Weekly VAT News

Sandra Krywald: penalties and reasonable excuse – FTT

A new penalties regime has applied from 1 January 2023 to the late submission and late payment of VAT returns. Under this regime, a taxpayer may not be liable to a penalty if they can establish a reasonable excuse for lateness, which was remedied without unreasonable delay. Reasonable excuse does not generally include lack of funds, or reliance on another person unless the taxpayer took reasonable care. The First-tier Tribunal has considered the regime in the case of a taxpayer who started experiencing difficulties with her VAT returns during the COVID pandemic, when the VAT return figures prepared by her bookkeepers became unreliable and incorrect, and she herself was exceptionally busy. The taxpayer spoke with HMRC, and was advised that to submit a VAT return she needed to have ‘opening balances’. As she was not confident in the veracity of the numbers, and could not therefore have an accurate opening balance at the start of the VAT return period, she did not consider herself able to submit her VAT returns. Having subsequently spoken to a VAT specialist, she was told that it was not necessary to have an opening balance, and she could submit VAT returns on each period’s turnover. Therefore she hired a new bookkeeper, and has submitted the returns for the relevant periods. The FTT has held that the taxpayer had a reasonable excuse: she took reasonable care to avoid the failings of the bookkeepers, and HMRC, and rectified the failings without unreasonable delay when the excuse ceased. The FTT also considered that there were ‘special circumstances’, in particular HMRC’s incorrect advice, that would enable HMRC to reduce the amount of the late payment penalties. The FTT accordingly held that HMRC’s decision not to reduce the penalties to zero by virtue of the special circumstances was flawed “in the judicial review sense”, and reduced them to zero. (Contact: Rob Holland)

Digital Charging Solutions GmbH: charging points for electric vehicles – CJEU

Digital Charging Solutions GmbH (DCS) had its place of business in Germany. It provided a subscription service allowing customers in Sweden access to a network of charging points to charge their electric vehicles (EVs). The charging points were operated by third parties, with whom DCS had entered into contracts. When customers accessed charging points, by way of a card or app, the third-party operators would invoice DCS for the sessions. DCS charged its customers on a monthly basis for the amount of electricity supplied and a fixed fee for related services, including network access, information on electricity prices and availability of charging points, etc. The CJEU has considered the VAT consequences of this arrangement. The CJEU found that the supply of electricity for the purposes of charging an EV at a charging point is a supply of goods. The CJEU then concluded that the electricity consumed via the EV charging points was deemed to be supplied, first, by the third-party operators to DCS and, second, by DCS to its customers. DCS acted in its own name, but on behalf of customers under the commission contract provisions of the EU Principal VAT Directive. The CJEU differentiated this scenario from cases regarding fuel card providers. Whereas the fuel card providers were financing diesel purchases by their customers (not buying and selling fuel themselves), DCS was not providing a credit mechanism. The CJEU also considered that it would be artificial to classify the supplies of electricity and access services as a single supply, given the fixed fee for the latter was independent of the electricity purchased. This conclusion did not affect the court’s finding in relation to the commission structure. (Contact: Nicole Brook)

UP CAFFE d.o.o.: business continuity – CJEU

Turnover from a restaurant operated by SS-UGO d.o.o. was approaching the Croatian VAT registration threshold, as provided for in the EU Principal VAT Directive. The restaurant company was discontinued and restarted by a new company (UP CAFFE). The Croatian tax authorities considered that, in reality, the business continued to be carried on by SS-UGO, and the reformation was undertaken so that the company was not required to register for VAT. The CJEU considered that the issue in point was the principle of the prohibition of abusive practices (not fraud, as had been referred to in the question submitted to the CJEU). An abusive practice exists where a transaction results in a tax advantage, even if the transaction formally complies with the legislation, and the aim of the transaction is to obtain that tax advantage. The CJEU has ruled that where the formation of a company constitutes an abusive practice that is intended to maintain the benefit of the VAT registration threshold for an activity previously carried out by another company, the new company cannot benefit from that threshold. This is the case even if there were no national provisions that prohibited such an abusive practice, as a taxpayer should not be able to claim a benefit under EU law as the result of an abusive practice. (Advocate General Kokott had considered that abuse of law could not apply in this case as a matter of principle, because VAT registration thresholds were not directly effective EU law rights.) (Contact: Andrew Clarke)

Webcasts

HMRC Guidelines for Compliance 8 – Help with VAT compliance controls: There will be a Deloitte webcast on 23 October at 14.00 on HMRC’s Guidelines for Compliance 8 – Help with VAT compliance controls. We will be exploring what the guidance covers and what steps your organisation might take in response. If you are interested in attending the webcast, please contact Suzanne Wallis.

Autumn Budget 2024: Following the UK Budget on 30 October, the UK Autumn Budget 2024 Dbriefs webcast will take place on 31 October 12.00. Our panel will discuss the Office for Budget Responsibility’s outlook for the economy and the Chancellor’s tax announcements.