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Despite the Chancellor’s Autumn 2021 statement proving to be very light on changes to the UK’s VAT system, we are glad to present the following VAT update for October, covering the latest ECJ and Tax Tribunal Decisions, alongside the announcements from HMRC regarding the Balhousie case!
Revenue & Customs Brief 13 (2021)
This Brief from HMRC is in response to the recent “Balhousie” Supreme Court decision, which found that the disposal and reacquisition of a care home under a sale and leaseback arrangement does not constitute a disposal of interest, and so does not trigger a deemed self-supply for VAT purposes, insofar as the qualifying activity continues on an unbroken basis.
Brief 13 sets out HMRC’s updated policy in this regard, which accepts that provided there is no gap between the sale and leaseback, and the activity continues for at least the remainder of the 10 years, no self-supply liability shall arise.
VAT Reduced Rate – Supplies of Hospitality
The 5% reduced rate of VAT ended on 30 September 2021, and a new 12.5% higher reduced rate will now apply in respect to these supplies for the period from 1 October 2021 to 31 March 2022.
Supplies these measures cover include:
After 31 March 2022, supplies of hospitality services will revert to the 20% Standard Rate of VAT.
The “Autumn Budget”
This contained very little in the way of Indirect Tax related policy changes.
It did include the announcements that the Government is to consult on the VAT treatment of fund management fees; the introduction of an online sales tax, in addition to tweaks to both Air Passenger Duty and Alcohol Duties.
However, one item of interest is that dental prosthesis are exempted from Import VAT with retrospective effect from 01 January 2021, which shall allow impacted taxpayers to seek import VAT refunds as a result. There might be scope to extend VAT recovery back four years based on a little known European Court VAT case.
Barr Environmental –  FTSTC 3
Barr Environmental incorporated processed household waste into the walls of a “landraise” disposal site. Since the waste was shredded, separated from general waste and repurposed in this way, Barr made the argument that this did not reflect a form of waste disposal and thus was exempt from the Landfill Tax.
However, this argument was rejected by the Scottish FTT on the basis of the Court of Appeal reasoning re: Devon Waste Management, with the waste still essentially being disposed of.
Polo Farm Sports Club – TC/2019/00618
The Polo Farm Sports Club was contracted by a university to co-develop a new indoor sports centre, each paying a sum towards construction costs, and the club to subsequently receive an annual payment from the university for priority access.
The university effected these payments via a lease and leaseback arrangement, leasing from the club for a £2,000,000 initial premium, to be followed by annual payments of £250,000.00 annually, and then leasing the facility back to the club on a peppercorn rent basis.
The FTT held that this premium was not granted in the course of a financing arrangement and outside the scope of VAT but instead reflected consideration provided in respect of a lease, which should have been subject to VAT, upholding HMRC’s assessment.
Care should thus always be taken when entering into financing arrangements to ensure there is no risk of these being taken to represent consideration in return for a supply.
Silver Sea Properties – Silver Sea Properties (Leamington Spa) SARL v HMRC  UKFTT 350 (TC)
Care homes often use a “Propco” to develop a property for financing purposes, with that property then occupied and ran by an “Opco”, which, being a relevant residential property, is supplied on a Zero-Rate basis. FTT found the Propco made a separate supply of fitted furniture and other “turnkey supplies” to its Opco and should have applied VAT on this.
C-373/19 Dubrovin & Troger (Germany)
On 21 October 2021, the CJEU released its decision in respect of this German case, which considered whether the supply of swimming lessons provided by a for-profit business falls within the VAT exemption, per the VAT Directive.
The CJEU, confirmed that while there is no definition of school or university education in the VAT Directive, education can be interpreted more broadly than training to pass exams or qualifying for a profession, and can include general instruction for developing a student’s abilities; while a school can be conceptualised as being an integrated system for the transfer of knowledge or skills covering a wide range subjects.
The CJEU thus held that the supply of swimming lessons by a private swim school is specialised education, but not part of the transmission of knowledge and skills relating to a wide range of diverse subjects, such that D&T’s supply did not take place within a “school” environment, and so the exemption could not apply.
This is in accordance with previous decisions regarding the treatment of driving and sailing lessons.
It shall therefore be of interest to see whether HMRC deviates from its current view of accept swimming lessons as educational and qualifying for exemption on the basis of this decision.
C-80/20 Wilo Salmson France (Romania)
This case considered whether a person can recover input VAT if no valid VAT invoice has yet been received, and whether VAT can be recovered in an earlier period where it becomes chargeable in that earlier period, but is only correctly invoiced for during a later one.
A Romanian Company invoiced its French business partner for tooling provided and used in Romania, but the French counterparty was denied input VAT recovery after it filed a claim under the 8th Directive VAT, as these invoices did not fully comply with local statutory requirements.
The Romanian Company re-issued these invoices in 2015, but the French customer was still refused repayment of this VAT, on the grounds a refund had already been applied for on the supply, and that domestic legislation had not been complied with.
The CJEU held that the state has the info needed to show the taxable person is liable to pay the VAT, it cannot apply additional conditions that effectively deny the right of recovery. It is only where a VAT invoice lacks the information needed by the tax authorities to form a basis of a VAT recovery claim that it can be held that this document is not an invoice within the terms of the VAT Directive, and only then can no right of refund arise. In short, Input VAT is generally refundable if the substantive invoicing requirements are met, even if the formal requirements are not.
The CJEU also determined that VAT refunds cannot be denied on the grounds that a valid VAT invoice was issued only issued in a period that followed one in which the VAT actually arose. The cancellation of an invoice also has no effect on right of deduction, or on an enforceable decision made.
To summarise: while a “VAT invoice” must be received to recover input VAT, it does not need to be fully compliant with local requirements, with the correct period to recover the VAT being when an invoice complying with the VAT Directive is received.