Category Archives: Disputes

VAT: Difficulties with DIY Housebuilders’ claim – The Spani case

By   18 September 2023
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Latest from the courts

In the First Tier Tribunal (FTT) case of Spani v HMRC [2023] UKFTT 00727 (TC) the issue was whether a claim under the DIY Housebuilders’ Scheme (the scheme) was valid.

Mr Spani appealed against HMRC’s decision to refuse a claim. It was rejected as the respondents concluded that the property was to be used for business purposes because Planning Permission was for a holiday let rather than residential own use. To claim under the scheme, the relevant the property must be used “otherwise than in the course of furtherance of business” – VAT Act 1994, section 35)

Background

The cottage was constructed in Seaford – within the Souths Down National Park and, in order to obtain planning consent, it was required to be made available for letting on a commercial basis for 140 days a year. The appellant contended that it was his primary residence in the UK and any letting (which was interrupted by covid in any case) was/would be incidental to this primary purpose.

The property was listed on Air BnB in order to satisfy the requirements of the planning consent, but the property had not been actively marketed and no lettings had taken place.

Mr Spani contended that the use of the cottage “falls far short of the HMRC’s position that it was the appellant’s intention to use the property for a wholly commercial purpose”. It was simply the appellant’s home in the UK and that an identical property built outside the National Park would not have the Planning Permission holiday let requirement.

Further, if it was a commercial enterprise, Mr Spani could have could have used another reclaim route, viz: registering for VAT and recovering an element of the input tax incurred.

Decision

The appeal was dismissed – The judge opined that “none of these events subsequent to the grant of the Planning Permission and completion certificate detract from the fact that the property was built to be a holiday let (as stipulated by the planning consent) and was therefore constructed in furtherance of a FHL* business”.

Additionally, the FTT stated that: it is plain that the appellant’s plan to live in the property within the FHL regulations does not (and cannot) alter the property into a dwelling… when there is the express prohibition placed on the property to be a dwelling.

The conclusion was that the property was built in furtherance of a business which prohibited a claim.

Commentary

Yet another case highlighting precise requirements of a claim under the scheme and HMRC’s strict application of the rules. Care must always be taken in such cases and we advise professional advice is sought prior to a submission of a claim.

More on similar cases here and here  and Top Ten Tips for the scheme.   

* Furnished Holiday Let

VAT: Alternative Dispute Resolution (ADR) What is it? How does it work?

By   15 September 2023
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What is ADR?

ADR is the involvement of a third party (a facilitator) to help resolve disputes between HMRC and taxpayers.  It is mainly used by SMEs and individuals for VAT purposes, although it is not limited to these entities.  Its aim is to reduce costs for both parties (the taxpayer and HMRC) when disputes occur and to reduce the number of cases that reach statutory review and/or Tribunal.

The process

Practically, a typical process is; HMRC officials and the facilitator meet with the taxpayer and adviser in a room, and agree on what the disputes are.  They then retire to two separate, private rooms, and the facilitator goes between the two parties and mediates on a resolution.

ADR is a free service and the only costs the taxpayer will incur are fees from their advisers on preparation and any representation they require on the day.

Features of ADR

  • Without prejudice discussions – Anything said or documents produced during the ADR process cannot be used in future proceedings without the express consent of both parties subject to the obligations placed on the parties by the operation of English law
  • Evidence is that ADR can work for both VAT and Direct Taxes disputes both before and after an appealable decision or assessment has been made. However, ADR for VAT disputes is more suited to post appealable decision and assessments
  • Memorandum of Understanding (MOU) and a Code of Conduct – a MOU is created to commit taxpayers/agents to the requirements of the ADR process
  • The average time for all completed ADR cases is 61 days. This figure is from application to resolution.  The average elapsed time for VAT it is 53 days
  • The average age of VAT disputes is eight months
  • An ADR Panel has been created to accept or reject applications for ADR. It screens all applications and not just those where ADR was thought to be inappropriate.
  • Customer / Agent Questionnaire Summary – Findings from customers and agents included:
    • An appreciation of the personal interaction that the ADR process allowed
    • Facilitators were even handed and impartial in all cases and kept the taxpayer well informed
    • ADR was particularly well suited to resolution of long standing disputes.

Is Tribunal preferable?

Taking a case to Tribunal is often an expensive, complicated and time consuming option, but used to be the only option open to a taxpayer to challenge a decision made to HMRC.  From personal experience, the number of cases from which HMRC withdraw “on the steps of the court” illustrate a weakness in their legal procedures and possibly a lack of confidence in presenting their cases. This is very frustrating for our clients as they have already incurred costs and invested time when HMRC could have pulled out a lot earlier.  Of course, our clients cannot apply for costs.  The sheer number of cases going through the Tribunal process means that there are often very long and frustrating delays getting an appeal heard.

 A true alternative?

Therefore, should we welcome ADR as a watered down version of a Tribunal hearing?  Or is it actually something else entirely?

HMRC say that “ADR provides an excellent opportunity for Local Compliance to handle disputes in a modern and collaborative way.  It is not intended to replace statutory internal review which is an already established process aimed at resolving disputes without a tribunal hearing. Review looks at legal challenges to decisions whereas ADR is more suitable for disputes where there might be more than one tenable legal outcome”.

Results so far

After an initial two-year pilot which shaped the final programme, and was guided by a Working Together group that included CIOT, AAT, ICAEW and legal representatives HMRC concluded that “ADR has shown that many disputes, where an impasse has been reached, can be resolved quickly without having to go to tribunal.” And “ADR is a fair and even-handed way of resolving tax disputes between HMRC and its customers and helps save time and costs for everyone.”  Ignoring the dreadful use of the word “customers”… what has the profession made of the scheme?

Hui Ling McCarthy – Barrister has reported “HMRC’s ADR studies have produced extremely encouraging and positive results – owing in large part to HMRC’s willingness to engage with taxpayers, advisers and the professional bodies and vice versa. Taxpayers involved in a dispute with HMRC would be well-advised to take advantage of ADR wherever appropriate”.

Outcome

So what was the outcome of the two year scheme?  The headline is that 58% of cases were successfully resolved, 8% were partially resolved and 34% were unresolved.

Of the fully resolved facilitations

  • 33% were resolved by educating the taxpayer/agent about the correct tax position.
  • 24% were resolved due to the facilitator obtaining further evidence.
  • 23% were resolved by educating the HMRC decision maker about the correct tax position.
  • 20% were resolved through facilitators restoring communication between both parties.

Conclusion

These figures are encouraging and the conclusion that; well planned, constructive meetings, with the intervention of an HMRC facilitator, do increase the chances of dispute resolution, appear to be well founded.

Further, the fact that the project team saw no evidence of any demand from HMRC, taxpayers or their agents for access to external mediators and that there is also conclusive evidence from taxpayers that HMRC facilitators have acted in a fair and even-handed manner add to the feeling that ADR is a useful new tool.

Commentary

The comments from HMRC on ADR is (probably understandable) positive.  However, reactions from the profession and taxpayers who have gone through the process are equally generous on ADR as a mechanism for settling disputes.

My view is that any alternative to a Tribunal hearing is welcome and even if ADR works half as well as reports conclude then it should certainly be explored.  It should definitely be considered as an alternative to simply accepting a decision from HMRC with which a taxpayer disagrees.

VAT: Is a cosmetic treatment exempt medical care? The Illuminate Skin Clinics Ltd case

By   12 July 2023
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Latest from the courts

In the Illuminate Skin Clinics Ltd First-Tier Tribunal (FTT) case the issue was whether cosmetic procedures qualified as exempt medical treatment.

Background

The Appellant runs a private, ie; non-NHS clinic offering a range of aesthetic, skincare and wellness treatments advertised as: fat freezing, thread lifts, chemical peels, fillers, facials, intravenous drips and boosters. The Appellant’s sole director and shareholder, Dr Shotter, complies with Item 1 (below) in terms of qualifications, ie; she is enrolled on the register of medical professionals.

The list of treatments included:

  • Botox
  • Dermal fillers
  • CoolSculpting
  • Microsclerotherapy
  • Prescription skincare
  • Chemical peels
  • Microdermabrasion
  • Thread lifting
  • Thermavein
  • Aqualyx
  • Platelet-rich plasma treatment.

HMRC contended that these supplies were standard rated because there is no medical purpose behind the treatments, and they are carried out for purely cosmetic purposes. An assessment was raised for output tax on this income.

The Appellant argued that what it provided was exempt medical care via The VAT Act 1994, Schedule 9, Group 7, item 1 – “The supply of services consisting in the provision of medical care by a person registered or enrolled in any of the following:

  • The register of medical practitioners…”

And its contention was that the primary purpose of the treatments was “the protection, maintenance or restoration of the health of the person concerned”

In the Mainpay case it was established that “medical” care means “diagnosing, treating and, in so far as possible, curing diseases or health disorders”

Decision

Although there may have been a beneficial psychological impact on undergoing such treatments and this may have been the reason for a patient to proceed (and they may be recommended by qualified medical professionals) this, in itself, was insufficient to persuade the judge that the services were exempt. Consequety, the appeal was rejected and the assessment was upheld.

The FTT found that there was very little evidence of diagnosis. This was important to the overall analysis because diagnosis is the starting point of medical care. Without diagnosis, “treatment”, in the sense of the exemption, is not something which is being done responsively to a disease or a health disorder.

The fact that people go to the clinic feeling unhappy with some aspect of their appearance, and (at least sometimes) are happier when something is done at the clinic about that aspect of their appearance, does not mean that the treatment is medical, or has a therapeutic aim.

It was telling that the differentiation, in Dr Shotter’s own words, between what the clinic does from what “a GP or other health professional” does is; diagnosis. It also highlighted the general trend or purpose of the clinic’s activity – helping people to feel better about their appearance, in contexts where their appearance is not itself a health condition, or threatening to their health in a way which mandates treatment of their appearance by a GP or another health professional.

Helping someone to achieve goals in relation to their appearance, which is what this clinic did, is not treating someone’s mental health status, but is going to their self-esteem and self-confidence. It is a misuse of language to say that this is healthcare in the sense that it would fall within Item 1 of Group 7.

Commentary

There has been an ongoing debate as to what constitutes medical care. Over 20 years ago I was advising a large London clinic on this very point and much turned on whether patients’ mental health was improved by undergoing what many would regard as cosmetic procedures. We were somewhat handicapped in our arguments by the fact that many of the patients were lap dancers undergoing breast augmentation on the direction of the owner of the club…

It is worth remembering that not all services provided by a medically registered practitioner are exempt. The question of whether the medical care exemption is engaged in any given case will turn on the particular facts.

Further recent cases on medical exemption here and here.

VAT: New HMRC guidance on error reporting

By   4 July 2023
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HMRC has published new guidance to assist taxpayers on how to deal with errors discovered on submitted VAT returns. The catchy title is: Check if you need to report errors in your VAT Return – Check if you need to notify HMRC about errors that are over the threshold on your VAT Return and find out how to report them.

The guidance sets out how to report errors of £10,000 or more (net of all errors). This broadly comes down to using the online service by completing a form VAT652 or adjusting a current VAT return.

Please see our flowchart on error reporting Error Reporting Flowchart

VAT: Business or non-business? The 3D Crowd CIC case

By   4 July 2023
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Latest from the courts

Business or non-business?

In the First-Tier Tribunal (FTT) case of 3D Crowd CIC (3D) the issue was whether a donation of goods, with a subsequent intention to sell similar goods constituted a business activity such that input tax incurred in relation to it was recoverable.

Background

3D was formed at the beginning of the Covid 19 pandemic to produce face protection via the process of 3D printing. Such protection was in high demand, but there was a shortage of suitable products for healthcare workers. The appellant produced 130,000 face shields in the first six weeks of production; which was an admirable feat. However, it was not possible to sell this equipment without the appropriate accreditation. Consequently, to alleviate demand, 3D donated the PPE to the NHS.

By the time accreditation was given the demand for PPE had reduced so it was not possible to sell the 3D printed face coverings as initially intended.

Technical

The issue of business versus non-business has been a contentious issue in the VAT world from day one. This classification is important for two reasons. If an activity is a business (an economic activity) it could be subject to VAT and, as in this case, if an activity is non-business there is usually a restriction of input tax.

Contentions

3D said that input tax could be recovered on costs which involved no direct onward supply of goods or services, but which laid the groundwork for them. That is, the input tax could be attributed to an intended taxable supply, even though that intention was not fulfilled by circumstances outside its control.

HMRC argued that per Longbridge the correct test for determining whether an activity is a business activity is whether there is a direct link between the services or goods supplied and a payment received by the supplier. In this case, there was not so no input tax was reclaimable. HMRC also referred to the decision in Wakefield College, supporting the proposition that an activity is only a business activity if it results in the supply of goods or services for a consideration.

Decision

The FTT found that the VAT incurred on supplies made to 3D, constituted elements:

  • in connection with 3D seeking CE certification
  • related to general overheads
  • related to VAT incurred on materials bought to produce the PPE

Input tax incurred on the costs of accreditation is recoverable because these were incurred in order to sell PPE in the future and for no other purpose. The fact that these costs are not linked to a particular supply (and is in the nature of preparing the ground for future supplies) was irrelevant per The VAT Act 1994, Schedule 1, para 10.

The VAT incurred on the general overhead costs and on the costs of producing the PPE was incurred in part for business purposes and party for non-business (donations) and should be apportioned using a method agreed between 3D and HMRC.

Commentary

Another case highlighting the difficulty in identifying the distinction between business and non-business and the complexity of input tax attribution. The altruistic efforts of the CIC is to be admired, but such charitable (in the broad sense) activities do not always get their just reward in VAT terms.

VAT: How to characterise a supply – The tests

By   27 June 2023
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In the age-old matter of whether a supply is separate/composite/compound for VAT purposes which and what is the nature of that supply, the Court of Appeal case of Gray & Farrar International LLP has provided very helpful guidance. A background to facts of the initial hearing here (although this decision was overturned by both the UT and the CoA).

I have previously considered these types of supply here, here, here, here, and here. Although not specifically concerning composite/separate supplies, the case sets out a hierarchy of tests to be applied in characterising a single supply for VAT purposes which now sets the standard. These test are:

  1. The Mesto predominance test should be the primary test to be applied in characterising a supply for VAT purposes.
  2. The principal/ancillary test is an available, though not the primary, test. It is only capable of being applied in cases where it is possible to identify a principal element to which all the other elements are minor or ancillary. In cases where it can apply, it is likely to yield the same result as the predominance test.
  3. The “overarching” test is not clearly established in the ECJ jurisprudence, but as a consideration the point should at least be taken into account in deciding averments of predominance in relation to individual elements, and may well be a useful test in its own right.

Comments

The Mesto Test

CJEU Mesto Zamberk Financini (Case C-18/12)

The primary test to be applied when characterising a single supply for VAT purposes is to determine the predominant element from the point of view of the typical consumer with regard to the qualitative and not merely the quantitative importance of the constituent elements.

Principal/ancillary

If a distinct supply represents 50% or more of the overall cost, it can not be considered ancillary to the principal supply. In such cases an apportionment will usually be required.

Overarching

A generic description of the supply which is distinct from the individual elements. In many cases the tax treatment of that overarching single supply according to that description will be self-evident.

CPP

One must also have regard to the Card Protection Plan Ltd case. This has become a landmark case in determining the VAT treatment for single and multiple supplies. In this case the ECJ ruled that standard rated handling charges were not distinct from the supply of exempt insurance. It was noted that ‘a supply that comprises a single service from an economic point of view should not be artificially split’. Notably many subsequent court decisions have since followed this outcome thereby suggesting a general lean towards viewing cases as single supplies where there are reasonable grounds to do so.

VAT – What is reasonable care?

By   7 June 2023
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What is reasonable care, and why is it important?

HMRC state that “Everyone has a responsibility to take reasonable care over their tax affairs. This means doing everything you can to make sure the tax returns and other documents you send to HMRC are accurate.”

If a taxpayer does not take reasonable care HMRC will charge penalties for inaccuracies.

Penalties for inaccuracies

HMRC will charge a penalty if a business submits a return or other document with an inaccuracy that was either as a result of not taking reasonable care, or deliberate, and it results in one of the following:

  • an understatement of a person’s liability to VAT
  • a false or inflated claim to repayment of VAT

The penalty amount will depend on the reasons for the inaccuracy and the amount of tax due (or repayable) as a result of correcting the inaccuracy.

How HMRC determine what reasonable care is

HMRC will take a taxpayer’s individual circumstances into account when considering whether they have taken reasonable care. Therefore, there is a difference between what is expected from a small sole trader and a multi-national company with an in-house tax team.

The law defines ‘careless’ as a failure to take reasonable care. The Courts are agreed that reasonable care can best be defined as the behaviour which is that of a prudent and reasonable person in the position of the person in question.

There is no issue of whether or not a business knew about the inaccuracy when the return was submitted. If it did, that would be deliberate and a different penalty regime would apply, see here  It is a question of HMRC examining what the business did, or failed to do, and asking whether a prudent and reasonable person would have done that or failed to do that in those circumstances.

Repeated inaccuracies

HMRC consider that repeated inaccuracies may form part of a pattern of behaviour which suggests a lack of care by a business in developing adequate systems for the recording of transactions or preparing VAT returns.

How to make sure you take reasonable care

HMRC expects a business to keep VAT records that allow you to submit accurate VAT returns and other documents to them. Details of record keeping here

They also expect a business to ask HMRC or a tax adviser if it isn’t sure about anything. If a business took reasonable care to get things right but its return was still inaccurate, HMRC should not charge you a penalty. However, If a business did take reasonable care, it will need to demonstrate to HMRC how it did this when they talk to you about penalties.

Reasonable care if you use tax avoidance arrangements*

If a business has used tax avoidance arrangements that HMRC later defeat, they will presume that the business has not taken reasonable care for any inaccuracy in its VAT return or other documents that relate to the use of those arrangements. If the business used a tax adviser with the appropriate expertise, HMRC would normally consider this as having taken reasonable care (unless it’s classed as disqualified advice)

Where a return is sent to HMRC containing an inaccuracy arising from the use of avoidance arrangements the behaviour will always be presumed to be careless unless:

  • The inaccuracy was deliberate on the person’s part, or
  • The person satisfies HMRC or a Tribunal that they took reasonable care to avoid the inaccuracy

* Meaning of avoidance arrangements

Arrangements include any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable). So, whilst an arrangement could contain any combination of these things, a single agreement could also amount to an arrangement.  Arrangements are `avoidance arrangements’ if, having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes of the arrangements.

NB: We at Marcus Ward Consultancy do not promote or advise on tax avoidance arrangements and we will not work with any business which seeks such advice.

Using a tax adviser

If a business uses a tax adviser, it remains that business’ responsibility to make sure it gives the adviser accurate and complete information. If it does not, and it sends HMRC a return that is inaccurate, it could be charged penalties and interest.

Evidence

Before any question of reasonable excuse comes into play, it is important to remember that the initial burden lies on HMRC to establish that events have occurred as a result of which a penalty is, prima facie, due. A mere assertion of the occurrence of the relevant events in a statement of case is not sufficient. Evidence is required and unless sufficient evidence is provided to prove the relevant facts on a balance of probabilities, the penalty must be cancelled without any question of reasonable excuse becoming relevant.

None of us are perfect

Finally, it is worth repeating a comment found in HMRC’s internal guidance “People do make mistakes. We do not expect perfection. We are simply seeking to establish whether the person has taken the care and attention that could be expected from a reasonable person taking reasonable care in similar circumstances…” 

VAT agents and advisers – Updated HMRC standards

By   16 May 2023
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HMRC has published updated standards for agents and advisers. It sets out HMRC’s expectations of tax agents. Tax agents are agents and advisers, who are acting professionally in relation to the tax affairs of others. This includes third party agents and advisers, whether acting in respect of UK or offshore tax affairs, and to all dealings they have with HMRC. Most agents are members of professional regulatory bodies that publish and endorse standards for behaviour. All the directors and staff of Marcus Ward Consultancy who provide professional advice are members of CIOT and/or ATT and are covered by their principles and ethics. Our approach to tax planning is set out here and is summarised below.

Summary

HMRC’s standard for dealing with agents: HMRC states that it wants to provide agents with a service that is fair, accurate and based on mutual trust and respect.

What HMRC expects from agents

  • Integrity
  • Professional competence and due care
  • Professional behaviour
  • Standards for tax planning – tax planning must
    • be lawful
    • be disclosed and transparent
    • agents must not create, encourage or promote tax planning arrangements or structures that:
      • set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation
      • are highly artificial or highly contrived and seek to exploit shortcomings in the relevant legislation
  • HMRC will monitor agent standards

Agents who do not follow the standard are considered to be in breach of it. HMRC has a range of different approaches, policies and powers to deal with breaches of the standard. For more information, HMRC has published a review of its powers to uphold its standard for agents.

Our approach to planning and HMRC

Marcus Ward Consultancy Ltd does not market, advise on, or advocate aggressive schemes. The company provides bespoke solutions to an individual business and does not believe in “one size fits all” mass-marketed schemes.  We will always work within the law and the spirit of the law.  We operate a full disclosure policy and may refuse to work with you if you do not subscribe to this attitude.  We will, on occasion, cross swords with HMRC if we believe we are correct and that HMRC is being unreasonable and we will fight to uphold our clients’ rights against any unfair accusations.

VAT: Charity exemption for show admittance – The Yorkshire Agricultural Society case

By   9 May 2023
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Latest from the courts

In the Yorkshire Agricultural Society First Tier Tribunal (FTT) case the issue was whether payments for entry into the annual The Great Yorkshire Show qualified as exempt via The VAT Act 1994, Schedule 9, Group 12, item 1 –

“The supply of goods and services by a charity in connection with an event—

      1. that is organised for charitable purposes by a charity or jointly by more than one charity,
      2. whose primary purpose is the raising of money, and
      3. that is promoted as being primarily for the raising of money.”

HMRC raised an assessment on the grounds that the supply of admittance fell outwith the exemption so it was standard rated. It appears that this view was formed solely on the basis that the events were not advertised as fundraisers.

The exemption covers events whose primary purpose is the raising of money and which are promoted primarily for that purpose. HMRC contended that the events were not advertised as fundraisers and therefore the exemption did not apply. Not surprisingly, the appellant contended that all of the tests at Group 12 were fully met.

The FTT found difficulty in understanding HMRC’s argument. It was apparent from the relevant: tickets, posters and souvenir programmes all featured the words “The Great Yorkshire Show raises funds for the Yorkshire Agricultural Society to help support farming and the countryside”.

Decision

The FTT spent little time finding for the taxpayer and allowing the appeal. The assessment was withdrawn. There was a separate issue of the assessment being out of time, which was academic given the initial decision. However, The Tribunal was critical of HMRC’s approach to the time limit test (details in the linked decision). HMRC’s argument was that apparently, the taxpayer had brought the assessment on itself by not providing the information which HMRC wanted. The Judge commented: “That is not the same as HMRC being in possession of information which justified it in issuing the Assessment. It is an inversion of the statutory test”.

HMRC’s performance (or lack of it)

Apart from the clear outcome of this case, it also demonstrated how HMRC can get it so wrong. The FTT stated that it was striking that there was very little by way of substantive challenge by HMRC to the appellant’s evidence, nor any detailed exploration of it in cross-examination. The FTT, which is a fact-finding jurisdiction, asked a series of its own questions to establish some facts about the Society’s activities and the Show in better detail. No-one from HMRC filed a witness statement or gave evidence, even though HMRC, in its application to amend its Statement of Case, had said that the decision-maker would be giving evidence. The decision-maker did not give evidence. HMRC were wrong on the assessment and the time limit statutory test and did not cover itself in glory at the hearing.

Commentary

More evidence that if any business receives an assessment, it is always a good idea to get it reviewed. Time and time again we see HMRC make basic errors and misunderstand the VAT position. We have an excellent record on challenging HMRC decisions. Charities have a hard time of it with VAT, and while it is accurate to say that some of the legislation and interpretation is often complex for NFPs, HMRC do not help by taking such ridiculous cases.

VAT: Place of supply – The Sports Invest case

By   5 May 2023
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Latest from the courts

In the First-Tier Tribunal case of Sports Invest UK Ltd the issue was the place of supply (POS) of a football agent’s services (commission received for a player’s transfer).

The POS is often complex from a VAT perspective and depends on the place of belonging (POB) of the supplier and the recipient of the supply. These rules determine if VAT is charged, where VAT is charged and the rate of VAT applicable, additionally, they may impose requirements to register for VAT in different jurisdictions.

Background

Sports Invest was a football agent based in the UK. It received fees in respect of negotiating the transfer of a player: João Mário from a Portuguese club: Sporting Lisbon to an Italian club: Internazionale (Inter Milan). The appellant signed a representation contract with the player which entitled it to commission, and a separate agreement with Inter Milan entitling it to a fee because the player was permanently transferred.

The Issues

To whom did Sports Invest make a supply – club or player? What was the supply? Was there one or two separate supplies? What was the POS?

As appears normal for transactions in the world of football the contractual arrangements were complex, but, in essence as a matter of commercial and economic reality, Sports Invest had agreed the commission with the player in case it was excluded from the deal. However, this did not occur, and the deal was concluded as anticipated. Inter Milan paid The Appellant’s fee in full, but did this affect the agreement between Sports Invest and the player? That is, as HMRC contended, did Inter Milan pay Sports Invest on the player’s behalf (third party consideration) such that there were two supplies; one to the player and one to the cub?

The FTT stated that there was no suggestion that the contracts were “sham documents”.

VAT Liability

The arrangements mattered, as pre-Brexit, a supply of services by a business with a POB in the UK to an individual (B2C) in another EU Member State would have been subject to UK VAT; the POS being where the supplier belonged. HMRC assessed for an element of the fee that it saw related to the supply to the player. The remainder of the fee paid by the club was accepted to be consideration for a UK VAT free supply by the agent to the club (B2B).

Decision

The court found that there was one single supply by The Appellant to Inter Milan. This being the case, the supply was B2B and the POS was where the recipient belonged and so that the entire supply was UK VAT free. There was no (UK) supply to the individual player as that agreement was superseded by the contractual arrangements which were actually put in place and the player owed the agent nothing as the potential payment under that contract was waived.

The appeal against the assessment was upheld.

Commentary

The court’s decision appears to be logical as the supply was to the club who were receiving “something” (the employment contract with the player) and paying for it. The other “safeguarding” agreement appeared to be simple good commercial practice and was ultimately “not required”. This case highlights the often complex issues of; establishing the nature of transactions, the identity of the recipient(s), agency arrangements, the POS and the legal, commercial and economic reality of contracts.