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VAT: theatres
HMRC have decided to appeal the High Court decision in Mayflower Theatre Trust Ltd v CRC; see Update, Taxation, 27 April 2006, page 92. In the meantime, HMRC have provided guidance for theatres affected by the High Court decision.
VAT: theatres
HMRC have decided to appeal the High Court decision in Mayflower Theatre Trust Ltd v CRC; see Update, Taxation, 27 April 2006, page 92. In the meantime, HMRC have provided guidance for theatres affected by the High Court decision.
As a result of HMRC's revised policy on the application of the cultural exemption announced in Business Brief 28/03, many theatres claimed exemption for their supplies of admission. In making claims for output tax previously charged in error, theatres also had to adjust their input tax deduction. This led to disputes over how the costs of staging shows are used by theatres.
In Mayflower Theatre Trust, HMRC maintained that none of the input tax on production costs was deductible because they related solely to supplies of exempt admission. Mayflower argued that the input tax was partly deductible because the production costs also had a direct and immediate link to taxable supplies such as catering, programme sales and corporate sponsorship.
The High Court agreed that production costs related solely to admissions, but found that where Mayflower supplies corporate sponsorship packages that include an entitlement to tickets, that is a single taxable supply including what the court described as 'taxable tickets'. It concluded that as production costs related directly and immediately to admissions and some admissions are 'taxable tickets', then input tax on production costs is partly deductible.
HMRC are appealing this decision to the Court of Appeal on the grounds that the input tax on production costs relates directly and immediately to Mayflower's supplies of exempt admissions only. Although the supplies of corporate sponsorship packages include tickets, the production costs do not relate directly and immediately to these supplies. HMRC consider that the High Court decision only affects theatres making supplies of admission which fall within the cultural exemption and taxable corporate sponsorship packages that include a ticket entitlement. It has no wider application.
Theatres that wish to apply the High Court's decision to input tax incurred in future may do so until the dispute is settled provided that they can demonstrate that they make taxable supplies including a tickets element. Where theatres adopt this treatment, HMRC may issue protective assessments. The assessments will not be enforced until the outcome of the case is known, at which time the assessments with interest due will be pursued.
Theatres wishing to apply the High Court decision to input tax previously incurred on production costs may submit claims for under-recovered input tax. HMRC will seek claimants' agreement that such claims be held over until the Court of Appeal's decision. Otherwise, HMRC will make a protective assessment for any amounts repaid. These assessments will have to be paid with interest if the High Court decision is overturned.
Business Brief 12/06 dated 21 August 2006
Compass Contract Services
HMRC have decided not to petition the House of Lords for leave to appeal against the judgment in Compass Contract Services UK Ltd; see Update, Taxation, 29 June 2006, page 346.
Compass is a contract catering company that supplies food to staff working at BBC Television Centre. The VAT tribunal found that the supply of cold food sold from Compass's retail outlets to those staff was zero rated because there was no supply of catering and that the premises that Compass made their supplies from were the retail units occupied by them and not the whole BBC TV Centre site. The food was therefore not supplied for consumption on the premises on which it was supplied.
On HMRC's appeal, the Court of Appeal endorsed the approach set down in CCE v Safeway Stores plc [1997] STC 163 to be taken in determining what a supply in the course of catering is, i.e. that as no single factor is decisive in determining whether a supply is in the course of catering, all factors need to be considered when looking at the supplies being made. Regardless of this, the sale of cold food by a retailer is standard rated when sold in the course of catering.
The Court of Appeal agreed that Compass's premises consisted solely of their retail units and not BBC TV Centre as a whole, so the sale of cold food to be taken for consumption away from Compass's retail units was zero rated.
HMRC have therefore had to reconsider their policy on premises. The main change is that at restricted access sites, a retailer will now be considered to occupy only that unit from which the sales of food have been made rather than the larger overall premises. However, the premises also includes any facilities provided to enable the purchasers to consume the food at the unit, such as areas of seating and tables within, and adjacent to, the retail unit, whether owned by the landlord or the retailer, but clearly for the use of the food retailer's customers.
This means that, unless the retailer's supplies of cold food are in the course of catering, the supply of cold food for consumption away from the immediate premises, elsewhere in the restricted access premises, will be zero rated. An updated version of VAT Notice 709/1 will be released shortly to reflect this change to policy.
Where a retailer is unable to distinguish between standard-rated and zero-rated sales of cold food at the point of sale, the liability must be apportioned. Businesses making supplies of a similar nature to those made by Compass will need to review the liability of the supplies that they have made. Businesses that have accounted for and paid VAT on supplies that they now consider to be zero rated may submit claims for overpaid tax.
Business Brief 12/06 dated 21 August 2006
