Weekly VAT News

Indirect tax news from the past week


Milton Keynes NHS: COS VAT subject to normal assessment procedures – CA

NHS Trusts are allowed to reclaim VAT on costs relating to their non-business activities under the contracted out services (COS) scheme. Although this is a purely domestic provision that is not derived from the EU Principal VAT Directive, the UK has chosen to administer it through the normal VAT return process: NHS Trusts have to be VAT-registered to use the scheme, and include COS VAT as input tax in their VAT returns. In Milton Keynes Hospitals NHS Foundation Trust, the Court of Appeal has ruled that HMRC’s powers of assessment also apply to COS VAT. The Trust had reclaimed VAT on IT services under COS, but HMRC considered that the services did not qualify and assessed the Trust. In the court’s judgment, repayments made under the COS scheme did not lose their character as amounts of VAT, and the Trust accounted for COS VAT by reference to “prescribed accounting periods”. HMRC were therefore entitled to issue an assessment in the normal way, and the Trust will need to pursue alternative arguments that the assessment was out of time, or that the VAT was correctly claimed, at a substantive tribunal hearing. (Contact: Phil Simmons

Newell: renewable heat incentive schemes – FTT

Colin Newell purchased a dozen biomass boilers (fuelled by wood chips) at a time when the Renewable Heat Incentive (RHI) scheme in Northern Ireland was operating on a particularly generous basis. He used heat from the boilers to dry animal bedding, logs, and animal feed. In the first few years, he received almost as much income in support payments under the RHI scheme as he generated in turnover from customers (although the scheme was subsequently pared back). HMRC assessed Mr Newell on the basis that the support payments represented a non-business activity, which should have led to an input tax restriction, but the FTT has allowed his appeal. In its judgment, the existence of income that was outside the scope of VAT did not always indicate an activity that was outside the scope of VAT. The FTT ruled that there was a direct and immediate link between Mr Newell’s purchases and his taxable supplies, and the conditions attached to the support payments (e.g. ensuring the boilers were accredited) did not disturb this link. Mr Newell’s appeal was allowed. (Contact: David Walters

Black Cabs Services Ltd: insuring taxi cabs is exempt – FTT

Various taxi companies submitted claims for overpaid output tax following the Upper Tribunal’s decision in Wheels Private Hire Ltd in 2017, which held that optional insurance provided to self-employed drivers alongside taxi finance and maintenance services should be treated as a separate exempt supply for VAT purposes. In Wheels, some drivers had taken out their own insurance. By contrast, the terms of the block insurance policy arranged by Black Cabs Services Ltd were such that BCSL’s owner could not remember a single instance of a driver getting their own insurance separately. Nevertheless, the FTT has ruled that the average driver would have distinguished the insurance (which was itemised separately on invoices) from other costs, and that the insurance was optional. Applying BGZ Leasing, BCSL’s charges for insurance were separate and exempt from VAT, and its appeal was allowed. (Contact: Tammy Arendse

HMRC trade tariff tool for GB to NI trade

The latest version of HMRC’s guidance Check if you can bring your goods into Northern Ireland from Great Britain without paying duty includes a new Trade Tariff tool – a decision engine that has been devised to assist businesses understand the customs consequences of moving goods from Great Britain to Northern Ireland. Under the terms of the Northern Ireland Protocol, the indirect tax position of Great Britain to Northern Ireland trade, notably the customs duty position, is a complicated affair: requiring businesses to consider, amongst other things, the origin of the goods, the applicable rate of UK and EU customs duty, and whether the goods will be subject to commercial processing or “at risk” of being diverted into the EU single market. Based on the information given, this tool gives businesses an indication as to the possible options available, and highlights issues which may merit further consideration. (Contact: Sam Kiely)