Category Archives: Charities

VAT: Latest from the courts –zero rating of sub-contractors’ supplies

By   August 8, 2017

In the First Tier Tribunal case of Summit Electrical Installations Ltd the issue was whether supplies in respect of student accommodation made by an electrical sub-contractor were eligible for zero rating as supplies in the course of construction of buildings designed as a series of dwellings. Alternatively, were they, as HMRC contended; standard rated supplies in the course of construction of a building used for a Relevant Residential Purpose (RRP)?


The appellant was appointed as the electrical subcontractor working to a main contractor on a development known as Primus Place in Leicester. This development is a seven storey block of student accommodation comprising 140 studio flats and associated facilities. Floors one to six are similar in layout with the majority of the studio flats being the same size. There are also a number of larger studios on some floors. On the ground floor there is a communal reception, cycle store, and laundry. In addition management offices, stores, bins and plant rooms are situated on the ground floor. Each of the studio flats was fitted out with a bathroom pod (a unit including shower, sink and toilet) installed in the corner of the room. In addition there was a small kitchenette with dish washing sink, countertop, cooker, fridge and microwave. Through a doorless stud wall is an open plan sleeping area and walk in cupboard.

The planning permission was granted subject to one relevant condition which provided that at the development: “…no person other than a full time student attending the University of Leicester or DeMontfort University…shall occupy these flats at any time”.

The main contractor provided a zero rating certificate to the appellant. This certificate certified that the developer of the site intended to use the buildings for a relevant residential purpose, namely student living accommodation.


In this case the distinction between the construction of dwellings and RRPs is that sub-contractors may zero rate their supplies if the work is in respect of dwellings, but those same supplies are standard rated if what is being constructed is a RRP. It is useful to consider the distinction here.

Relevant Residential Purpose

RRP means use as:

(a) a home or other institution providing residential accommodation for children

(b) a home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of old age, disablement, past or present dependence on alcohol or drugs or past or present mental disorder

(c) a hospice

(d) residential accommodation for students or school pupils

(e) residential accommodation for members of any of the armed forces

(f) a monastery, nunnery or similar establishment, or

(g) an institution which is the sole or main residence of at least 90 per cent. of its residents

but not use as a:

hospital or similar institution

prison or similar institution, or

hotel, inn or similar establishment

Clearly, by the above definition, student accommodation is deemed to be a RRP. Therefore, the Tribunal was asked to consider whether the accommodation would also qualify as dwellings, and if so, whether “designed as a dwelling” takes precedence. The definition of a dwelling is as follows (“Note 2” as referred to below).


A building is designed as a dwelling or a number of dwellings where in relation to each dwelling the following conditions are satisfied:

(a) the dwelling consists of self-contained living accommodation;

(b) there is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;

(c) the separate use, or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision; and

(d) statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent.


The judge ruled that the accommodation qualified as dwellings for the purpose of zero rating such that the sub-contractors supplies could also be zero rated. This was the case even though the planning permission contained a condition restricting their use to students of the universities only. The building also qualified as a RRP but via VAT Act 1994, Schedule 8, Group 5, note 2 – designed as a dwelling takes precedence over RRP.

NB: The Tribunal also found that HMRC guidance which sets out that in similar circumstances it is the main contractor who determines which type of zero rating applies to a particular development has no basis in law. It is the responsibility of the sub-contractor to determine whether it is working on a dwelling or a RRP building regardless of the main contractor’s position.


HMRC appeared to have relied solely on para (c) of Note 2 (above) to disqualify the accommodation from being dwellings, on the basis that the planning permission prohibited occupation by any other person than students of the universities, but the judge was having none of that. The decision was hardly unexpected, but the comments on there being no legal basis to support HMRC’s published guidance is helpful and provides clarity.

As always, when analysing supplies of construction services (plus associated goods) and transactions involving land and property it pays to get proper VAT advice. There are many traps for the unwary and the values involved are usually high.  The cost of getting it wrong can be very harmful to a business.

VAT: Latest from the courts – extent of education exemption

By   August 7, 2017

In the case of SAE Education Ltd (SAE) at the Court of Appeal, the court was required to decide on whether the exemption for education services extended to a “Special Associate College”.


At the relevant time here was relationship between SAE and Middlesex University which has existed since 1998 when the first Memorandum of Co-operation was signed.  This was a contractual document which provided for certain BA courses to be taught by SAE at specified campuses as “validated collaborative programs” of the university. Subsequently the university and SAE entered into further Memoranda of Co-operation which replaced the earlier agreement and provided for the validation of additional courses. Tuition was provided by SAE subject to quality assurance safeguards. SAE provided library, computer and other facilities but SAE students would not normally be entitled to access or use of the university’s Learning and Resource Services unless negotiated at extra cost. Nor were they to be entitled to access university’s accommodation and other social welfare services or to apply for financial support from the University’s Access to Learning Fund. They were however, entitled to access the university’s Disability Support Services but again at an additional cost.

In 2010 a decision by the university to grant SAE accredited status was made. This meant that SAE was accredited to validate, monitor and review courses of study leading to university undergraduate awards in certain subjects. This gave SAE the ability to validate the specified programmes itself (although Middlesex University staff continued to be involved in the assessment of the programmes).

The issue

SAE claimed that its supplies were exempt on the basis that it was a college of Middlesex University and therefore an “eligible body” (see below) and that the services supplied were educational as the university outsourced certain courses to it.

HMRC disagreed and assessed for output tax on the appellant’s services on the basis that exemption did not apply and the supplies were standard rated.


The relevant legislation: VAT Act 1994, Schedule 9, Group 6, item 1 insists that in order for exemption to apply the provision of education (inter alia) must be by an “eligible body”. The matter to be considered therefore was; is SAE Education Ltd an eligible body. An “Eligible body” is defined in Note (1). It includes a long list of different types of school and higher education establishments but the appeal concerned paragraph (b): “a United Kingdom university, and any college, institution, school or hall of such a university;”


So was the appellant a UK university, college, instruction, school or hall of such a university?  The judges concluded that it was not.

It was decided that although Middlesex University outsourced certain courses to it, and that SAE  was appointed as a Special Associate College,  this fell short of making it a college in a constitutional or structural sense. In their view a college means entities which are a constituent part of an university. The example given was of Cambridge and Oxford colleges which have been organised for centuries on a federal system under which the colleges and private halls, although legally independent and self-governing, have provided the students of the university and have assumed the primary responsibility for their tuition. The universities themselves are corporations and are regulated by statute with their own separate legal identity and status. “The colleges and private halls are therefore an integral part of the structure of the university and their members make up the university’s teaching staff and students.”


It would appear that as a result of the approach in this case, the exemption for education may be more restrictive than previously understood. It is vital that providers of education review their VAT status as soon as possible.  I would advise that a VAT consultant is used because this is an area where small details may affect the VAT treatment of the services. The ruling in this case is not helpful.

VAT – Latest from the courts: Fleming claims

By   July 26, 2017

In the First Tier Tribunal (FTT) case of NHS Lothian Health Board “the Board” the judge was asked to consider whether the Board had a valid Fleming claim* in respect of certain laboratory services performed from 1974 to 1997. The relevant services were, inter alia; Nequas work, food-testing, water-testing, non-medical testing of samples, especially for public health, and research and development.


The appeal was rejected. Although the Tribunal accepted the considerable evidence and testimony from members of staff working for the Board during the relevant years, and had decided that the relevant supplies were subject to VAT (they were not exempt of non-business) unfortunately, there was insufficient documentary evidence to actually quantify the amount of input tax claimed.  Of course, in order to recover input tax, it had to relate to taxable (business) supplies made by the appellant. The Tribunal was required to consider whether the business income of the laboratories could be calculated. The FTT considered that whilst the evidence was helpful in determining that taxable supplies were made, that evidence fell short of facilitating its quantification. While the business income was almost certainly significant, the Tribunal did not consider that it has been quantified satisfactorily for the whole period.

The appellant contended that a set percentage representing business income could be projected backwards to earlier VAT periods. The Tribunal did not consider such an approach “reasonable or acceptable” and that the timescale involved also undermined the likely accuracy of the process of extrapolation. (The Tribunal suggested that there is a need to have a verifiable percentage, calculated by reference to prime records at regular intervals. For example, it might well be acceptable in a 25 year period to have verifiable figures every five years, and if there is not significant variation, to use extrapolated figures for the intervening years).  There was also uncertainty about the Board’s partial exemption position and how, historically, apportionment was carried out.


This case demonstrates the difficulty of making retrospective claims that go back to the early 1970s, that’s over 40 years ago! It is to be expected that certain records may be absent and HMRC has previously agreed that the required information may be established by other methods, however, a claim has to be made on the basis of “something more concrete” than a backwards projection of a percentage figure calculated from more contemporary records. The judge gave an example of evidence that may be acceptable in these circumstances.

The outcome does seem somewhat unfair given the fact that all parties agree that VAT was overpaid due to an error made by HMRC, but the level of evidence required to support a Fleming claim has to be of a certain standard to be accepted.

As always in VAT – record keeping is of the utmost importance.

* Background to Fleming claims
Fleming claims’ are claims for underdeclared or overpaid VAT, potentially going back as far as the inception of VAT in 1973. They followed the House of Lords judgements in January 2008 in the cases of Fleming and Conde Nast (Fleming) which concerned the way that the three year time limit on making claims had been introduced. In Revenue and Customs Brief 07/08, published on 20 February 2008, claims were invited in respect of overpaid output tax for accounting periods ending before 1 May 1997. Subsequent legislation in the 2008 Finance Act limited the scope for making claims for these accounting periods by introducing a new transitional period ending 1 April 2009, before which any such claims had to be made.


VAT: Latest from the courts – extent of exemption for financial services

By   July 5, 2017


Coinstar Limited

In the Upper Tribunal (UT) case of Coinstar Limited the issue was whether the services Coinstar provided were exempt supply of financial services via Value Added Tax Act 1994, Schedule 9, Group 5, item 1 – “The issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money.”


I’ve no doubt that you’ve seen those kiosks with machines in supermarkets into you which you tip your bag full of loose change in return for a voucher.  The voucher can then be redeemed at the checkout against the supermarket bill. Coinstar provides this service and charges 9.9% of the value of the coins inserted into the machine.  HMRC considered this to be a table service of “coin counting”, while Coinstar claimed that it was an exempt supply under the above legislation.


The UT affirmed the decision of the First Tier Tribunal and dismissed HMRC’s appeal, ruling that Coinstar was providing an exempt financial service. The Transaction was not a coin counting service, but a service of exchanging a less convenient means of exchange into a more convenient one which was provided in return for the 9.9% fee.  This involved a change in the legal and financial status of the parties such that the exemption applied.


Another case which demonstrates the fine line between exemption and taxable treatment of “financial” services.  HMRC’s argument here was that this was a single supply of coin counting (which is outside the exemption) but clearly, a person emptying their big pots of change into the machine did not want it to be simply counted, the aim was to obtain a voucher in return for the shrapnel (or, if feeling philanthropic, there is an option to donate the coins to charity – for which Coinstar made no charge). It is fair to observe that just because a supply may be “financial” in nature it is not automatically exempt.  It pays to check the liability of such services because, as may be seen, HMRC often attack exempt treatment.  I have recently had to untangle a position where there was doubt about whether an online service amounted to exempt intermediary service. HMRC ultimately agreed that exemption applied in this case, but that was not their starting point.

VAT – Extent of healthcare exemption. Latest from the courts

By   June 26, 2017

In the First Tier Tribunal (FTT) the case of The Learning Centre (Romford) Ltd (TLC)  the exemption for healthcare was considered.


The appellant provides day-care to vulnerable adults with learning difficulties (referred to as students). Both directors have relevant qualifications and a great deal of experience in providing the care which the company provides. The taxpayer provided their students with education, activities, and entertainment during working hours Monday to Friday, providing meals and, where required, assistance with eating, administering medication, and personal care. They also provided the transport to bring the students to and from their homes and the facility. The education provided was geared towards teaching the students independent living.

While HMRC accepted that what the appellant provided was ‘welfare services’ within the meaning of the Value Added Tax Act 1994, Schedule 9, Group 7 Item 9 and Note (6), exemption applied only where it was supplied by a specified type of entity. Those entities are:

1) A charity

2) A state-regulated private welfare institution or agency, or

3) A public body.

The appellant was not a charity: it was a company which ran the business for profit. As a privately owned company, it was not a public body either. The only possible category for the appellant was ‘a state-regulated private welfare institution or agency’ and HMRC did not accept that the appellant fell within that category.  Day-care is not regulated in England and as a consequence HMRC decided it is not covered by the exemption.


The FTT found for the appellant. It was noted that day-care is regulated in Scotland and it would be a breach of fiscal neutrality if the VAT treatment of day-care was different North and South of the border.  TLC could rely on the direct effect of the Principal VAT Directive and, as a consequence, could treat its supplies as exempt and deregister from VAT.


It was a logical decision, however, logic does not always play a part in VAT…. It sought to level a playing field that was far from that.  If the decision had been in favour of HMRC the VAT treatment would have been different if the supply had been made:

  • in other areas of the UK
  • by the Local Authority
  • by a charity

contrary to EC law.

There are many businesses which provide similar services and it is imperative that they review their VAT position immediately. We can assist with this.

VAT: Is the card game bridge a sport?

By   June 21, 2017

Latest from the courts: Advocate General’s (AG) opinion* on the English Bridge Union (EBU) case.

Certain supplies of services closely connected to sport are exempt from VAT.  Consequently the EBU (a non‐profit making membership‐ funded organisation committed to promoting the game of duplicate bridge) appealed to the ECJ wanting certain fees paid to it to be exempt.  HMRC consider that contract bridge is not a sport so that output tax was due on the supply.  This view was supported by the First Tier and Upper Tribunals. So, the simple question is: Is bridge a sport?  The ECJ hearing has come about due to a referral from the British courts in reference to how it should be applied to bridge.

The AG has looked at how the term “sport” should be defined.  As a starting point, it is clear that games such as football, cricket, tennis and squash are sport.  However, this does not mean that activities which are less strenuous cannot be a sport, and the examples of archery and badminton were given.  The AG was also of the view that sport does not need to include any physical element, meaning that any activity which is characterised by:

  • competition
  • an effort to overcome a challenge or obstacle
  • results in physical or mental wellbeing

may qualify as a sport.

In connection with contract bridge; as a card game it:

  • is dependent on skill and training rather than luck
  • requires considerable mental effort and training to compete at an international level
  • is recognised by the International Olympic Committee as a sport

such that the AG concluded that bridge can indeed be defined as a sport.

This, if followed by the ECJ, means that the EBU will be due a refund of output tax declared on competition entry fees charged to its members.

The EBU has always maintained that bridge is a sport and point to the UK Charity Commission which recognises bridge as a sport.  It adopted Parliament’s most recent definition in the Charities Act, updated by Parliament in 2011, which specifically included Mind Sports in the definition of ‘sport’, stating that sports are “activities which promote health or wellbeing through physical or mental skill or exertion”.  Additionally, bridge is seen as an excellent way of improving mental acuity and delaying the onset of dementia, and the social and partnership aspects of bridge are of great benefit to those who may otherwise become isolated.

We now await the court’s decision on whether one needs to wear shorts and get sweaty to be participating in sport.

*  The most important work performed by the Advocates General is to deliver a written Opinion, named “reasoned submission”. The role of the Advocate General is to propose an independent legal solution. It is important to note that the Court is not obligated to follow the Opinion delivered by the Advocate General. Even though the Opinion does not bind the Court it has an impact on the decision in many cases, and in fact, in most cases the ECJ follows it.

VAT: Latest from the courts – are services by a CIC business?

By   May 19, 2017

This case considers the perpetual difficulty of deciding whether activities represent a business… or not.

In the First Tier Tribunal (FTT) case of Healthwatch Hampshire CIC (HH) here the issue was whether HH made taxable supplies by way of business to a Local Authority – Hampshire County Council (HCC)


Under certain prescribed new arrangements, local authorities, including HCC, were required to enter into contractual arrangements with a body corporate, which was required to be a social enterprise and a Community Interest Company (CIC) for the provision of various services.

These services comprised, inter alia:

  • Promoting, and supporting, the involvement of local people in the commissioning, provision and scrutiny of local care services
  • Information, signposting and advice
  • Advocacy services

HH is a company limited by guarantee but is not a charity. It is however non-profit making in its objectives, and any profits which do arise can only be spent for the benefit of the local community.  HH was formed by a consortium comprising; three organisations all of which are charities. These charities effectively carried out the work via a sub-contract arrangement and charged HH with the addition of VAT.  The issue is the VAT treatment of HH’s charge to HCC. Was this a business activity on which VAT is charged? Or, as HMRC contended, was the money paid to HH was outside the scope of VAT because it represented something which was not consideration for taxable supplies and thus non-business.

This was important as if the services provided by the CIC are deemed to be non-business, the VAT charged to HH by the three consortium members would represent an absolute VAT cost as it could not be VAT registered and therefore not able to recover the input tax.

Technical Note

Because of the special VAT rules which apply to local authorities, input tax incurred by them may be recovered if it relates to their non-business activities (their statutory activities). This is via VAT Act 1994, s33 and this legislation turns “normal” VAT rules on their head. In this particular case, if HH charged HCC VAT, HCC would be in a position to recover it meaning that VAT would be neutral for all parties.


The matter of whether HH’s activities amounted to a business was considered with significant references to the Longridge On The Thames.  Case commentary here

As a starting point, the judge commented on previous CJEU cases that it “…would seem to be a clear demonstration that simply because an activity is normally carried on by the state does not automatically mean that, per se, it cannot be economic activity”.  It was also decided that we have come to the conclusion that HH is not a body governed by public law.”  So this strand of HMRC’s argument did not lead anywhere.

The court decided in the taxpayer’s favour; which appears to be common sense all round.  The supplies were by way of business despite the arrangements having features which may not necessarily be found in a more commercial environment (including the fact that LAs were legally required to outsource certain of its functions) . Ultimately, consideration was flowing in both directions; HCC paid for supplies which it required and those were supplied by a third party such that VAT was properly chargeable.  The fact that HCC met its statutory obligations in structuring transactions in this way did not preclude them being an economic activity.


This case (and Longbridge) demonstrates that where charities, LAs, CICs, NFP entities and similar bodies are concerned, it is crucial to review all agreements from a VAT perspective. It is insufficient to assume the correct VAT treatment is how it is desired and slight differences in arrangements can, and do, produce different VAT outcomes. After Longbridge HMRC are looking more closely at similar arrangements (not limited to LAs) and we expect more of these types of cases to be heard in the future.

For more on the EC aspect of business/non-business please see here

VAT: Latest from the courts – Brockenhurst College

By   May 19, 2017

The Court of Justice of the European Union (CJEU) has released its decision in Brockenhurst College here

Unusually, it has gone against the Advocate General (AG) Kokott’s opinion (here) and concurs with previous decisions reached by the UK courts. This is good news for the taxpayer and other providers of educational services. The decision has been referred back to the Court of Appeal (CoA) for it to consider points such as the distortion of competition and the fulfilment of a separate function, however, it is likely that this will not affect the decision by the CJEU and HMRC’s appeal will be dismissed.


The case considered two types of supply made by Brockenhurst College:

  • The supplies made from its restaurant, used for training chefs, restaurant managers and hospitality students. The claim was made on the basis that these were exempt supplies of education and not standard rated supplies of catering
  • Tickets for concerts and other live performances put on by students as part of their educational courses. These were similarly claimed to be exempt.

Students were enrolled in performing arts and catering and hospitality courses.  As part of their course of study they were required to run a restaurant and stage live performances. Persons not enrolled on the relevant courses would pay for and attend these events. The services were usually supplied to a limited public including; parents, siblings, friends etc, and were supplied at a reduced cost as part of the practical element of the students’ education. The appellant argued that the experience was invaluable to their studies and should be regarded as ‘closely related’ to the principal supply of education.  HMRC considered that the services in question were supplied to third parties in return for payment. Consequently, the services, whilst of benefit and practical experience to the students were separate VATable supplies made to third parties and the supplies cannot, therefore, be closely related to the supply of education to the student.

The First Tier Tribunal (FTT) concluded that the supplies in question were exempt as being closely linked to education because:

  • the College was an eligible body and so its principal supplies were exempt supplies of education
  • the supplies were integral and essential to those principal exempt supplies
  • the supplies were made at less than their cost
  • the supplies were not advertised to the general public. Instead, there was a database of local groups and individuals who might wish to attend the restaurant or performances
  • the supplies were not intended to create an additional source of income for the College

HMRC disagreed with the conclusion on the basis that the supplies were outside the education exemption because the students were not the beneficiaries of the supplies in question, but only benefitted from making them. HMRC appealed to the Upper Tribunal (UT).

The UT rejected HMRC’s argument and agreed with the FTT. It held that the supplies were closely related to the exempt supplies of education because they enabled the students to enjoy better education. The requirement in the domestic law for the supplies to be for the direct use of the student was met because they were of direct benefit to him.

HMRC subsequently appealed to the CoA which referred it to the CJEU.

The AG’s opinion was that closely related transactions are to be regarded as independent supplies to the principal supply, but do not include the supply of restaurant or training services supplied to third parties who are not themselves receiving the principal supply of training. The third parties pay for their own consumption (of either the catering or performance) and do not pay for the provision of education. It is very rare that the CJEU makes a decision that goes against the AG’s opinion.

CJEU Decision

The CJEU ruled that activities consisting of students of a higher education establishment supplying, for consideration and as part of their education, restaurant and entertainment services to third parties, may be regarded as supplies closely related to the principal supply of education and accordingly be exempt from VAT – provided that those services are essential to the students’ education and that their basic purpose is not to obtain additional income for that establishment by carrying out transactions which are in direct competition with those of commercial enterprises liable for VAT, which it is for the national court to determine.


We understand that there are a number of cases stood behind Brockenhurst.  Any other colleges, FE, universities or other eligible bodies carrying out similar activities to Brockenhurst need to consider their tax position. It is possible that retrospective claims may be made, depending on specific circumstances. Treating such supplies as exempt may also impact on a body’s partial exemption position and could create business/non-business implications. This may also impact on activities like hairdressing, motor maintenance and beauty treatments which colleges provide on a similar basis to the activities in this instant case.

We are happy to discuss the implications of this case with you.


VAT Latest from the courts – Reverse Charge

By   February 13, 2017

newcastle uni 1 (2)The First Tier Tribunal case of University Of Newcastle Upon Tyne is a useful reminder of the impact of the Reverse Charge.

A brief guide to the Reverse Charge is included below.


As with many UK universities, Newcastle was keen to encourage applications to study from new students from overseas. This is an important form of income for the institution.  It used local (overseas) agents to recruit students. Some 40% of those students were studying as undergraduates, 40% as postgraduates on one year “taught” courses and 20% as postgraduate research students studying for doctorates.  In 2014 the University had agreements with more than 100 agents worldwide. The agents used their own resources to recruit students for universities around the world, including in the UK. The University entered into contractual arrangements with agents and paid commission to them. In 2008 the University paid agent commissions of £1.034m, rising to £2.214m in 2012.

The Tribunal was required to consider whether the services supplied by the agents were a single supply to University or separate supplies to both the University and students. If the entire supply is to the University then the Reverse Charge is applicable and, because the University is partly exempt, this would create a VAT cost to it. If the supplies are to both the students and the University, the Reverse Charge element would be less and the VAT cost reduced. (There were changes to the Place Of Supply legislation during the period under consideration, but I have tried to focus on the overall impact in this article.)

The University contended that agents made two supplies: a supply to the University of recruitment services and a supply to students of support services. The commission paid by the University should therefore be apportioned so as to reflect in part direct consideration paid by the University for supplies of services to it, and in part third party consideration for services supplied to the students. The supplies to students would not made in the UK and therefore were not subject to UK VAT.


After thorough consideration of all of the relevant material, the judge decided that the agents made a single supply of services to the University and make no supplies to students. This meant that the University must account for VAT on the full value of services received since 2010 under the Reverse Charge (although before 2010 different rules on place of supply applied).  Additionally,  it was decided the University was not entitled to recover as input tax VAT for which it is required to account by means of a Reverse Charge. There was no direct and immediate link between the commission paid to agents and any taxable output of the University or the economic activities of the University as a whole.


It is understood that the way the University recruited students using overseas agents is common amongst most Universities in the UK, so this ruling will have a direct impact on them.  It was hardly a surprising decision, but underlines the need for all businesses to consider the impact of the application of the Reverse Charge.  Of course, the Reverse Charge will only create an actual VAT cost if a business is partly exempt, or involved in non-business activities.  The value of the Reverse Charge also counts towards the VAT registration threshold.  This means that if a fully exempt business receives Reverse Charge services from abroad, it may be required to VAT register (depending on value). Generally, this means an increased VAT cost. This situation may also affect a charity or a NFP entity.

The case also highlights the importance of contracts, documentation and website wording (should any more reminders be needed).  VAT should always be borne in mind when entering into similar arrangements. It may also be possible to structure arrangements to avoid or mitigate VAT costs if carried out at an appropriate time.

We can assist with any of the above and are happy to discuss this with you.


Guide – Reverse charge on services received from overseas
Normally, the supplier of a service is the person who must account to the tax authorities for any VAT due on the supply.  However, in certain situations, the position is reversed and it is the customer who must account for any VAT due.  This is known as the ‘Reverse Charge’ procedure.  Generally, the Reverse Charge must be applied to services which are received by a business in the UK VAT free from overseas. 
Accounting for VAT and recovery of input tax.
Where the Reverse Charge procedure applies, the recipient of the services must act as both the supplier and the recipient of the services.  On the same VAT return, the recipient must
  • account for output tax, calculated on the full value of the supply received, in Box 1;
  • (subject to partial exemption and non-business rules) include the VAT stated in box 1 as input tax in Box 4; and;
  • include the full value of the supply in both Boxes 6 and 7.
Value of supply.
The value of the deemed supply is to be taken to be the consideration in money for which the services were in fact supplied or, where the consideration did not consist or not wholly consist of money, such amount in money as is equivalent to that consideration.  The consideration payable to the overseas supplier for the services excludes UK VAT but includes any taxes levied abroad.
Time of supply.
The time of supply of such services is the date the supplies are paid for or, if the consideration is not in money, the last day of the VAT period in which the services are performed.
The outcome
The effect of the provisions is that the Reverse Charge has no net cost to the recipient if he can attribute the input tax to taxable supplies and can therefore reclaim it in full. If he cannot, the effect is to put him in the same position as if had received the supply from a UK supplier rather than from one outside the UK. Thus the charge aims to avoid cross border VAT rate shopping. It is not possible to attribute the input tax created directly to the deemed (taxable) supply. 

VAT Latest from the courts – exemption for sporting facilities by an eligible body

By   November 8, 2016

rugby-2St Andrew’s College, Bradfield

This Upper Tribunal case demonstrates the importance of getting the structure right. Full case here


Exemption exists for an eligible body making certain supplies of sporting services.


St Andrew’s College is a boarding school and a registered charity.  It is the representative member of a VAT group which also included two subsidiary companies. The companies provided facilities for playing sport and the group intended to treat these as exempt supplies.  HMRC challenged the intended treatment on the basis that the subsidiaries did not qualify as eligible bodies via VAT Act 1994, Schedule 9, Group 10 (exemption related to sport, sports competitions and physical education). It was agreed that all of the other criteria were met, so the case turned on the definition of an eligible body.  It was common ground that the College, as an educational charity, was itself an eligible body. Even though, as the representative member of the VAT group, the College was treated as making all supplies actually made by the subsidiaries, that did not mean that the supplies were exempt.


In order to be regarded as an eligible body the subsidiaries were required to be a non-profit making body.  What was relevant here was whether the subsidiaries (themselves) had specific restrictions on their ability to distribute any profit that they made.  The UT formed the view that there was no specific restriction and that although profits were only covenanted up to the College this was insufficient to meet the test in Group 10 Note (2A).  It was also found that the deeds of covenant did not, of themselves, establish that the subsidiaries could make distributions only to non-profit making bodies.

Consequently, the subsidiaries failed to qualify for exemption and that the First Tier Tribunal correctly found that output tax was due on the income from provision of sporting facilities.


This case highlights the importance of putting in place a correct structure and to ensure that it reflects the intention of the supplier.  One may see that in this scenario it would have been relatively simple to arrange matters to accurately reflect the aims of the group.  Care would have been required in drafting documentation etc as matters stood, or rearranging the supply chain.

It should also be noted that there are specific anti-avoidance provisions in place for certain suppliers of sporting services (although not in issue here). Advice should be taken at an early stage in planning to ensure that if exemption is desired, that it is achieved if possible.