Weekly VAT News

FS Commercial Limited: Jurisdiction of First-tier Tribunal - CA

The Court of Appeal has considered the nature of the First-tier Tribunal’s jurisdiction. HMRC had disallowed input tax claimed by FS Commercial Limited on the basis that it had not provided VAT invoices to support input tax recovery, as requested by HMRC. In the course of preparing for its appeal to the FTT against HMRC’s assessment for the input tax, FS Commercial sought to include the invoices that had previously not been provided. The FTT ruled that its jurisdiction was supervisory only; it could review the reasonableness of HMRC’s decision not to accept alternative evidence in the absence of valid VAT invoices. However, it did not have appellate jurisdiction, which would have allowed it to make its own decision regarding the deductibility of the input tax, taking into account the now-provided invoices. Accordingly, FS Commercial was not able to rely on invoices that had not been provided to HMRC before the decision to disallow the input tax was made. The UT upheld the FTT decision. The CA has agreed with the FTT and UT. The CA identified that this dispute concerned the exercise of HMRC’s discretion to allow the deduction of input tax in the absence of invoices where there is sufficient alternative evidence. The CA did not accept FS Commercial’s argument that the issuing of an assessment meant that an appeal against the assessment would engage the FTT’s appellate jurisdiction, allowing the presentation of new evidence. The CA found that the FTT's jurisdiction is supervisory when considering disputes concerning the exercise of HMRC’s discretion as to whether to accept alternative evidence, and this does not change just because an assessment was issued. The CA dismissed FS Commercial’s appeal. (Contact: Nicole Brook)

Mark Glenn Ltd: VAT treatment of hair replacement system – UT

Under Item 3, Group 12, Schedule 8 of the VAT Act 1994, zero-rating applies to the “supply to a disabled person of services of adapting goods to suit his condition”. The First-tier Tribunal had found that the hair replacement system offered by Mark Glenn Ltd (the Kinsey system) for women suffering from baldness did not qualify for zero-rating, on the basis that significant hair loss in women was not a disability and the supply was not a service of adapting goods. The Upper Tribunal has disagreed, and has held that zero-rating applied. The UT considered that the FTT's reasoning for its conclusion was inadequate, in particular as to whether severe hair loss is a disability. The UT then proceeded to remake the decision, rather than remit the issue to the FTT. The UT concluded that severe hair loss in women constitutes a disability, given its adverse impact on carrying out everyday activities, due to cultural and societal expectations. The UT further found that the process of fitting and maintaining the hairpiece was one of adapting it to suit the condition of the disabled person. Accordingly, the supplies in question fell within Item 3, Group 12, Schedule 8. Mark Glenn Ltd’s appeal was allowed. (Contact: Phil Simmons)

Yourway Transport Limited: Import VAT recoverability – FTT

Yourway Transport Limited provided logistics for, mostly US, biopharma companies to deliver drugs for clinical trials to clinics and hospitals, mostly in Europe; importing the drugs, maintaining them in controlled conditions, and arranging for delivery to recipients who received the drugs free of charge. HMRC considered that Yourway was not able to recover the import VAT incurred on the drugs, as it was not the owner. The First-tier Tribunal has held that Yourway was able to recover the import VAT incurred on drugs delivered to EU member states. The principal issue was whether section 47(1), VAT Act 1994 applied. Under the pre-Brexit version of section 47(1), which applied at the time, goods imported from outside the EU by a taxable person who, acting in its own name, supplied those goods as agent for a non-taxable person were deemed to be imported and supplied by the taxable person as principal. The FTT found that Yourway was acting as agent of the biopharma companies, and was making a supply of the drugs. (While a ‘supply’ prima facie requires consideration, under pre-Brexit legislation, paragraph 6 of Schedule 4, VAT Act 1994, the movement of goods between EU member states in the course of business was a deemed supply of goods.) Accordingly, section 47(1) applied, and Yourway was treated as principal and able to recover the import VAT. However, for drugs destined for UK and non-EU countries, the FTT considered that import VAT would not be recoverable. There was no equivalent legislative provision that treated the free drugs destined for the UK and non-EU countries as a deemed supply, and, as such, their importation “cannot be directly and immediately linked” to Yourway’s taxable supplies, that is, its services to the biopharma companies or the EU-destined drugs. Accordingly, the FTT allowed Yourway’s appeal in part. (Contact: Chris Cherrill)

Dbriefs webcast

On Wednesday, 4 February, at 2.00pm, there will be a webcast on the evolving tariff landscape. Our panel will provide an update on the trade and tariffs landscape and what it means for businesses, including practical measures available to manage tariff exposure, strengthen compliance, and support supply chain decision-making.