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CONSTABLE VAT FOCUS 6 JULY 2023

 * News
 * VAT Focus

6th July 2023


HMRC NEWS

Get your postponed import VAT statement
If you account for your import VAT on your VAT Return using Postponed VAT
Accounting, you will need access to the Customs Declaration Service to obtain a
postponed import VAT statement online. Information about how long it takes to
get access to the Customs Declaration Service has been updated.

Register to report and pay VAT on distance sales of goods from Northern Ireland
to the EU
The above guidance details how to register for the One Stop Shop (OSS) Union
Scheme to report and pay VAT due on distance sales of goods from Northern
Ireland to consumers in the EU. The guidance has been updated to confirm that
you can now view and amend your One Stop Shop (OSS) Union Scheme registration
details through your HMRC business tax account.


CASE REVIEW

High Court


1. LEGITIMATE EXPECTATION

This case concerned Realreed Limited (RL), a company which made supplies of
serviced accommodation in over 200 flats which were treated as VAT exempt. In
2019, HMRC took the view that RL was making taxable supplies of accommodation
and raised assessments for unpaid VAT in the sum of £4.8million. This decision
regarding the VAT treatment of the supply is under appeal to the FTT and the
case is yet to be heard, however RL also proceeded to the High Court to request
judicial review and it is the outcome of that request which is considered in
this appeal. Three grounds were advanced in arguing for judicial review. These
were that HMRC’s decision to raise the disputed assessments:

 1. was unreasonable, conspicuously unfair and/or vitiated by the unlawful
    frustration of a legitimate expectation held by the Claimant;
 2. was contrary to general principles of EU law; and/or
 3. disproportionately infringed the Claimant’s rights under Article 1 of the
    Protocol 1 to the European Convention on Human Rights.

It was the first of these grounds, ‘legitimate expectation’, that was considered
in most detail. RL argued that HMRC carried out VAT inspections on multiple
previous occasions and was aware that RL was treating the supplies of serviced
accommodation as VAT exempt and this was never challenged. In addition, HMRC had
previously raised assessments which were based on amending partial exemption
calculations, leading RL to assume that HMRC was content with the VAT treatment
of the supplies. HMRC contended that RL had no legitimate expectation that the
supplies could be treated as VAT exempt.

The High Court highlighted that the HMRC officers, during the VAT inspection,
did not specifically examine whether the VAT exemption applied and also took the
view that even if HMRC had ruled that the supplies were subject to VAT, RL would
have challenged this ruling (as its currently doing so to the FTT). As a result,
the Court concluded that RL made its own decision regarding the liability of its
supplies and did not do anything in reliance on the alleged legitimate
expectation. Alternatively, RL did not prove that anything which it claims that
it might have done in reliance on the alleged legitimate expectation resulted in
a detriment to RL. The application for judicial review was dismissed.

Constable Comment: This hearing did not consider the VAT liability of the supply
in question or whether HMRC’s assessments were correct, this will be determined
by the FTT. However, RL argued, as a result of HMRC’s inspections, it had a
legitimate expectation to assume its supplies are correctly treated as VAT
exempt. However, the Court ruled that the officers did not specifically consider
whether the supplies were VAT exempt or not and that the RL made its own
decision on this point. If a taxpayer wishes certainty over the VAT treatment of
certain supplies, we suggest submitting a Non-Statutory Clearance (NSC) to HMRC
in which all the relevant facts are set out. RL’s situation highlights the point
that businesses cannot assume that the fact that HMRC does not pick up a
liability issue during a VAT inspection means the VAT treatment is correct and
is not protection against future assessments. Constable VAT has relevant
experience and would be pleased to assist with any NSC.

FTT


2. HEALTH AND WELFARE VAT EXEMPTION

This case concerned Illuminate Skin Clinics Ltd (ISC),  a business running a
private clinic offering a range of aesthetic, skincare and wellness treatments.
HMRC refused a VAT repayment claim in relation to ISC’s VAT return for the
period 12/16 and raised best judgment assessments for underpaid output tax on
the grounds that ISC’s supplies should have been standard rated for VAT purposes
and had been treated as VAT exempt.

The treatments offered by ISC included Botox, dermal fillers, CoolSculpting,
prescription skincare, chemical peels, thread lifting, aqualyx and more. The
appellant’s accountant advised in a letter that these supplies should be treated
as VAT exempt.

The supply of services consisting in the provision of medical care by a person
registered or enrolled in the register of medical practitioners is VAT exempt in
the UK. It was agreed between HMRC and ISC that the sole director and
shareholder of ISC complies with the VAT exemption rules in relation to their
qualification as a medical practitioner, therefore the only dispute was whether
the supplies were of ‘medical care’.

The FTT relied on case law and confirmed that medical care includes the
‘diagnosis, treating and, in so far as possible, curing diseases or health
disorders’, therefore it had no hesitation in deciding that the services which
ISC offers are not VAT exempt within the proper meaning and effect of the
legislation. The FTT highlighted that ISC customers use its services because
they want to, not because they are encouraged to do so by a medical practitioner
as a result of a disease or health disorder.

Constable Comment: This case considered whether certain aesthetic treatments
could qualify for VAT exemption. This is a complex area of VAT law and we would
recommend seeking professional advice if there is any ambiguity. Constable VAT
would be pleased to assist with any queries.

CJEU

Since the end of the transitional period on 31 December 2020 European Court
judgements are not binding on the UK in most cases. However, it is expected that
UK courts will still take these judgements into consideration and there may be
occasions where they have a more binding effect.


3. WHAT CONSTITUTES A FIXED ESTABLISHMENT?

This case concerned Cabot Plastic Belgium SA (Cabot P)’s supply to an associated
company Cabot Switzerland GmbH (Cabot S), a company which has its place of
business in Switzerland but is identified for VAT purposes in Belgium for
selling carbon-based products. Cabot S entered into a tolling contract in 2012
(the agreement) with the Belgian company Cabot P.

Under the agreement, Cabot P stored raw materials (owned by Cabot S) which it
then manufactured, using its own equipment, into articles used in making plastic
and stored the finished goods until Cabot S sold them. Cabot P also provided
additional services to Cabot S including managing products stored in third-party
warehouses, making recommendations to optimise manufacturing process, carrying
out internal and external technical checks and assessments and facilitating
customs formalities.

Following a tax inspection in 2017, the Belgian tax authority took the view that
Cabot S had a fixed establishment in Belgium for VAT purposes within the
premises of Cabot P. It arrived at this conclusion because Cabot P put its
production plant, distribution centre and warehouses at disposal of Cabot S. In
addition, Cabot P made its operational staff available to Cabot S. As a
consequence of concluding that Cabot S had a fixed establishment in Belgium, the
Belgian tax authority concluded Belgian VAT should have been charged by Cabot P
in the sum of €10,609,844 in the relevant period.

Cabot P argued that the place of supply of the services to Cabot S was in fact
Switzerland, where Cabot S has established its place of business. If this were
the case, no Belgian VAT would be due.

The CJEU highlighted that the fact that Cabot P owns the human and technical
resources concerned does not preclude the possibility of Cabot S having a fixed
establishment in Belgium provided it has immediate and permanent access to those
resources as if it was its own. However, the CJEU concluded that since Cabot P
remains responsible for its own resources and provides the services at its own
risk, the resources of Cabot P do not become resources of Cabot S in this case,
even if the agreement is exclusive and Cabot S is the only customer of Cabot P.

As a result, the CJEU concluded that Cabot S does not have a fixed establishment
in Belgium and therefore the place of supply was correctly identified by Cabot P
as Switzerland, meaning no Belgian VAT is due.

Constable Comment: In this case the CJEU considered whether a company had
sufficient degree of permanence and a suitable structure in terms of human and
technical resources to give rise to a ‘fixed establishment’ for VAT purposes.
The CJEU provided some useful analysis in reaching its conclusion and this case
will be of interest to anyone involved with cross border supplies.

--------------------------------------------------------------------------------

Please note that this newsletter is intended to provide a general overview of
the subject. No liability is accepted for the opinions it contains or for any
errors or omissions. Constable VAT cannot accept responsibility for loss
incurred by any person, company or entity as a result of acting, or failing to
act, on any material in this blog post. Specialist VAT advice should always be
sought in relation to your particular circumstance.

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