Indirect tax news from the past week
RCB 5(2021): VAT on blinds in residential properties
The zero rate for residential properties covers building materials that are ordinarily incorporated in their construction. Last year, HMRC’s policy that blinds and other window furniture were not “ordinarily incorporated” was successfully challenged in Wickford Development Co Ltd. In RCB 5(2021) HMRC have confirmed that they have changed their policy, and accept that manually-operated blinds qualify for zero-rating. The policy change is said to take effect from 5 October 2020 (the date of the FTT’s decision in Wickford) although, given that the FTT was considering supplies made between 2014 and 2017, claims for VAT overpaid during the last four years should also be considered. (Contact: Ben Tennant).
Morrison’s: Nakd bars subject to VAT as confectionery – FTT
The statutory definition of confectionery was changed in 1988 to include “items of sweetened prepared food normally eaten with the fingers”, which meant that cereal bars held together by syrup were subject to VAT. In Wm Morrison Supermarkets plc, the FTT has ruled that this definition did not apply to Nakd Wholefood Bars, whose main ingredient (37-58% dates) was already sweet, and which were not further sweetened by the addition of other fruit, nuts, and natural flavourings. However, the FTT went on to rule that Nakd bars were “confectionery” in the ordinary meaning of the word. The FTT found that the bars contained similar levels of sugar to Maltesers, were sweet to taste (up to 52% sugar, with a texture like fudge), and had been processed. They were held out as, and normally consumed as, snacks and (like traditional confectionery), they were packaged and marketed as treats. So, although the bars might not be “sweetened prepared food”, the FTT concluded that they were still confectionery, and subject to VAT. Morrison’s appeal was dismissed. (Contact: Karolina Zastawniak).
technoRent: interest on delayed claim – CJEU
It took technoRent almost eight years to get an output tax reduction of €367k, which it had included on its May 2005 VAT return, repaid by the Austrian tax authorities. The CJEU has ruled that the referring court should do whatever is within its power to award interest to compensate technoRent for this delay. Austria pays interest at base +2% on repayments of income tax and corporation tax, but there is no provision for interest on VAT repayments. The CJEU noted that the right to recover input tax arises immediately, which should relieve the trader of any financial risk on its inputs. The principle of fiscal neutrality meant that any financial loss caused by a delay in an input tax credit should be compensated through the payment of default interest. In its judgment, the same principle applied to technoRent’s claim for overpaid output tax. The Principal VAT Directive makes no express provision for interest (and the rules for interest on delayed Directive claims did not apply to technoRent’s claim) but the referring court should consider whether it could give full effect to EU law by applying other rules (such as those concerning interest on income tax) by analogy. (Contact: Oliver Jarratt).
Albany Fish Bar Ltd: penalties on VAT that could not be assessed – FTT
Albany Fish Bar Ltd deliberately omitted lunchtime takings earned by the fish and chip shop that it operated near Cardiff University from its VAT return. HMRC assessed Albany, and issued an 80% penalty for deliberate and concealed behaviour. A delay meant that the assessment was not issued within one year of HMRC having all the facts they needed, and therefore three-quarters of the VAT assessment was out of time. However, the FTT applied a Court of Appeal judgment from 2006 (which related to the old s.60 VATA penalty for civil evasion) and ruled that the penalty was calculated by reference to VAT that should have been declared (“due or payable”), not the amount that HMRC could effectively assess ( “due and payable”). The fact that most of the assessment was time-barred did not mean that the penalty should be reduced. The FTT’s conclusion may seem appropriate in the circumstances, but raises a question over the time limits that might apply to careless as well as deliberate errors. (Contact: Rob Holland).