Indirect tax news from the past week
Zipvit: claims for input tax on Mailmedia services were invalid – AGO
For Zipvit Ltd to recover VAT on Mailmedia services provided by Royal Mail in 2006-10, VAT must have been “due or paid” and should have been evidenced by a VAT invoice. At the time, however, the services were (incorrectly) considered exempt. Although HMRC chose not to pursue Royal Mail for output tax that it should have paid, Zipvit still sought to recover input tax. In the Opinion of AG Julianne Kokott, VAT had been “due or paid” by Royal Mail, regardless of whether HMRC could or should have assessed it. The fact that Royal Mail provided a service that should have been taxable established a right for Zipvit to recover input tax in principle. However, in her opinion, Zipvit’s claim should fail because of the absence of a VAT invoice. The AG listed five essential characteristics of a VAT invoice, one of which is the VAT amount. If an invoice is defective in other respects, then it can be fixed; but the documents issued by Royal Mail simply did not mention an amount of VAT, which meant that they could not be recognised as VAT invoices at all. Failure to specify a VAT amount made it impossible for supplier, customer, or HMRC to verify how much VAT Royal Mail had included in its charges. As no VAT invoice had ever been issued, the AG’s view was that Zipvit was not entitled to recover any input tax. (Contact: Oliver Jarratt).
Rádio Popular: insurance commission must be recognised in standard method
Rádio Popular, a Portuguese retailer which sells computers, phones, and domestic appliances, earned commission from selling extended warranties for its products on behalf of an insurer. The commission was exempt from VAT, but Radio Popular excluded it from its partial exemption calculations on the basis that it was generated by incidental financial transactions. The CJEU did not even need to consider whether the commission was “incidental”. In its judgment, the court noted that the EU Principal VAT Directive specifically omits insurance from the definition of incidental financial transactions (that can be left out of standard partial exemption method calculations). The court ruled that insurance could not be defined as a type of financial service (which Radio Popular thought might be an alternative way of excluding the exempt turnover). Regardless of whether or not the insurance commissions were incidental, Radio Popular should have included them in its partial exemption calculations. (Contact: Jonathan Anderson).
Rank: fiscal neutrality applies to slot machines, 2005-13 - FTT
Since the CJEU’s decision in Edith Linneweber in 2005 established that takings from gaming machines should be exempt from VAT regardless of whether the machines were in casinos or pubs, the concept of fiscal neutrality has been applied to various betting and gaming activities. In Rank Group plc and 2016 G1 Ltd, the FTT has now ruled that (applying fiscal neutrality) certain categories of slot machines should have been exempt between 2005 and 2013. The question for the tribunal was whether the slot machines in question were, from the perspective of the average consumer, similar to others which had been confirmed as exempt. It accepted Rank’s evidence that slots games like Rainbow Riches were available simultaneously on the machines in question and in formats which were exempt from VAT (e.g. online). It concluded that the differences in the maximum stakes and prizes had no particular influence on which format the average customer used; and the availability of features like nudge and hold in some formats but not others were not a sufficient distinction. The slot machines should not have been treated as taxable between December 2005 and January 2013, and the taxpayers’ appeals were allowed. (Contact: Barney Horn).
Augean: lower rate of landfill tax on hazardous waste pre-215 – FTT
If soil taken from brownfield sites contains more than 0.1% asbestos, or old tarmac contains over 0.1% coal tar, then they are classified as hazardous waste under the Waste Framework Directive. In HMRC’s view, this meant that they were liable to the standard rate of landfill tax (now £96.70/tonne) rather than the lower rate (£3.10/tonne). HMRC can direct whether contaminating materials form only a small or incidental part of a load (in which case, those materials are disregarded and the lower rate applies). From 2015 Notice LFT1 (parts of which have force of law) clearly set out that the standard rate should apply. Before then, however, the position was unclear. In Augean the FTT has ruled that there was nothing in the landfill tax legislation which prevented HMRC from classifying hazardous waste as small; and “incidental” simply meant that the hazardous waste should not have been deliberately or artificially blended into a load of inert material. If HMRC’s policy pre-2015 had been that the standard rate should apply to any loads classified as hazardous, then that policy needed to have been set out clearly in the Notice. It had not been, and so small amounts of hazardous waste sent to landfill sites operated by Augean before 2015 should not have led to an additional landfill tax cost of over £16m. (Contact: Tom Shaw).