Indirect tax news from the past week
Royal Opera House: dining to Mozart – CA
The Royal Opera House’s production of Don Giovanni runs for 3½ hours, so opera-goers may wish to visit the Balconies restaurant in the opera house for a starter and main course before the performance, and return to their table for dessert and coffee in the interval. If the costs of staging the performance had a “direct and immediate” link to the taxable catering as well as the exempt ticket sales, then ROH could recover part of the associated VAT. However, when is a link sufficiently direct, and sufficiently immediate? In the Court of Appeal’s judgment, the fact that the staging productions was commercially essential to generating catering turnover (i.e. without the opera, far fewer people would have dined at the restaurant) did not prove the required link. Although the catering might not have taken place but for the customers who came to see the opera, a direct and immediate link is not established by a simple “but for” test. Furthermore, the CA considered that case law concerning input tax recovery by businesses making taxable and non-business supplies was not relevant to the apportionment of input tax between taxable and exempt supplies. The CA concluded that the UT had been right to find in favour of HMRC, and dismissed ROH’s appeal. (Contact: Nicole Faith).
K and DBKAG: outsourced fund management functions can be VAT exempt – CJEU
DBKAG licensed software from SC GmbH that it used to measure the performance and manage the risk of special investment funds (SIFs). K provided tax services (creating tax statements to show income earned by individual investors) to another SIF manager. The CJEU has ruled that the VAT exemption for SIF management can apply to such services. The services were only part of the overall fund management activity, and they depended on information supplied by the fund manager, and were supplied to the fund manager. However, provided that they formed a “distinct whole” they could be exempt – SIF management does not become exempt only if it is outsourced in its entirety. The CJEU also held that the software and the tax services were capable of being “specific and essential” to the management of the SIFs. It noted that fund administration is listed as a form of collective portfolio management in the UCITS Directive, and held that it could have an intrinsic link to fund management if the tax reports were required by Austrian law on SIFs. Similarly, it ruled that the software could be “specific” to SIF management as well as “essential”. The CJEU’s reasoning supports the conclusion of the UT in Blackrock that automated fund management can be exempt. Please see here for further commentary. (Contact: David O’Kane).
RCB 9(2021): daycare services provided by private bodies in England and Wales
In January, the Supreme Court refused permission to appeal in LIFE Services Ltd and The Learning Centre (Romford) Ltd. The taxpayers are private companies that provide welfare services for adults with disabilities, but the Court of Appeal ruled that they were not “state-regulated” (unlike providers in Scotland and Northern Ireland) and could not therefore exempt their services from VAT. HMRC have published RCB 9(2021) which summarises the position, and states that they are writing to other providers who may have submitted claims pending the outcome of the litigation. (Contact: Glen Small).
VAT Payment Deferral Scheme
Over half a million businesses deferred £34 billion in VAT payments due between March and June 2020 under the VAT Payment Deferral Scheme. Since February 2021, businesses have been able to apply online to allow the deferred VAT to be paid by monthly instalments. Under Schedule 19, FA 2021, a 5% penalty will be imposed on businesses which do not either pay the deferred VAT in full or enter into alternative payment arrangements by 30 June. In practice, however, applications to pay by instalments will need to be submitted online by 21 June. (Contact: Donna Huggard).