Weekly VAT News

FS Commercial Limited: inclusion of VAT invoices at hearing – UT

HMRC issued assessments to FS Commercial Limited on the basis that there was insufficient evidence to support input tax claimed. FS Commercial appealed against the assessments to the First-tier Tribunal, and in the course of hearing preparations, sought to include VAT invoices that had not been previously provided to HMRC. In a preliminary hearing, the FTT held that it could review the reasonableness of HMRC’s decision not to allow input tax to be claimed in the absence of valid VAT invoices (a supervisory jurisdiction), but it could not make its own decision regarding the deductibility of the input tax (which would be an appellate jurisdiction). The FTT concluded that FS Commercial could not rely on invoices that had not been provided to the HMRC decision-maker. The Upper Tribunal has upheld the FTT decision. First, the UT held that the FTT had made no error of law in relation to the grounds of appeal. FS Commercial argued that, contrary to the findings of the FTT, the grounds of its appeal against HMRC’s assessments included a ground that FS Commercial held VAT invoices at the time of HMRC’s decision. However, the UT considered that the grounds did not make it clear or apparent that FS Commercial was relying on holding valid VAT invoices as an issue in the appeal. Secondly, the UT held that even if its finding on this issue was wrong, there was still no material error in the FTT’s decision. As the FTT’s jurisdiction was supervisory, the FTT could only consider whether HMRC had unreasonably exercised its discretion not to accept the evidence. The UT noted that where a taxpayer does not provide valid VAT invoices, input tax recovery becomes a matter for the discretion of HMRC: “If HMRC exercises that discretion against the taxpayer, the taxpayer cannot then, on appeal to the FTT, produce the invoice, as a surprise or ambush, even if it truly held the invoice all along, and so side-step the exercise of HMRC’s discretion.” (Contact: Nahuel Acevedo-Peña)

GfC12: Help with labour supply chain assurance

HMRC have published Guidelines for Compliance on Help with labour supply chain assurance –GfC12. The guidelines aim “to help businesses strengthen their assurance practices and identify, mitigate and reduce labour supply chain risks”. Labour supply chains (LSCs) exist where there is an ‘end-user’ business at one end of the chain and a workforce at the other, with at least  business in between. HMRC focus on LSCs because of the risks they present across a number of taxes and also to workers, with opportunities for exploitation. The guidelines set out the recommended approach to assurance, including principles and practices, and how to incorporate these through the contracting process. The guidelines also identify tax and other risks. There are risks identified across a number of taxes, including, from a VAT perspective, self-billing. The guidelines set out the requirements for self-billing and the risks of non-compliance, namely, incorrect VAT treatment and the potential for fraud. The guidelines also cover the potential implications for businesses involved in fraud, including the denial of input tax deductibility and penalties under the corporate criminal offence (CCO). (Contact: Adam Routledge)

VAT case calendar – a look ahead

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’.

Looking further ahead, there are a number of significant VAT cases due to be heard in the first half of 2025.

Supreme Court: The taxpayer’s appeal against the Court of Appeal judgment in The Prudential Assurance Company Limited is to be heard on 19 and 20 March 2025, in a case relating to the interaction between the VAT grouping rules and the time of supply for continuous supplies of services. HMRC’s appeal against the Court of Appeal judgment in Northumbria Healthcare NHS Foundation Trust is to be heard on 7 and 8 April 2025, in a case regarding VAT and hospital car parking. Hotel La Tour’s appeal against a Court of Appeal judgment on VAT recovery on fundraising share costs is expected to be heard later in 2025.

Court of Appeal: The taxpayer’s appeal against the Upper Tribunal decision in WTGIL Limited is to be heard on 4 or 5 March 2025, in a case regarding VAT on ‘black box’ insurance. HMRC’s appeal against the Upper Tribunal decision in Innovative Bites Limited is to be heard on 11 or 12 March 2025, in a case concerning the VAT treatment of giant marshmallows. The taxpayer’s appeal against the Upper Tribunal decision in Impact Contracting Solutions Limited is to be heard on 1 May 2025, in a case on mini umbrella company fraud.