Indirect tax news from the past week
RCB 7(2021): VAT liability of charging of electric vehicles
In RCB 7(2021) HMRC have confirmed that businesses providing facilities for charging electric vehicles (EVs) in public places should normally charge standard-rated VAT. The reduced rate applies to supplies of up to 1,000 kWh per month of electricity at any premises (such supplies are considered de minimis, and deemed to be for domestic use). However, HMRC interpret "premises" as meaning a house or building, and therefore consider that charging points in car parks, petrol stations or on-street parking do not qualify for the reduced rate. The guidance also states that a supply of electricity must be “ongoing” in order to fall within the deemed domestic provisions, apparently precluding the reduced rate from applying to EV charging. This approach has come as a surprise to many providers, who may now need to review the VAT rate applied to supplies in the past and consider possible Climate Change Levy implications. The RCB also states that businesses cannot recover any VAT on electricity used by employees to charge their vehicles at home, as the electricity has been supplied to the individual and not the business. To that extent, EVs will be treated less favourably than petrol or diesel cars, where VAT incurred on fuel purchases can be recovered to some extent. VAT recovery on electricity supplied to a business may be possible if employees recharge their EVs at work, subject to a private use adjustment. (Contact: Tom Shaw).
RCB 8(2021): VAT treatment of public funds received by further education institutions
In Colchester Institute Corporation, the Upper Tribunal held that the provision of fully-funded education by a further education college should be treated as an exempt business activity, rather than a non-business activity. The tribunal dismissed the college’s appeal on other grounds, but its decision on the nature of fully-funded education remains significant. It means that some taxable turnover from commercial activities (e.g. certain restaurants, run with help from students) should have been exempt. On the other hand, it potentially means that new buildings constructed by colleges do not qualify for zero-rating, and fuel and power provided to colleges does not qualify for the reduced rate. In RCB 8(2021) HMRC have confirmed that they will continue to allow colleges to treat fully-funded education as a non-business activity, pending further consideration of the nature of such education in another case. Colleges can apply the exemption, but if they do so any claims for output tax overpaid on commercial activity will need to be balanced against the loss of zero-rating and reduced-rating reliefs – any college must adopt a consistent VAT treatment to the education it provides. Energy providers may therefore wish to check whether certificates provided by colleges to justify the reduced rate on fuel and power remain valid. (Contact: Jacqui Nicholls).
Government entitled to abolish tax free shopping and the retail export scheme – CA
The Court of Appeal has rejected a challenge by Heathrow Airport Ltd and others to the withdrawal of the VAT retail export scheme (RES) and tax free shopping at airports. The RES permitted VAT on high street sales to be refunded to non-EU visitors. Following the end of the Brexit transition period, this approach would have discriminated against visitors from the EU, which the court ruled would have been in breach of the UK’s obligations under the General Agreement on Tariffs and Trade (GATT). The government had to do something about the scheme and was within its rights to abolish it. The subsequent trade and cooperation agreement with the EU did not change the analysis behind this decision. Whereas the RES effectively zero-rated sales to overseas visitors, the rules on tax free sales by airside retailers were even wider. Sales to travellers who presented a boarding card showing a non-EU destination were zero-rated, without any requirement to ensure that the goods were actually exported (rather than consumed in the airport or subsequently returned to the UK). Tax free sales were therefore a concessionary treatment, which in the Court’s judgment went beyond HMRC’s discretion to ensure effective tax management (i.e. their care and management powers). HMRC were therefore entitled to withdraw the concession. (Contact: Jason Craig).
Tower Resources: input tax recovery by holding companies – UT
The Upper Tribunal has found in the taxpayer’s favour in Tower Resources plc, which concerns input tax recovery by holding companies. TR’s subsidiaries (principally those exploring for oil in Namibia and Kenya) never generated the revenue needed to pay for TR’s support. However, TR had entered into service agreements in which the subsidiaries agreed to pay (cost +5%) for its services, as well as loan agreements to fund them. In practice, TR’s services may therefore simply have created an increasing balance on an intercompany loan account. However, the FTT had been satisfied that the subsidiaries were obliged to pay TR, an obligation which was neither contingent nor uncertain, and which was not affected by TR’s decision not to demand payment. The UT ruled that there was no basis on which to overturn the FTT’s conclusion that TR was making supplies for consideration. It also rejected an argument that TR was not carrying on an economic activity even if it was making supplies for consideration. TR was therefore entitled to recover input tax of approximately £1.4m incurred in 2012-15. (Contact: Oliver Jarratt).