Weekly VAT News

Hastings Insurance Services Limited: Broking services supplied to a Gibraltar insurer – FTT

Hastings Insurance Services Limited supplied insurance broking services to Advantage Insurance Company Limited, a Gibraltar (non-EU) provider of insurance to UK policyholders. Although under EU and UK law, insurance transactions, including broking services, are VAT exempt, Article 169(c) of the EU Principal VAT Directive (PVD) allows input tax recovery if the services are provided to a customer outside the EU. This is implemented in the UK by way of the Value Added Tax (Input Tax) (Specified Supplies) Order 1999, but the order was amended in 2019 so that UK insurance intermediaries were entitled to recover VAT only where the party insured was based outside the UK. Hastings submitted a claim to HMRC for the recovery of input tax attributable to supplies made to Advantage relating to a pre-31 December 2020 Brexit period and a post-1 January 2021 Brexit period, on the basis that the 2019 amendment was incompatible with the PVD. The FTT has found in Hasting’s favour, following HMRC’s disallowance of the claim. The FTT has held that “customer” in Article 169(c) should be understood as referring to Hastings’ customer, Advantage, and not the final customer, the UK policyholder (as was argued by HMRC). The FTT also found that Article 169(c) is unconditional and sufficiently precise so as to have direct effect, and therefore for the pre-Brexit period, Article 169(c) can be relied on to allow input tax recovery. With respect to the post-Brexit period, under Section 4 of the EU (Withdrawal) Act 2018, directly effective rights arising under an EU Directive and recognised and enforced before 31 December 2020 continued to be recognised and enforced in UK law, if they are “of a kind” recognised by the European Court or any UK court or tribunal in a case decided before 31 December 2020. The FTT held that EU case law provided that Article 169 had direct effect, or alternatively, that Article 169 was “of a kind” and/or had a “close relationship” with Article 168, which had previously been held to have direct effect. Accordingly, the FTT has ruled in favour of Hastings. (Contact: Nahuel Acevedo-Peña)

Högkullen AB: Valuation of intra-group charges – CJEU AGO

Högkullen AB was the parent company of a Swedish group involved in real estate management. Högkullen’s subsidiaries were partially VAT exempt, and unable to fully recover input tax. Högkullen supplied services to its subsidiaries (company management, financial services, real-estate management, IT services, and personnel management), and calculated its charges on a ‘cost-plus’ basis. Högkullen also incurred shareholder and other accounting and fund-raising costs, which it did not take into account when calculating the intra-group charges. Under the EU Principal VAT Directive, EU member states may, where a supplier and recipient have close ties, value a supply at the open market value. The open market value is the amount payable on the open market for a comparable service, but where this cannot be ascertained, it is an amount not less than the full cost to the supplier of providing the service. The Swedish tax authorities considered that Högkullen’s intra-group supplies constituted a single supply, the consideration for which was less than the open market value. Therefore, as there was no comparable price on the open market, the open market value would be at least equal to the full cost of providing the service. The Advocate General has concluded that the services supplied by Högkullen were all separate services, and was of the view that it was likely that comparison prices for the services could be ascertained. There was no evidence to suggest that the consideration actually paid by Högkullen for the third party services should not be regarded as the comparison price. Although not necessary given that conclusion, the AG also went on to conclude that the open market value could not be determined simply by adding all of the expenditure incurred by Högkullen during a given calendar year. Only the expenditure subject to VAT should be taken into account, allocated to the respective output services, with capital costs apportioned to recognise that capital expenditure related to services supplied over a number of years. (Contact: Nicole Faith)

The Gambling Levy Regulations 2025

The Gambling Levy Regulations 2025 have been made, requiring holders of operating licences issued under the Gambling Act 2005 to pay an annual levy to the Gambling Commission. The Regulations will come into force on 6 April 2025. The levy rate ranges from 1.1% to 0.1% of Gross Gambling Yield, depending on the nature of the licence. Levy periods will in general run for 12 months from 1 April each year, with payment in respect of each levy period due on the following 1 October. However, the first levy period for most operators will be the nine months starting from 1 July 2024, to reflect how the Gambling Commission collects the relevant data. The Gambling Commission has indicated that it intends to publish guidance on the calculation, payment, collection, and enforcement of the levy before 6 April 2025. (Contact: Matt Davies)

Making Tax Digital for VAT – HMRC research and analysis

HMRC published three reports on the introduction of Making Tax Digital for VAT (MTD VAT). The Making Tax Digital for VAT: Final evaluation provided a final assessment of MTD VAT’s performance against its objectives. Its main findings were, first, that MTD VAT generated increased VAT revenue in the range of £185 million to £195 million in 2019 to 2020, similar to the amount forecasted. Secondly, that MTD VAT was relatively straightforward to comply with for most businesses. Thirdly, that MTD VAT software had wider economic benefits beyond compliance with tax obligations, including time savings and encouraging further digitalisation. The report concluded that MTD VAT had the expected impacts and accordingly successfully delivered against its objectives in terms of tackling the tax gap, its impact on taxpayers, and wider economic benefits. The report on Estimating the wider economic benefit of Making Tax Digital concluded that businesses were on average saving time on finances and record keeping following the implementation of MTD VAT. The time saved for taxpayers using fully compatible software was estimated to be between 26 hours and 40 hours per business per year. On a population-wide basis, the total time saving was estimated to be between 32 million hours and 49 million hours in the 2022 to 2023 tax year, with an estimated financial value of between £603 million and £915 million. HMRC also issued a report on the Impact of Making Tax Digital for below threshold VAT customers, finding that these businesses experienced benefits such as reduced scope for error, time savings, and improved tax and financial confidence. The report concluded that more businesses surveyed felt that the benefits of MTD VAT outweighed the costs than felt the costs outweighed the benefits. (Contact: Demian de Souza)

VAT case calendar

On 10 March, the Upper Tribunal will hear the taxpayer’s appeal against the First-tier Tribunal decision in JPMorgan Chase Bank, NA on single versus multiple supplies. On 11 or 12 March, the Court of Appeal will hear HMRC’s appeal against the Upper Tribunal decision in Innovative Bites Limited on the VAT treatment of giant marshmallows. On 19 March, the Supreme Court will hear the taxpayer’s appeal against the Court of Appeal judgment in The Prudential Assurance Company Limited on VAT groups and continuous supplies.

On 13 March, the CJEU will deliver its judgment in Greentech on input tax recovery on a transaction classified as a TOGC by the tax authorities.