VAT Tribunal Decisions
ALLISON PLAGER reports five recent decisions
Gone away, unknown
VAT Tribunal Decisions
ALLISON PLAGER reports five recent decisions
Gone away, unknown
There was a problem for the tribunal in a recent hearing, as the appellant, Realm Defence Industries had disappeared. It had apparently been 'struck off' a year before the date of the hearing, having not replied to notifications for the hearing. However, the tribunal decided to hear the appeal on the grounds that this would not cause an injustice to Realm Defence, as if it or its liquidator wished to apply under rule 26 of the Tribunal Rules to have the matter reheard, they could apply to the tribunal. For this purpose, the appellant was given an extended period of 30 days from the release of the decision.
The facts behind the appeal were that according to Customs, the company had submitted claims for input tax in respect of supplies of goods that had been made not to Realm Defence but to another company, Section Five Firearms Ltd, of which Realm Defence's director, Mr Perkins had been a director. Section Five Firearms had already claimed input tax on those supplies.
Realm Defence's defence lay in the fact that all stock, production equipment and assets of Section Five Firearms had been transferred to Realm Defence in 1995. The goods for which input tax had been claimed, were tooling equipment originally supplied to Section Five Firearms by Lost Wax Developments and H B H Tools and Stampings Ltd. Following the transfer of stock to Realm Defence, Lost Wax and H B H issued credit notes to Section Five Firearms against the original invoices and raised new invoices for the same amounts to Realm Defence. It was the new invoices which Realm Defence claimed for.
Customs, however, said the new invoices were false.
The tribunal said that there was no evidence to support the appellant's claims that the new invoices related to genuine supplies of goods used in its business for the purpose of making its own supplies. At most there had been a ledger transfer in Lost Wax's books. Goods clearly had been delivered to Section Five Firearms, and none to Realm Defence. Customs were justified to reject the claim for input tax.
The appeal was dismissed. The tribunal went to say that Realm Defence's failure to attend the hearing and to notify the tribunal that it had been struck off had wasted time and money. It therefore directed that the appellant pay £2,000 in costs to Customs.
(Realm Defence Industries Ltd (16831).)
Sale of land is exempt supply
The appellant company had purchased a plot of land with the intention of building twelve houses on it. It incurred input tax on professional expenses related to the proposed development, which was claimed in the relevant VAT returns. However, the company decided not to proceed with the building, and sold the land to Ward Homes, a property developer. While the company owned the land, the soil was inspected, drawings for planning permission were submitted and a fence erected around the land.
It was common ground that the company had intended to use the services upon which it incurred the input tax to make taxable supplies, i.e., the zero-rated sale of houses, and that the company was provisionally entitled to claim the input tax for the relevant periods. Customs, however, submitted that the provisional entitlement was forfeited when the land was sold.
The appellant claimed that the sale of land was a transfer of a going concern, and that no exempt supply had been made requiring adjustment under Regulation 108 of the Value Added Tax Regulations 1995.
Customs said Regulation 108 did apply because there had been an exempt supply. The sale of land was the grant of an interest in land and therefore exempt under item 1 of Group 1 of Schedule 9 to the VAT Act 1994. Customs could therefore recover the input tax provisionally deducted. They said that the land was not sold as a going concern, but was a transfer of an asset of the business.
The tribunal said that case law provided guidance as to what constituted a transfer of a going concern, and cited Kenmire Ltd v Frizzell [1968] 1 WLR 329 and Spijkers v Gebroeders Benedik Abbatoir CV (Case 24/85) [1986] ECR 1119. The starting point was to consider what had actually been sold. In the present case, this was only the land, no transfer of goodwill, premises, employees, etc.
It was true, said the tribunal, that the transfer of an asset could sometimes constitute the transfer of a business, for instance as in Golden Oak Partnership (7212). However, the difference was that in Golden Oak Partnership the land was in the course of active development, and this factor did not exist in the instant case.
The tribunal concluded that there was no transfer of a going concern, and that the sale did constitute an exempt supply. As such, Customs could recover the input tax repaid under Regulation 108.
The appeal was dismissed.
(Gulf Trading and Management Ltd (16847).)
Expert VAT
The Expert Witness Institute was incorporated on 12 February 1997 as a company limited by guarantee and not having a share capital. It appealed against Customs' decision that it was not a non-profit making organisation within the meaning of item 1(c) of Group 9 of Schedule 9 to the VAT Act 1994, and that therefore supplies made by it were not exempt.
First, the tribunal considered whether the appellant was a professional association within item 1(b). In order to decide this, the tribunal had to decide if an expert witness practised a specific profession. It noted that a person could act as an expert witness without having any special skill or ability to be such a witness, and without special training to be an expert witness. All that was required was that the person had expert knowledge of his own trade, profession or vocation, although he did need detachment and integrity. In any event, expert witnesses were not organised in a body to test competence and regulate standards.
Overall, the tribunal concluded that the occupation of expert witness was not a separate profession. Members of the appellant association obtained their skills through previous training and experience, not as a result of being a member of the association. Furthermore, individual membership of the association was restricted to those who had acted as an expert witness three times, and members were not seeking a qualification. Therefore, the association could not be described as a professional association.
Secondly, the tribunal considered if the appellant fostered professional expertise within item 1(c). According to the legislation, the fostering of professional expertise has to be a primary purpose of an association. The tribunal decided that this was not the case with the appellant, and even if it were, the expertise was not connected with a profession.
It was then necessary for the tribunal to consider if the aims of the association were of a civic nature within Article 13A.1(1) of the Sixth Directive. In the tribunal's view the word 'civic' had connotations with a locality or public affairs, and these did not really apply to the appellant. It concluded therefore that the appellant did not have aims of a civic nature.
The appeal was dismissed.
(The Expert Witness Institute (16842).)
Insurance dispute
The appellant hired out cars to members of the public. With regard to insurance, some customers had their own insurance and did not need further cover, while others obtained insurance under a block policy held by the appellant. The insurance company charged the appellant on an annual basis of turnover. Customers who require insurance were charged the same amount as the appellant paid to the insurance company. The appellant believed that the insurance was not subject to VAT and so did not cater for this in his calculations with customers.
Customs argued that the insurance was subject to VAT, and instructed the appellant to account for VAT accordingly.
The tribunal said that it could be said that the appellant made a separate supply of insurance service, as not all customers required it, and the charge for insurance was the same as that paid by the appellant. However, the appellant was not in the business of supplying insurance, and the business of hiring out cars would include various facilities including insurance. The fact that there was a block policy further indicated that the supplies of insurance were not separate, but were linked to the car hire, and clearly there could be no supply of insurance without the hire of a car.
The tribunal referred to several cases, including C J Kiff Ltd (1454), Audrey Janet Turner (2612) which both had similar facts. The tribunals in both those appeals had decided that a single supply of car hire covered by insurance was made. Overall, the tribunal decided that the insurance element was part of a single composite supply, being ancillary to the main supply of the car being hired.
The appeal was dismissed. Interest was also due, but the appellant claimed that Customs had delayed proceedings and so interest should not be charged. Customs accepted responsibility for delay during a certain period, and conceded that interest for that period should not be charged.
(Mr R Stratton trading as S R G Hire (16879).)
Sort out the figures!
The Scottish Tourist Board had agreed with Customs in 1991 a special method dealing with input tax relating to business and non-business income and the calculation of deductible input tax. In 1998, the board set up the Ossian project (named after a legendary Gaelic poet) to create a new website, absorbing the original one, and devised to allow the appellant to obtain income from the charging of booking fees on the accommodation it listed. The outcome was that the site name Ossian was used to describe the project to the hoteliers, etc., who wished to participate, but visitors to the website entered 'Visit Scotland'.
Customs said that the VAT relating to the Ossian project was not incurred wholly in respect of business activities, rather it also related to non-business promotional and development activities. Therefore the VAT should be calculated in accordance with the existing special method. The appellant had appealed saying that the input tax incurred directly attributable to the Ossian project should be fully recovered as this was a taxable activity.
The tribunal said that it had to rule on a point of principle rather than precise figures, and agreed that the primary purpose of the Ossian project was of a business nature. However, it was concerned that prior to the appeal no consideration appeared to have been given as to whether the expenditure on the project could be more satisfactorily identified. The Board's voluntary disclosure reclaiming VAT relating to expenditure on the website should not have been wholly refused by Customs.
The appeal was therefore allowed, to the extent that both parties would have to agree the amount of expenditure relating to the website.
(Scottish Tourist Board (16883).)
