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Customs news - Single or multiple supplies

21 February 2001
Issue: 3795 / Categories:
Customs news

Single or multiple supplies
Customs' have set out their policy in a recent business brief, as to whether a transaction consists of a single composite supply or two or more independent supplies for VAT purposes. This follows the judgments of the European Court and the House of Lords in Card Protection Plan discussed in detail at pages 493 to 495 of this week's issue of Taxation.
Customs news

Single or multiple supplies
Customs' have set out their policy in a recent business brief, as to whether a transaction consists of a single composite supply or two or more independent supplies for VAT purposes. This follows the judgments of the European Court and the House of Lords in Card Protection Plan discussed in detail at pages 493 to 495 of this week's issue of Taxation.
As noted on page 494, the court said that there was a single supply in particular where one or more elements were to be regarded as constituting the principal service, while one or more elements, by contrast, were to be regarded as ancillary services which share the tax treatment of the principal service. A service must be regarded as ancillary to a principal service if it did not constitute for customers an aim in itself, but a means of better enjoying the principal service.
The charging of a single price was not decisive. A service provided to customers that consists of several elements for a single price may suggest there is a single service, but if the circumstances of the transaction indicated that customers intended to purchase two distinct services to which two different tax liabilities apply then the single price would need to be apportioned.
Customs believe that applying the tests may produce a different result than the outcome of some earlier United Kingdom litigation cases. Where traders have previously relied on earlier United Kingdom litigation (or on rulings, trade agreements or statements of practice based on that litigation) to determine whether they are making a single composite supply or two or more independent supplies, they should, by 1 June 2001, apply the new tests to determine whether there is a single supply or multiple supplies.
Where a trader has previously relied on the outcome of previous United Kingdom litigation (or on a ruling, trade agreement or statement of practice based on that litigation) and the application of the tests would have given a different result, Customs will not require the tests to be applied to supplies made before 1 June 2001. However, Customs reserve the right to review past periods in any case where the relevant supplies are considered to have formed part of a tax avoidance arrangement.
Where application of the tests would lead to a reduction in VAT payable, traders can choose to apply those tests in previous periods but repayment of any VAT claimed will be subject to the three year cap on repayments and to the unjust enrichment rules.

Proposed extra-statutory concession
A number of membership bodies treat the supply of benefits to members as multiple supplies, relying on the outcome of previous United Kingdom litigation. Customs believe that the European Court of Justice tests may mean that the supply of benefits by a number of membership bodies should be treated as a single supply.
For many non-profit making membership bodies, this change in treatment is expected to create transitional compliance costs. To avoid these transitional compliance costs and as the additional VAT due from such bodies as a result of this change is expected to be small, Customs are considering the introduction of the following extra-statutory concession. This concession would be voluntary and would apply to existing and new non-profit making bodies:
'Where a membership body supplies, in return for its membership subscription, a principal benefit together with one or more ancillary benefits, it will normally have to treat the subscription as being in return for that principal benefit. This means that the body will have to ignore the liability to VAT of the ancillary benefits and account for VAT on the whole subscription based on the liability to VAT of that principal benefit.
'However, bodies, which are non-profit making and supply a mixture of zero rated, exempt and/or standard rated benefits to their members in return for their subscriptions, may apportion such subscriptions to reflect the value and VAT liability of those individual benefits, without regard to whether there is one principal benefit. This concession may not be used for the purposes of tax avoidance.'

Customs welcome comments on the above, and they should be sent by 11 May 2001 to: HM Customs and Excise, Supply of Services Team, Policy Group, 4th Floor East, New King's Beam House, 22 Upper Ground, London SE1 9PJ.

The House of Lords endorsed the European Court of Justice's ruling that companies which procure insurance cover for their customers from an insurer under a block policy are making an exempt insurance transaction, whether or not they are insurers. Customs accept that and will continue to regard such transactions as exempt, subject to the usual conditions for the exemption for insurance intermediaries.
The European Court of Justice made a general ruling that the exemption for the provision of insurance should not discriminate between lawful and unlawful transactions, and that it cannot therefore be restricted to those who are authorised under national legislation to conduct insurance business. Customs accordingly accept that someone who is providing insurance without authorisation is nevertheless entitled to claim the VAT exemption, subject to their being satisfied that what is being provided is in fact insurance.
However, Customs advise businesses seeking exemption as providers of insurance to clarify their regulatory position under the Insurance Companies Act 1982 with the Financial Services Authority (Authorisation Enquiries Department, 25 The North Colonnade, Canary Wharf, London E14 5HS; tel. 020 7676 1000).
(Source: Customs Business Brief 2/01 dated 15 February 2001.)



Issue: 3795 / Categories:
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