Weekly VAT News

RCB 7 (2024): VAT treatment of voluntary carbon credits

HMRC have published RCB 7 (2024) on the VAT treatment of voluntary carbon credits. Currently, HMRC consider that the supply of voluntary carbon credits is outside the scope of VAT. This is on the basis that when such credits were first introduced, “HMRC’s view was that they could not be incorporated into an onward supply and there was no evidence of a secondary market.” Given changes in the voluntary carbon credit market, “including the emergence of secondary market trading and businesses incorporating voluntary carbon credits into their onward supplies”, HMRC have announced that from 1 September 2024, the sale of voluntary carbon credits will be subject to VAT at the standard rate, where the place of supply is in the UK. Certain activities remain outside the scope of VAT, including the first issue of a voluntary carbon credit by a public authority, the holding of credits as an investment where there is no economic activity, donations made to voluntary carbon credit projects, and the sale of credits from self-assessed projects. HMRC have also confirmed that where the relevant conditions are met, voluntary carbon credits will be capable of zero rating under the Terminal Markets Order from the same date. (Contact: Zoe Hawes)

V-Com (Worldwide) Ltd: input tax on iPhones – FTT

When the iPhone 4 was launched in 2010, V-Com (Worldwide) Ltd recruited students and gave them gift cards to go to Apple stores and buy phones for V-Com. V-Com managed to acquire around 6,870 phones in this way (at £499 each) which it was able to resell for a profit. V-Com had records showing amounts paid to Apple for the gift cards, serial numbers for the phones, and till receipts from the store. Nevertheless, HMRC decided that, in the absence of full VAT invoices from the Apple stores, V-Com was not entitled to recover input tax, and assessed it for £506,678. V-Com protested that it had provided ample evidence for the purchases, and that HMRC should have exercised their discretion to accept this as alternative evidence for input tax recovery. In light of Scandico (which also related to iPhone 4 purchases), and Zipvit and Tower Bridge GP, HMRC could not see how V-Com’s appeal could succeed and applied to strike it out. The First-tier Tribunal has refused the application. It considered that V-Com’s chances of success were “realistic” rather than “fanciful”, and the evidence that it provided should be properly considered at a full hearing. (Contact: David Walters)

P. sp. z o.o. v Dyrektor Izby Administracji Skarbowej w Warszawie: valuing shares for VAT purposes – CJEU

In 2014 and 2015, W and B agreed to transfer 25 commercial properties and some cash to P. sp. z o.o., in return for an issue of 15,909 shares at €8,123 per share (i.e., a total transaction value of approximately €129m). The share valuation was largely based on a third-party market valuation of the properties. As a general rule, the value of a transaction for VAT purposes has to be based on the value actually received (a subjective value), rather than a value estimated according to objective criteria. The Polish tax authorities invoked that principle and calculated the consideration received by W and B for the property transfers by reference to the nominal value of the shares (€11.50 each – only £183k). Consequently, they concluded that W and B’s VAT invoices overstated the consideration and denied P input tax recovery on the remainder. In the CJEU’s judgment, they were wrong to do so. The nominal price of shares may reflect the value of a company when it is incorporated, but the value of the shares will clearly fluctuate over time. In this case, W, B, and P had all agreed the issue price of the shares at the time of the transaction. The issue price was therefore a subjective value, even though it may have been underpinned by an objective market valuation. On the facts presented to the court, there appeared to be no reason why P should be unable to recover VAT by reference to the £129m valuation. (Contact: Andrew Clarke)

Northern Ireland: UK Carrier Scheme – HMRC guidance

Under the Windsor Framework agreed between the UK and the EU, from 30 September 2024, UK businesses authorised under the UK Carrier (UKC) Scheme will be able to move eligible consumer parcels between Great Britain and Northern Ireland without completing customs or safety and security declarations. HMRC have released guidance for businesses to check if they can apply for the UKC Scheme and the form to apply for the scheme. ‘Consumer parcels’ are defined as those moving from business-to-consumer, consumer-to-business, and consumer-to-another-consumer. Parcels will not qualify for the scheme if they are moving business-to-business, contain prohibited or restricted goods, or exceed certain weight limits. Only businesses established in the UK will be able to apply for the scheme. Businesses must have controls and systems in place to comply with the scheme’s obligations, including distinguishing between businesses and consumers, identifying goods not applicable for the scheme, and collecting and sharing requisite data. (Contact: Sam Kiely)

VAT tertiary legislation – HMRC manual

Primary legislation (such as the VATA 1994) and secondary legislation (such as VAT regulations) empower government departments, such as HMRC, to publish legally binding conditions or directions known as tertiary legislation. Such legislation has the force of law, and is identified as such in, for example, public notices. HMRC have published a list of tertiary legislation relating to VAT, identifying VAT tertiary legislation by topic, including the relevant empowering legislation and where the tertiary legislation was originally published. (Contact: Donna Huggard)

This week’s VAT case calendar

This week, the First-tier Tribunal will continue the hearing in Barclays Services Corporation on VAT grouping. On 16 May, the CJEU will deliver its judgment in Slovenské Energetické Strojárne A.S. on the appeals process for EU VAT refund claims. Also on 16 May, there will be Advocate General opinions in UP CAFFE d.o.o., a VAT fraud case, and Finanzamt T II on VAT grouping.