Weekly VAT News

telent Technology Services Ltd: no relitigation of input tax claim – UT

In 2006, telent Technology Services Ltd placed funds in escrow for the future funding of its occupational pension scheme and recovered input tax on fees paid for investment advice. In 2014, HMRC issued an assessment to recover that input tax for the periods 11/10 to 05/14. telent appealed the assessment (the ‘Assessment Appeal’), but subsequently withdrew that appeal. Six months later, having changed professional advisers, telent renewed its argument for input tax recovery, and made a claim for the periods 08/12 to 08/16. HMRC ultimately conceded that telent was entitled to input tax recovery in principle, but argued that the new claim could not overlap the period dealt with in the Assessment Appeal. telent appealed this decision (the ‘Claim Appeal’). The Upper Tribunal has upheld the FTT’s decision that telent was prevented from relitigating the overlap period. The basis of telent’s first ground of appeal was that HMRC had acquiesced in telent bringing the Claim Appeal or were otherwise estopped from raising the procedural issue of the overlap period. The FTT had found that there had been no detriment to telent from HMRC raising the issue of the overlap period “late in the day”. Accordingly, the UT held that HMRC were not barred from raising this procedural issue. telent’s other grounds of appeal related to whether telent was prevented from relitigating the overlap period. Under s.85 VATA 1994, on withdrawal of the Assessment Appeal, the FTT was deemed to have determined that the input tax in question was not allowable and this included the input tax for the overlap period. Accordingly, telent was not able to relitigate the issue, and the UT dismissed telent’s appeal. (Contact: Oliver Jarratt)

HMRC publish latest estimate of the tax gap

HMRC have published the latest annual edition of Measuring tax gaps. The estimated ‘tax gap’, HMRC’s best estimate of the difference between the amount of tax that should in theory have been paid and what was actually paid, for the 2022/23 tax year was 4.8%, representing an estimated £39.8 billion of missed receipts out of total theoretical tax liabilities of £828.8 billion for the year. The VAT section of the publication shows that the VAT gap for 2022/23 is estimated to be 4.9%, or £8.1 billion. There has been a downward trend in the VAT gap – it was 13.7% in 2005/06. The estimated excise duties gap for2022/23 is 4.7%, or £2.5 billion. A breakdown of the tax gap by tax types shows that ‘income tax, national insurance contributions and capital gains tax’ and ‘corporation tax’ account for an estimated 34% of the total tax gap each, followed by VAT representing 20% of the gap. Broken down by taxpayer groups, an estimated 60% of the tax gap is attributed to small businesses, whilst the proportions attributable to mid-sized businesses and large businesses are 11% each. ‘Failure to take reasonable care’ remains the main behavioural reason for missing receipts, representing an estimated 30% of the total tax gap. (Contact: Rob Holland)

Status of trade negotiations – Insights blog

Since leaving the EU, the UK has implemented its own independent trade policy. This has included transitioning EU-negotiated free trade agreements (FTAs) with 71 trading partners into UK law and striking new FTAs, including with Australia and New Zealand. Agreement has been reached on the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and ratification is underway. Negotiations are ongoing with India and the Gulf Cooperation Council. The UK is working to upgrade the existing FTA with Switzerland, and also FTAs with Israel, Korea, and Mexico. In a new Insights blog, we assess the agreements reached so far, where ongoing negotiations are heading, and what trade policy might look like in the years ahead. (Contact: Andrew Clarke)

This week’s CJEU VAT case calendar

On 4 July, the CJEU will deliver its judgments in Credidam on VAT and copyright management services and in Latvijas Informācijas un komunikācijas tehnoloģijas asociācija on VAT and state-funded training services.