V@ update - January 2024
Welcome to the January 2024 edition of RPC's V@, a monthly update which provides insightful analysis and news from the VAT world relevant to your business.
News
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Key provisions of the Retained EU Law (Revocation and Reform) Act 2023 (notably section 3 ('abolition of supremacy of EU law'), section 4 ('abolition of general principles of EU law'), section 5(3) ('"assimilated law"'), section 8 ('incompatibility orders') and Schedule 2 ('"assimilated law": consequential amendments')) came into force on 1 January 2024. This could mark the start of increased judicial divergence from EU jurisprudence in relation to VAT.
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Reusable period underwear is now zero-rated (with effect from 1 January 2024). This is achieved by a statutory instrument amending Note 1, Group 19, Schedule 8 Value Added Tax Act 1994.
- The Taxation (Cross-border Trade) (Miscellaneous Amendments) Regulations 2024, which remove the transitional customs easement for goods arriving into mainland Great Britain from the Republic of Ireland, come into force on 31 January 2024.
Case reports
United Grand Lodge of England v HMRC [2023] UKUT 307 (TC)
UT confirms freemasons' subscriptions not exempt
The United Grand Lodge of England (UGLE), the governing body for the majority of freemasons in England and Wales, had made claims for repayment of VAT amounting to £2.83m that it had charged on membership subscription fees for periods from 2010 to 2018. The basis for the claims was that its supplies to its members were exempt under article 132(1)(1), Principal VAT Directive and Item 1(e) of Group 9 of Schedule 9, Value Added Tax Act 1994 (VATA), as its main aims were of a philosophical, philanthropic or civic nature. HMRC rejected the claims to repayment, and UGLE appealed to the First-tier Tribunal (FTT), which dismissed its appeals.
UGLE appealed to the Upper Tribunal (UT) on the following two grounds:
(1) that the FTT had failed to address or give reasons for rejecting UGLE's submission that it had one main philosophical aim, and that its activities in support of masonic charities were in service of the philosophy of freemasonry thus falling within its philosophical aim; and
(2) that even if UGLE's activities in relation to certain masonic charities could be treated as an aim that was not in service of its main philosophical aim, UGLE's activities in support of masonic charities fell within the ordinary meaning of the word 'philanthropic' and the FTT had adopted too narrow a meaning of that word.
In relation to the first ground, the UT rejected UGLE's argument that there was one main philosophical aim and all of its activities should be understood as being in service of that aim. It considered that the FTT's finding that the provision of 'Relief' (broadly to freemasons and their dependents) was a separate main aim of at least equal importance to UGLE's philosophical aims was 'unimpeachable'. While the UT did consider that the FTT had failed to provide adequate reasons for rejecting UGLE's argument that there was one main philosophical aim and that everything UGLE did was in pursuance of it, on the decision that it re-made, it still rejected this ground of appeal.
In relation to the second ground, the UT held that, while an aim could be philanthropic if an organisation intended to provide relief to specific categories of persons, there was a qualitative difference between organisations that raised funds for specific categories of persons and those that raised funds from within their membership with the aim of essentially re-distributing a large part of the funds back to some of those members and their dependents (by way of Relief). That could not, the UT held, be considered 'philanthropic' in the sense of benevolence to the world at large or love of mankind.
UGLE's activities did not therefore qualify for the exemption claimed, and the UT dismissed its appeal.
Why it matters: This decision contains an interesting discussion of the concepts of philanthropy and philosophy insofar as they relate to a VAT context.
The decision can be viewed here.
Bollinway Properties Ltd v HMRC [2023] UKUT 295 (TC)
UT confirms reasonable period of time should be discounted for repayment supplement purposes
Bollinway Properties Ltd (Bollinway) formed part of a corporate group that in April 2018 acquired Toys 'R' Us Properties Ltd (TRUP) (the property vehicle for the Toys 'R' Us retailer) for £1. On 17 September 2018, TRUP sold 27 properties to Bollinway for £355,853,648.39 plus VAT. Bollinway submitted a VAT return for the period 10/2018 claiming a repayment of £71,170,729.68, representing the input tax on this purchase. Bollinway asked HMRC to set off the amount of the credit, which corresponded to the amount of output tax TRUP would become liable to pay to HMRC, against TRUP's liability to account for output tax. The sum of £71,084,816.43 was allocated by HMRC to TRUP's VAT account on 21 December 2018, and the remaining £85,913.25 was authorised for repayment to Bollinway on the same date. Bollinway claimed repayment supplement of £3.55m, being 5% of the sum credited against TRUP's liability, as it claimed that HMRC had not paid the VAT credit promptly. HMRC refused the claim on the basis that section 79, VATA, did not apply to the requested offset, and in any event it considered that its enquiries had been conducted within the 'relevant period' specified in section 79.
Bollinway appealed to the FTT, which dismissed its appeal on the basis that it had assigned its right to receive the VAT credit to TRUP, as a result of which it was no longer able to claim repayment supplement. In any event, the FTT held, HMRC's issue of the relevant direction took place within the 'relevant period' of 30 days from submission of the VAT return, as a 26-day period fell to be left out of account since HMRC was waiting for further information during this period.
Bollinway appealed to the UT on the grounds that the FTT had erred in law in holding that:
(1) it had assigned its entitlement to a VAT credit to TRUP,
(2) repayment supplement under section 79, VATA, can be due only where an actual payment is made to a taxpayer and/or in determining that the set-off did not constitute an actual payment; and
(3) 26 days should be left out of account.
The UT dismissed the appeal. It held that the additional information sought by HMRC was reasonable and HMRC were entitled to wait until they had received it. In light of this conclusion, it was unnecessary for the UT to consider grounds (1) and (2).
Why it matters: It is frustrating that this decision does not address the question of whether repayment supplement can apply in scenarios other than where a direct cash payment is made late to a taxpayer. However, the UT's decision in relation to the 'relevant' period does provide some useful clarity.
The decision can be viewed here.
Walkers Snack Foods Ltd v HMRC [2024] UKFTT 31 (TC)
Snack poppadoms standard-rated
Walkers Snack Foods Ltd (Walkers) produced a variety of snack products, including 'Sensations Poppadoms' (the Poppadoms). It contended that the Poppadoms should be zero-rated for VAT purposes on the basis that they fell within Item 1, Group 1, Part II, Schedule 8, VATA, being 'food of a kind used for human consumption', and did not fall within any of the exceptions set out in that group. Walkers also contended that the Poppadoms should be zero-rated under the principle of fiscal neutrality.
HMRC issued a decision to the effect that the Poppadoms were standard-rated, as they were 'products [similar to potato crisps, potato sticks, potato puffs] made from the potato, or from potato flour, or from potato starch' which were 'packaged for human consumption without further preparation'. It therefore determined that they fell within Note 5, Group 1, Part II, Schedule 8, VATA (Note 5) (items falling within which are standard-rated). It also considered that zero-rating the products would breach the principle of fiscal neutrality.
Walkers appealed HMRC's decision to the FTT. It initially argued that the Poppadoms were designed to be used with dips, chutneys and pickles, and as a side dish. However, it did not maintain this argument at the hearing. The parties agreed that the Poppadoms were packaged for consumption 'without further preparation'.
The FTT noted that the Poppadoms came in two flavour varieties, containing, broadly, 17.5-18% potato granules, 17.5-18% potato starch and approximately 4.25% modified potato starch. It considered that the potato granules were not a substance 'derived from potato' but rather fell within the term 'the potato'. It considered that it was appropriate to consider the aggregate potato content in determining whether the Poppadoms fell within Note 5, rather than considering separately whether they were made 'from the potato' or separately 'from potato starch'. There was, in the FTT's view, 'more than enough' potato content to conclude that the Poppadoms fell within Note 5.
The FTT concluded that the Poppadoms were similar to potato crisps, in that they were packaged and sold in a manner similar to potato crisps and they had a similar texture and appearance to potato crisps. It gave little weight to differences in the manufacturing process, as the statute envisaged other potato products that could not be made in a similar way to sliced potato crisps.
Having concluded that the Poppadoms were made from potato and potato starch, it was irrelevant whether they were similar to (or indeed named) poppadoms rather than crisps. The title given to a food did not determine its VAT rating. The Poppadoms were similar to potato crisps, and therefore within Note 5 and standard-rated. In the view of the FTT, it would not breach fiscal neutrality for the Poppadoms to be treated as standard-rated.
The FTT therefore dismissed the appeal.
Why it matters: Although of limited broader application, other than to other food manufacturers who produce a similar product, this decision helpfully sets out clearly the process to be exercised when determining whether an item falls within an exemption.
The decision can be viewed here.