Weekly Tax Update 17 June 2020

The UT has clarified the operation of the warehousing exemption from acquisition VAT. It ruled that here goods are kept under a bonded warehouse regime, it is not necessary for the warehouse to be located in the UK when considering whether or not the exemption applies.

The taxpayer was a UK VAT-registered alcohol wholesaler that had been approved to own excise duty-suspended alcoholic goods in tax warehouses located in the UK. It had purchased alcohol from an EU supplier and provided its UK VAT number to allow the supply to be zero-rated. The alcohol was delivered to a bonded warehouse in a different EU Member State and the taxpayer did not take delivery of the products. The alcohol was then sold to a buyer in a third EU Member State.

The taxpayer relied on the rules covering warehousing regimes and therefore did not account for acquisition VAT in the UK on the basis that the goods did not enter the UK. HMRC argued that, since the taxpayer had not accounted for acquisition VAT anywhere in the EU, the ‘fallback’ provisions of EU legislation applied. HMRC believed that these rules allowed for the assessment of acquisition VAT in the Member State to which the VAT number used in the supply belonged, with no associated input tax credit. In this case, the VAT number was from the UK, so HMRC maintained that acquisition VAT was due in the UK. The FTT had found in favour of HMRC.

The UT considered whether or not the ‘fallback’ provisions applied in the case of goods supplied in bonded warehouses outside of the UK. It found that the rules covering warehousing regimes did apply and took priority over the ‘fallback’ provisions such that these provisions were not engaged. It therefore found in favour of the taxpayer, agreeing that acquisition VAT was not due in the UK.

Ampleaward Ltd v HMRC [2020] UKUT 0170 (TCC)

https://assets.publishing.service.gov.uk/media/5ed0e089e90e0754d2437c84/Ampleaward_v_HMRC.pdf

The FTT has ruled that the surrender of an option to acquire land was exempt from VAT. The case is notable because HMRC argued that its long-standing, published VAT Notice and Manuals were incorrect and subject to change.

The taxpayer was a company that had acquired an option over land, over which no option to tax had been exercised. The taxpayer later received a large payment from the landowner in order to release the landowner from the option. Under existing HMRC guidance, the surrender of the option was considered an exempt supply of an equitable interest in land. In accordance with this guidance, the taxpayer did not account for output VAT on the surrender.

Following a review from HMRC, the taxpayer was assessed as owing output VAT on the transaction. HMRC based its view on the 1990 ECJ decision  Staatssecretaris van Financien v Shipping and Forwarding Enterprise Safe BV (SFES). It argued that, even though the taxpayer held an option, it did not actually have a right to dispose of the underlying interest in land or similar tangible property as the owner. HMRC therefore concluded that this was the receipt of taxable income.

The FTT found for the taxpayer. The judgement identified practical issues such as the disparity of treatment where property is purchased under an option rather than purchased outright.

Landlinx Estates Limited v HMRC [2020] UKFTT 220 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2020/TC07706.html

Revenue and Customs Brief 6 has been published, which explains HMRC’s position on property search fees charged by solicitors and conveyancers.

The brief announces the formal withdrawal of the postal concession as of 1 December 2020 in relation to these fees.

The postal concession was informally agreed between HMRC and the legal profession in 1991. It allows solicitors and conveyancers not to charge VAT on fees for property searches conducted by post. Due to changes in industry practices, HMRC considers that postal searches have become obsolete. HMRC argues that the withdrawal of the concession is necessary so that the VAT treatment of property searches is correct and consistent.

www.gov.uk/government/publications/revenue-and-customs-brief-6-2020-vat-treatment-of-propertysearch-fees-charged-by-solicitors-and-conveyancers

The FTT has ruled that HMRC correctly disallowed input tax claims in relation to a property that had been opted to tax. The taxpayers were not carrying on the economic activity of letting the property, and the occupants of that building did not have an obligation to pay rent.

The taxpayers opted to tax an industrial warehouse. Throughout the time that the taxpayers let the property, the tenants did not pay any rent. The property was sold a few years later, and VAT was charged on the sale of the property. HMRC disallowed the claim of input tax on the final VAT return. In that return, the taxpayers had declared the output tax charged on the sale of the property.

The FTT considered whether or not the tenants were required to pay rent, and, if not, whether or not the taxpayers expected the occupants to pay rent. It found that none of the occupants had an obligation to pay rent, nor did the taxpayers have an expectation that rent would be paid. The taxpayers were held not to be carrying on the economic activity of letting the property. The FTT also found that some of the claimed expenses were clearly unrelated to the property, and the taxpayers failed to meet the burden of proof in relation to a number of the expense items. As a result, none of the claimed expenses related to the economic activity of letting or selling the property. The FTT dismissed the taxpayers’ appeal and upheld HMRC’s assessments.

Slaymark & Anor v HMRC [2020] UKFTT 223 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2020/TC07709.html