Gerry Myton, Tax Partner, discusses the most recent VAT cases to go through UK courts and what we can learn from them.
Mainpay Ltd v HMRC [2022] EWCA Civ 1620
This case concerned the VAT treatment on the supply of temporary medical staff by an umbrella company. Mainpay Ltd (Mainpay) is an umbrella company that provided temporary medical staff to an intermediary agency company which had separate contracts with various NHS trusts.
Mainpay treated the supplies as VAT exempt medical care on the basis that the individuals were providing medical care. HMRC raised assessments on the basis that instead, Mainpay was making supplies of staff which is standard rated.
Both the First Tier Tribunal (FTT) and the Upper Tribunal (UT) dismissed Mainpay’s appeal concluding that Mainpay was not involved in the treatment given and they were not involved in deciding where they work or the rate of pay (as this was determined by the agency company and NHS). On that basis Mainpay was not providing medical care, but instead supplies of staff.
Mainpay appealed again to the Court of Appeal who has now dismissed the appeal on the basis that the FTT and UT had correctly interpreted the term medical care, and correctly applied the test of commercial and economic reality to the facts of the case. Mainpay was an entity with no medical expertise or knowledge could not have exercised any control over the clinical decision making undertaken by the medical practitioners, even if they were employees. The control was operated by the NHS Trusts.
Borough of King’s Lynn and West Norfolk Council v HMRC [2022] UKUT 00326 (TCC)
The Council operates pay and display off-street parking with ticket machines that are coin operated but do not provide change to the customer. Situations would arise where the customer would over-pay for example if they did not have the exact amount in coins. The case concerned the overpayment.
The Council argued that there was no supply made for the overpayment and therefore that element was outside the scope of VAT. HMRC contended that the overpayment was additional consideration for the standard rated supply of parking. It is important to note here that HMRC have already successfully argued this point in the very similar appeal of National Car Parks Ltd [2019] STC 1126.
The FTT agreed with HMRC finding a direct link between the payment made by the customer and the parking services. The FTT accepted that the Council was bound by statutory provisions to offer a set price for the parking. However this does not prevent a driver to pay more than necessary, and nothing prevented the council from accepting the higher amount. On that basis VAT was due on the full amount paid by the customer, including the overpayment.
Ashtons Legal v HMRC [2022] UKFTT 00422 (TC)
Ashtons Legal is a firm of solicitors trading as a partnership who had been looking for an alternative premises to operate from. In 2017, the firm signed heads of terms for new premises which was conditional on planning permission. In 2018 the decision was made to put the leases under the name of a company, Ashtons Legal Limited which was a dormant shell company acting as the Partnership’s nominee.
The landlord stated that as the limited company had no assets, a guarantee from the partnership would be required, understanding that it would be the partnership that would take occupation of the premises. VAT was charged on the lease and recovered on the partnerships VAT return.
In 2020, the partnership sought a non-statutory clearance from HMRC around the recovery of the VAT on the leases, stating that it should be allowed on the basis that the recipient of the supply was the partnership. HMRC denied input VAT recovery stating that the recipient of the supply by the landlord was the company, not the partnership. A second supply is made by the company to the partnership which was exempt from VAT.
The FTT found in favour of the partnership on the basis that all parties had known that the company was dormant and in no position to pay the rent, that the partnership had the liability to make the rental payments. In addition, it was the partnership that had use and enjoyment of the premises. Therefore, on the whole, the partnership was receiving a taxable supply of goods (i.e. the lease) and was using those goods to carry on the activity of the partnership. It follows that VAT charged on the lease would be recoverable by the partnership.
GE Aircraft Engine Services Ltd v HMRC [2022] EUECJ C-607/20
GE Aircraft Engine Services Ltd (GE) is a UK based aircraft manufacturer, part of the international General Electric group. The group implemented a “Above and Beyond” programme where employees would be able to nominate colleagues, they thought deserved a reward for performance.
The appeal concerned one particular reward offered being retail vouchers. HMRC issued assessments for VAT stating that the vouchers were provided to employees free of charge and for personal use outside GE’s usual activity and as a result the vouchers were subject to VAT at the standard rate as a deemed supply.
GE contented that the retail vouchers did not constitute a taxable supply because the programme was linked to the economic activities of the business, the advantage for the employee was ancillary. The case was referred to the Court of Justice of the European Union (CJEU). The CJEU concluded that the reward programme was designed with the aim to improve employee performance and therefore contributing to the success of the business. On that basis the provision of the free retail vouchers to its employees were not a deemed supply for VAT purposes.
Where businesses have accounted for VAT in respect of the provision of retail vouchers free to employees, there may be scope for a retrospective claim going back 4 years, to recover this overpaid VAT.
To discuss your specific circumstances, contact Gerry Myton.
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