Weekly VAT News

RCB 4 (2024): Interpretation of VAT and excise law from 1 January 2024

Following the Retained EU Law (Revocation and Reform) Act 2023 (REULA), which removed the supremacy of EU law, and section 28, Finance Act 2024, which set out how VAT and excise legislation should be interpreted in light of the REULA, HMRC have published RCB 4 (2024) on the interpretation of VAT and excise law from 1 January 2024. The brief states that “UK VAT and excise legislation will continue to be interpreted in the same way as it was before 1 January 2024”. According to the brief, this means that the “principle of consistent interpretation (sometimes known as the ‘Marleasing’ principle) continues to apply in interpreting VAT and excise legislation”. “However, businesses will no longer be able to rely on the ‘direct effect’ of EU law. It will no longer be possible for any part of UK legislation to be quashed or disapplied on the basis that it’s incompatible with EU law, as UK law is now supreme. This does not lead to any changes in HMRC policy.” The brief also explains that HMRC are satisfied that where businesses have previously been able to rely on direct effect “there are no adverse results”. By way of example, the brief refers to fund management and financial intermediation, and states that there are “generally corresponding domestic provisions that give the same treatment”. Where further clarity is needed, guidance will be updated accordingly. It remains to be seen what “no adverse results” means in practice. (Contact: Andrew Clarke) 

RCB 5 (2024): Tour Operators’ Margin Scheme for B2B wholesale supplies

HMRC have published RCB 5 (2024) on the application of the Tour Operators’ Margin Scheme (TOMS) for business-to-business (B2B) wholesale supplies. The TOMS is a VAT accounting scheme for businesses buying in and selling certain travel services. HMRC’s policy is that TOMS is mandatory for supplies to final consumers or to businesses for their own consumption. HMRC’s previous policy with respect to services supplied to other businesses for onward sale (B2B wholesale supplies) was that they were subject to the normal VAT rules, although tour operators could choose to include them in TOMS. HMRC have reviewed this policy, and concluded that B2B wholesale supplies are within the scope of TOMS, but by concession tour operators may opt out of TOMS with respect to these supplies if they wish. The change is to apply with immediate effect. The brief states that this is “a technical change to the legal interpretation and will not affect tour operators’ ability to choose whether to apply the TOMS or not to B2B wholesale supplies”. HMRC’s Notice Tour Operators’ Margin Scheme (VAT Notice 709/5) has been updated, in particular at paragraph 3.2, to reflect HMRC’s new policy. (Contact: Ed Knight) 

Tax Administration and Maintenance Day

Tax Administration and Maintenance Day on 18 April 2024 saw the government announce four tax measures. The government has published a consultation on the VAT treatment of private hire vehicles, on the potential tax impacts of the judgments in Uber Britannia Limited v Sefton Borough Council and Uber London Limited v Transport for London. The consultation “also invites views on potential government interventions that could help to mitigate any undue adverse effects on the PHV sector and its passengers”. The consultation closes on 8 August 2024. HM Treasury has issued a press release announcing that a consultation will be launched on “VAT relief on everyday charitable donations”. The consultation will be issued by 23 July 2024. It was also announced that a response to the government’s consultation on Tackling non-compliance in the umbrella company market will be published “in due course”, and HMRC will issue guidance on this issue later this year. “The government is minded to introduce a statutory due diligence regime for businesses that use umbrella companies and will continue to engage with the recruitment industry and other key stakeholders on the detail of this.” Finally, there will be legislative changes with respect to Freeport and Investment Zone NIC reliefs. (Contact: Donna Huggard)

Elphysic Ltd & Ors: mini umbrella company fraud – FTT

In 2021, HMRC published guidance about fraud involving mini umbrella companies (MUCs), which provide limited numbers of staff to recruitment agencies over the course of a year or so, before being replaced by new MUCs. The guidance stated that MUC fraud “is primarily based around the abuse of 2 government incentives aimed at small businesses”: the VAT Flat Rate Scheme (FRS) and Employment Allowance (EA). In Elphysic Ltd & Ors, the First-tier Tribunal has provided further details about the scale of this fraud and its operation. UK directors for MUCs were recruited by social media (with posts such as, do you “want to make £450 completely FREE … No selling … Won’t effect income, tax or benefits”) and, shortly after, replaced by directors in the Philippines, recruited in a similar manner. The scale of the operation was significant. HMRC estimated the tax lost from the scheme at £260m, and on 30 April 2021 issued an initial tranche of 22,000 letters deregistering MUCs for VAT, and denying them the benefit of the FRS and the EA. Thousands of other appeals are stayed pending the outcome of this lead case. The FTT agreed with HMRC that the MUC directors were directors in name only and that there were objective grounds for HMRC to conclude that the VAT numbers were being used for fraudulent purposes. However, HMRC could not prove that the MUC directors knew that the VAT registration was being used fraudulently. Consequently, HMRC could not deregister the MUCs. However, the FTT endorsed HMRC’s decisions to deny the MUCs the benefit of the FRS and the EA. (Contact: Adam Routledge)

This week’s CJEU indirect tax case calendar

On 25 April, the CJEU will deliver its judgment in Bitulpetrolium Serv on penalties for tax warehousing infringements. Also on 25 April, there will be Advocate General opinions in Casino de Spa and Ors and Chaudfontaine Loisirs, both on VAT on online gaming, and Digital Charging Solutions on whether charging points for electric vehicles are goods or services.