Weekly VAT News

Next Generation Clubs Limited: Temporary reduced VAT rate – FTT

Next Generation Clubs Limited, trading under the David Lloyd brand (and Harbour Club), operates leisure and recreational sites. The First-tier Tribunal has held that the reduced VAT rate that applied to the right of admission to certain attractions during the COVID-19 pandemic did not apply to membership subscriptions charged by David Lloyd. As per Group 16, Schedule 7A, VAT Act, the reduced rate applied to supplies “of a right of admission to shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas and exhibitions and similar cultural events and facilities” from 15 July 2020 to 31 March 2022. The issue was whether the services supplied by David Lloyd were rights of admission to “similar cultural events and facilities”. It was common ground that the supplies were not of events, and did not fall directly within any of the specific items in Group 16, so the questions for the FTT were whether the word “cultural” applied to facilities as well as events, and whether the supplies were “similar” to relevant facilities. The FTT took a different approach from that argued by the parties, finding that the phrase “similar cultural events and facilities” was a description of the items listed in Group 16, rather than a separate definition. If a supply was sufficiently similar to the items listed, it would be the supply of a cultural event or facility. However, the FTT concluded that David Lloyd’s supplies were not sufficiently similar (functionally or otherwise) to either any specific listed item or to the items viewed as a whole, considering their common characteristics. Accordingly, the supplies did not qualify for the reduced rate. The FTT dismissed David Lloyd’s appeal. (Contact: Andrew Clarke)

Compound Photonics Group Limited: Economic activity – FTT

Compound Photonics Group Limited was the representative member of a VAT group, (the UK Group), and voluntarily registered for VAT as an intending trader. The intention was to develop, manufacture, and sell a small projector. In May 2017, the UK Group’s operating business in the UK was sold to a third party, with certain intellectual property (IP) rights being retained by UK Group companies. A US subsidiary of a member of the UK Group, but outside the VAT group, continued to operate its business in the US, including continuing the development of the technology. In January 2022, the remaining assets of the UK Group, including the IP, were sold. HMRC issued an assessment disallowing input tax for periods following the May 2017 disposal on the basis that the UK Group had ceased carrying on an economic activity, which the UK Group appealed. The FTT has found that, following the 2017 sale, the UK Group operated as a passive holding structure, and that, with the possible exception of the January 2022 transaction, the UK Group was not carrying on an economic activity, nor was there any intention to carry on one. The sale of the IP was, however, an economic activity; it was a “one-off economic event arising after a period of economic inactivity”. The FTT concluded that the issue of whether input tax incurred had a direct and immediate link to the sale of the IP, and could therefore be recovered, remained live. The FTT stated that, if the parties were unable to reach agreement on the correct amount, they could apply to the Tribunal for directions to have the Tribunal determine the issue. (Contact: Gareth Prichard)

VAT appeals – HMRC update

HMRC have updated their list of VAT appeals, which sets out the status of HMRC appeals that may have implications for other businesses. The update includes the information that HMRC are seeking permission to appeal the Upper Tribunal decision in Queenscourt Limited on the single vs multiple VAT liability issue of dip pots supplied with meal deals, and are not seeking permission to appeal the First-tier Tribunal decision in Clearwater Hampers Limited on whether hampers were separate supplies from the food and drink contained therein. (Contact: Donna Huggard)

This week’s VAT case calendar

On 6 July, the Court of Appeal will hand down its judgment on the taxpayers’ appeals against the Upper Tribunal’s decision in St Patrick’s International College Limited & Ors on the application of VAT exemption for alternative providers of higher education.

On 8 July, there will be a CJEU judgment in Rapera, a reference from Greece on a tax agent’s liability for a non-resident’s unpaid VAT.

Dbriefs webcast

On Monday, 13 July at 12.00, there will be a global trade webcast on Managing evolving supply chains, customs, and sustainability. The webcast will discuss how businesses can manage customs risk while adapting supply chain strategies, and will provide updates on the US tariff landscape, EU customs reform, and import sustainability.