Weekly VAT News

Sonder Europe Limited: TOMS on short-term accommodation – UT

Sonder Europe Limited leased apartments from landlords for between two and ten years, which it supplied to travellers for periods of one night to a month. Sonder furnished some apartments, and in some cases undertook minor decorating work. The First-tier Tribunal held that Sonder’s services were subject to VAT under the tour operators’ margin scheme (TOMS). The Upper Tribunal has upheld HMRC’s appeal against the FTT decision, and held that TOMS did not apply. For TOMS to apply, the EU Principal VAT Directive requires that a supply acquired by a travel agent must be supplied onward “for the direct benefit of the traveller” and the Value Added Tax (Tour Operators) Order 1987 requires that the onward supply must be made “for the benefit of a traveller without material alteration or further processing”. The FTT decision was based on its finding that Sonder did not materially alter or process the apartments. The UT found that the FTT was in error, as it did not have regard to whether the services bought in by Sonder were supplied to it for the direct benefit of travellers. The UT also considered that the FTT had mischaracterised the nature of the supplies, focusing on the physical alterations to the apartments, rather than the underlying interests in land supplied by landlords to Sonder and by Sonder to travellers. Therefore, the UT proceeded to remake the decision, and considered that the services supplied by Sonder (short term leases to occupy property as holiday accommodation) were materially altered from those supplied to Sonder by the landlords (interests in land for a period of years). Accordingly, the services supplied by landlords to Sonder were not for the direct benefit of Sonder’s customers, and Sonder’s services were not supplied for the benefit of the traveller without material alteration and further processing. Sonder was not making onward supplies of bought-in services, but was making supplies of its own ‘in-house’ services, which fell outside the ambit of TOMS. (Contact: Ed Knight)

Global by Nature Limited: whether products are sports drinks – FTT

Global by Nature Limited (GBN) sold food supplements under various brand names, including Sunwarrior. GBN submitted a claim for overdeclared output tax on the basis that certain of its products should be properly zero-rated for VAT purposes as food. On review, HMRC disagreed in respect of some of the products, holding that Excepted Item 4A, Group 1, Schedule 8, Value Added Tax Act 1994 applied, which excepted from zero-rating “Sports drinks that are advertised or marketed as products designed to enhance physical performance, accelerate recovery after exercise or build bulk …”. The First-tier Tribunal has agreed with GBN. HMRC’s position was that drinks were sports drinks if they were advertised and marketed as such. However, the FTT agreed with GBN that the exception from zero rating only applied to drinks that were sports drinks in the first place, that is, the composition of the drinks was relevant, not just the advertising or marketing. The FTT found that sports drinks “contain a significant quantity of carbohydrate, together with salts (such as sodium and potassium), designed to replenish the body after exercise.” The Sunwarrior products contained low to negligible levels of carbohydrate, and accordingly the FTT held that they were not sports drinks. However, in case the FTT’s statutory interpretation of Item 4A was wrong, so that Item 4A applied to any drink advertised or marketed as being designed to enhance physical performance, accelerate recovery after exercise, or build bulk in a sporting context, then the FTT held that only one of the three Sunwarrior products was marketed and advertised as such, and would, under this alternative approach, be standard rated. Marketing and advertising for the other two products was focussed on helping customers lead healthy active lives in general, and was not specifically sports-related. The FTT upheld GBN’s appeal. (Contact: Andrew Roberts)

Simplified Process for Internal Market Movements – HMRC guidance

HMRC have published a collection of guidance, codes, and procedures for the Simplified Process for Internal Market Movements (SPIMM) for importing goods into Northern Ireland from Great Britain. Businesses with a UK Internal Market Scheme (UKIMS) authorisation will be able to use the SPIMM, provided the goods are ‘not at risk’ of entering the EU. The guidance has been issued “for information purposes only” as the SPIMM has not yet been launched. HMRC have advised that businesses should be prepared for its implementation by 31 March 2025. (Contact: Donna Hemphill)

This week’s VAT case calendar

On 27 to 29 January, the Upper Tribunal will hear the taxpayer’s appeal against the First-tier Tribunal decision in Walkers Snack Foods Limited on whether VAT zero rating applies to ‘Sensations Poppadoms’.