Wednesday 16 December 2015 – Hearing C-543/14 - Ordre des barreaux francophones and germanophone and Others
- Belgian referral concerning an attempt by the domestic legal profession to argue that by making services supplied by lawyers
subject to VAT, irrespective of whether the client is registered for VAT or qualifies for legal aid, EU VAT law is incompatible
with the Charter of Fundamental Rights of the European Union, the European Convention on Human Rights and certain other
conventions which seek to ensure effective access to justice. The referral also asks whether services provided by lawyers
under a legal aid scheme qualify for exemption under any provision of EU VAT law. The background here is that, until 31
December 2013, legal services were exempt from VAT in Belgium. Belgium withdrew this exemption (the last Member State to
do so) with effect from 1 January 2014, whereupon services supplied by Belgian lawyers became subject to the standard rate
of VAT.
Thursday 17 December 2015 - Judgment C-419/14 WebMindLicences Kft. - Hungarian referral asking some seventeen
detailed questions aimed at establishing whether the transfer, by means of a licensing agreement, of intellectual property
between two taxable persons in different EU Member States constitutes an abusive practice for VAT purposes. Please contact
Simon Harris for further information.
Thursday 17 December 2015 - Opinion C-550/14 Envirotec Denmark ApS - Danish referral asking whether bars consisting
of a random, rough fusion of various scrapped, gold-bearing metal objects, which are created with a view to extracting the
gold content and which exceed the prescribed purity levels, are covered by the term ‘gold material or semi-manufactured
products’ within the meaning of Article 198(2) of the VAT Directive, which permits Member States to designate the customer
as the person liable for payment of VAT.
Ireland
Revenue eBrief No. 111/15 : Enhancements to eRegistration
The Irish Revenue Commissioners have issued Revenue eBrief No. 111/15. From 7 December 2015, companies using the
Revenue's eRegistration service to register a new company will be required to enter the Company Registration Office (CRO)
number. The CRO number will be automatically validated against the CRO record and the verified CRO number will be used
to pre-populate the fields on the ‘Company Details’ screen in the eRegistration service.
If the company being created is a Private Limited Company, information about one of the company directors (separate from
the company secretary) will need to be added. All other company types will be required to provide information about two of the
company directors.
If the CRO number cannot be validated, registration through the eRegistration service will not be possible.
Further information:
EY has a global indirect tax practice which is experienced in providing support in relation to technical VAT issues. If you would
like to discuss any case generally or in relation to your own circumstances, please speak with your usual EY indirect tax
contact.
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