VAT Tribunal Cases
ALLISON PLAGER reports two recent decisions.
Fair and reasonable
The appellant, a property owning and management company registered for VAT with effect from 25 March 1994. Before January 1997, the company treated its supplies as partially exempt, and used the standard method for attributing input tax. At the end of January 1997, the company sold its existing portfolio of properties as a going concern. A month later, Customs asked the company if it was continuing to trade and should remain registered for VAT.
VAT Tribunal Cases
ALLISON PLAGER reports two recent decisions.
Fair and reasonable
The appellant, a property owning and management company registered for VAT with effect from 25 March 1994. Before January 1997, the company treated its supplies as partially exempt, and used the standard method for attributing input tax. At the end of January 1997, the company sold its existing portfolio of properties as a going concern. A month later, Customs asked the company if it was continuing to trade and should remain registered for VAT.
The company's VAT adviser wrote to Customs saying that the company had acquired a new portfolio of properties, but had not yet decided when to make the election to charge VAT on those properties, due to a considerable lack of certainty in new Finance Bill legislation at the time. He requested that the company continued to be VAT registered.
The vendor of the new properties had not waived exemption on the properties, so rents were collected on the basis that they were VAT exempt. However, in May 1997, the appellant decided to elect to waive exemption. Customs said that they could not accept the proposal to recover full input tax incurred in connection with the acquisition of the properties of which exempt supplies had been made, so the appellant suggested that input tax incurred should be apportioned on the basis of one quarter out of 80 quarters in the 20-year period that the election would remain in place. The appellant's understanding was that Customs had accepted that the election to waive exemption had been made for the first quarter of 1997, and that acquisition costs and overhead costs would be dealt with as if the election had been made then.
Customs however considered that the agreement related only to the acquisition costs of the properties, and not to the overheads incurred by the business, and raised an assessment in June 1998 accordingly.
The tribunal said that it was clear that the appellant had decided to postpone the decision of whether or not to opt for tax. This was a conscious decision made for a good reason, but the tribunal had to take it as a fact. Neither it nor Customs could treat a decision not to elect as having the same effect as a decision to elect.
As to the acquisition and overhead costs, the tribunal did not accept that there was an agreement to treat them as if an election had been made in the first quarter of 1997. There was little evidence of an agreement, and no written agreement by Customs defining it. The tribunal agreed that a special method had been agreed, although the proposal that all the input tax relating to the acquisition of the new properties should be recoverable was specifically rejected by Customs in May 1997, in so far as it related to the period before the election. The agreement was limited by its terms, and could not cover input tax except on the opted properties. Customs used the special method agreed for input tax on the acquisition of the new properties, and the standard method of partial exemption for the tax not so attributed. Customs' calculations were fair and reasonable.
The appeal was dismissed.
(Hellesdon Developments Ltd (16833).)
Whose reward?
REWARD stood for Recognised Electrical Wholesalers Amalgamate for Rebates and Discounts and was the trading name of the taxpayer. In essence, he operated a bulk purchase organisation within the electrical wholesale trade. Member firms had to pay a membership fee and quarterly subscription, so that they could receive electrical goods at the enhanced discounts obtained by the taxpayer. He also received rebates based on the volume of purchases which he then distributed to his subscribers.
Customs maintained that he provided a service to the various concerns which supplied goods to his wholesaler members, and that this was a taxable service made in return for payments, viz. rebates, by the suppliers given in addition to trade discounts. They assessed him to VAT based on the rebates received by the taxpayer.
The taxpayer said that he provided services to his members in return for their subscriptions, and the rebates from the suppliers belonged to them. He argued that there was no relationship between him and the suppliers, he negotiated with them as part of the service to his members in return for their subscriptions. He accepted that suppliers negotiated with him because it led to them doing business with the members, without the need for salesmen.
The tribunal said that there was a clear benefit to the suppliers from REWARD's activities, but it disagreed with Customs that it followed that REWARD provided a service to those suppliers for consideration. The rebates were governed by the number of purchases made by members, and the suppliers knew that the rebates were passed on to the members.
In the tribunal's judgment, the rebates were made by the suppliers to REWARD members as a reward for their purchases. It was not REWARD's consideration for a service to the suppliers. There was a direct link between the rebate received by the member and the supplies made to the member by the supplier. The rebates were therefore contingent upon members' purchases, and affected the suppliers' liability to account for output tax and the members' entitlement to input tax credit.
The appeal was allowed.
(Malcolm Morris trading as REWARD (16846).)
