Indirect tax news from the past week
Claims Advisory Group: VAT on managing PPI mis-selling claims – UT
Claims Advisory Group Ltd helped people submit claims if they had been mis-sold PPI policies, and retained 39% of any successful claims for its services. It argued that its services should be exempt as the services of an insurance intermediary – although it was not introducing customers to an insurer, it was managing the end of their relationship with the insurer. The Upper Tribunal, like the First-tier Tribunal before it, was not persuaded. It considered that the economic purpose and commercial reality of CAG’s services was to pursue a claim for compensation, not to terminate a PPI policy. CAG was not acting as an insurance agent, as it was not introducing a customer seeking insurance to an insurer. In most cases CAG never had any contact with the insurer – what it did was seek compensation from the intermediary that had earned commission from selling the PPI. Finally, the UT ruled that CAG’s services were not “related to” the PPI, as they were too remote (they involved the way that PPI was sold by a third party, not the policy itself, and the policy may have ended by the time CAG became involved). Consequently, CAG’s services were not exempt as the services of an insurance intermediary, and its appeal was dismissed. (Contact: Judith Lesar).
New online service and checklist for PESM applications
HMRC have launched a new online service for submitting proposals for partial exemption special methods (PESMs). Notice 706 has also been updated with a checklist setting out 43 pieces of information that must accompany a PESM proposal. As well as basic information about a taxpayer’s activities, these include a requirement to compare the proposed PESM against the standard method, a worked example of how the proposed PESM would have operated in the previous tax year, details of overseas establishments, etc. Use of the online service is not compulsory, and proposed PESMs can still be emailed to HMRC. However, in either case, Notice 706 now provides a comprehensive checklist of the information that HMRC will expect to be provided with. (Contact: Daniel Johnson).
Laurence Supply Co: duty classification of leather handbags – FTT
The rate of customs duty on leather handbags which have "an outer surface of textile materials" is 6% lower than if they are covered in plastic sheeting, so it is important to classify them correctly. HMRC examined two samples obtained from Laurence Supply Co (Leather Goods) Ltd ("LSC"), and concluded that one fell into each category. When LSC failed to respond fully to follow-up questions, HMRC concluded that all of the handbags (except for the single model that HMRC had classified at the lower rate) were covered in plastic, and issued a post-clearance demand notice. LSC appealed to the FTT, and applied (in effect) for summary judgment on the basis that its imports should clearly have been classified at the lower rate. That application, in the FTT's judgment, was "entirely misconceived". As with VAT appeals, the taxpayer faces the burden of proving its case in an appeal against an assessment or demand issued by HMRC. Even if the classification of some of LSC's imports at the lower duty rate is not contentious, LSC will now have to justify that treatment in tribunal, which is likely to be a more challenging process than addressing it in correspondence with HMRC. (Contact: Sam Kiely).
Notification of Uncertain Tax Treatments – draft guidance
HMRC have published draft guidance on the requirement for large businesses to notify HMRC of uncertain tax treatments, that is expected to apply from April 2022. One of the tests for notification will be whether there is a “substantial possibility” that a tribunal would adopt a different approach from the one used by a business. According to the draft guidance, this test is satisfied if there is a “real possibility” of a different VAT treatment, if the decision about VAT is “fairly balanced”, if there is “genuine doubt” over how to interpret the law, etc. It is a lower bar than the accounting test of whether another VAT treatment is “more likely than not”. The £5m threshold for notification is determined without reference to a customer’s ability to recover input tax. The guidance also explains how the deadline for notifying uncertainties relating to VAT may be several months after the transaction has taken place. Given that the penalty for each failure to notify is now £50k (for a third and any subsequent failure) businesses should consider how they will deal with obligations under the new regime. (Contact: David Walters).