Tag Archives: vat-tribunal

VAT: Evidence for exports. The H Ripley case

By Marcus Ward 13 February 2024

Latest from the courts

In the H Ripley & Co Limited First Tier Tribunal (FTT) case the issue was whether the appellant had satisfactory evidence to support the zero rating of the export of goods (scrap metal).

Background

HMRC denied zero rating on the basis that the appellant did not provide satisfactory evidence to support the fact that the scrap metal was removed from the UK.

The requirements are set out in VAT Notice 725 para 5 and acceptable documentary evidence may include:

the customer’s order – including customer’s name and delivery address
inter-company correspondence
copy sales invoice
advice note
packing list
commercial transport documents from the carrier responsible for removing the goods from the UK, for example an International Consignment Note (CMR) fully completed by the consignor, the haulier and signed by receiving consignee
details of insurance or freight charges
bank statements as evidence of payment
receipted copy of the consignment note as evidence of receipt of goods abroad
a signed CMR document or note
a bill of lading
an airfreight invoice
an invoice from the carrier of the goods
official documents issued by a public authority, such as a notary, confirming the arrival of the goods
any other documents relevant to the removal of the goods in question which you would normally get in the course of business

or a combination of the above.

HMRC advised the appellant that it had received an information request from the Belgian tax authorities in respect of certain transactions and consequently, HMRC required information on the company’s documents in connection with the supplies. On receipt of the information HMRC concluded that the evidence was insufficient to support zero-rating so the sales were treated as standard rated and the appellant’s repayment claim was reduced to reflect this.

In these circumstances the burden of proof is on the appellant to show that it has satisfied the conditions set out in Notice 725 to zero-rate its supplies and provide documentation to show that the goods were removed from the UK.

Decision

The court noted that it was not HMRC’s position that supplementary evidence could not be provided post the required three-months period but that it was entitled to decline the additional evidence when it was provided some 18 to 30 months after the three-month period. It was clear that the evidence of removal must be obtained within three months and not that the valid evidence is brought into existence within the three-month time limit and obtained at some future date.

Notice 725 sets out the conditions which attach to the entitlement to zero-rate supplies. The FTT considered it to be clear from paragraph 4.3 and 4.4 (which have the force of law) that the onus is on the exporter company claiming zero-rating to gather sufficient evidence of removal within three months of the date of the supply. If it does not do so, it is not entitled to zero-rate the supplies.

Specifically, the court considered:

Sales Invoices – did not provide clear evidence that the goods were removed from the UK. Despite the invoices confirming the sale of scrap metal to a Belgium registered company it did not follow that the address of the purchaser is the same address as the destination that the goods were sent to.
Bank Statements – simply provided proof of payment they did not confirm who received the goods nor where the goods were delivered.
Weighbridge Tickets – merely confirm a consignment of scrap metal was sold to a Belgium based company and the goods were collected by a UK registered vehicle.
CMRs – none of the CMRs were fully completed by the haulier and signed by the receiving consignee.
P&O Boarding Cards –a taxpayer must have in its possession valid evidence of export within three months from the time of supply. The boarding cards were not provided to HMRC until 30 May 2018, some 18 to 30 months after the disputed consignments took place. It was not disproportionate for HMRC to state that the time limit for obtaining valid evidence of removal was three months and that the substantive requirements of Notice 725 had not been met. In any event, the court did not accept that the boarding cards evidence the exports of the scrap metal; none of the reference numbers on the boarding card match those used in any of the other documents and none of the lead names on the boarding cards match any of the other names in any other document. The boarding cards do not have any identifying features such that they may be matched with any of the disputed consignments.
E-mails and WhatsApp messages –none of the messages evidence that the loads were exported. At best they evidence a request from the buyer to a carrier to collect goods from the supplier’s yard and the WhatsApp messages were silent on whether the loads were exported from the UK.

The appeal was dismissed, and the assessments were upheld because none of the documents either individually or taken as a whole, were sufficient evidence to support zero-rating.

Commentary

Yet another case illustrating the importance of insuring correct documentation is held. It is not sufficient that goods leave the UK, but the detailed evidence requirements must always be met.

VAT treatment of serviced apartments: The Realreed Limited case

By Marcus Ward 11 January 2024

Latest from the courts

In this First-Tier Tribunal (FTT) case the issue was whether serviced apartments qualify for exemption.

Background

Realreed owns a property called Chelsea Cloisters in Sloane Avenue, London. The property comprises; 656 self-contained apartments and some commercial units. 421 of these apartments are let on long leases (no VAT issues arise from these supplies). The appeal concerned the VAT treatment of the letting of the remaining 235 apartments, which include studio, one-bedroom or two-bedroom self-contained rooms. The appellant has, at all times, received a significant number of occupiers from corporate customers when they relocate their employees to London for a specified period, such as a secondment.

The contentions

Realreed argued that the letting of the apartments is a supply of accommodation which is exempt under The VAT Act 1994, Schedule 9, Group 1, Item 1. Chelsea Cloisters operates like a ‘home from home’ for its tenants: it provides residential accommodation. The physical appearance of the building is very similar to that of other residential buildings in the vicinity. It does not have signage suggesting the serviced accommodation is a hotel or similar establishment. It is rare for hotels (or similar establishments) at the booking point to offer long-term availability in the same way as Realreed does. Chelsea Cloisters does not offer room service, or catering of any form. Tenants have fully functioning kitchens and other self-catering facilities within their apartments and have washing machines and dryers to do all their own laundry. Tenants can, and do, stay for extended periods of time (one for around 20 years). The business has always involved the provision of residential accommodation on a longer-term basis than would typically be found in a hotel, with a much higher degree of personal autonomy for the occupant.

HMRC contended that the use of the Apartments is carved out of the exemption in Item 1 by excepted item (d), which applies to “the provision in an hotel, inn, boarding house or similar establishment of sleeping accommodation”. Note 9 to Group 1 provides that “similar establishment” “includes premises in which there is provided furnished sleeping accommodation whether with or without the provision of board or facilities for the preparation of food, which are used or held out as being suitable for use by visitors or travellers”.

Decision

The court considered that Realreed provided sleeping accommodation in an establishment which is similar to a hotel. The two hallmarks of short-term accommodation coupled with additional services (daily maid service, linen changing, cleaning at the end of a stay, residents bar, concierge) mean that Chelsea Cloisters is an establishment in potential competition with the hotel sector, which also offers short-term accommodation with services.

The FTT found that Realreed provided furnished sleeping accommodation, so the remaining question was whether Chelsea Cloisters is used by or held out as being suitable for use by “visitors or travellers” per Note 9.

The FTT interpreted ‘visitor or traveller’ as referring to a person who is present in a particular place without making it their home, ie; they are not staying there with any degree of permanence. The average length of visit was less than a fortnight which must mean that the apartments were indeed made available to visitors or travellers.

The supplies were therefore standard rated.

Commentary

There is a distinction between leases and other room lettings for VAT. The most important issue is the degree of “permanence”, although other factors have a bearing. Businesses which let rooms should consider the nature of their supplies with reference to this case which helpfully sets out which factors need to be considered.

VAT: Contact lens services – taxable or exempt? The Vision Direct case

By Marcus Ward 8 December 2023

Latest from the courts

In the First-Tier Tribunal (FTT) case of Vision Dispensing Limited the issue was whether services linked to the online sale of prescription contact lenses were covered by the exemption at The VAT Act 1994, Schedule 9, group 7, item 1 (b) – the provision of medical care.

Generally speaking, opticians provide two types of supply

exempt medical care; sight tests, measuring and fitting
the standard rated supply of goods; spectacles, contact lenses, accessories etc

Almost always a customer pays a single amount which covers the services as well as the goods, so an apportionment is required. HMRC updated guidance on apportionment here.

Background

The Appellant “VDL” supplies services in connection with the online sale of contact lenses and this appeal was concerned with the question whether those supplies are subject to VAT at the standard rate.

The legislation provides for exemption for medical care by a person registered or enrolled in either of the registers of Ophthalmic Opticians or the register of Dispensing Opticians kept under the Opticians Act 1989. The exemption is also extended to persons who are not registered/enrolled under the Act but are directly supervised by a person who is so registered or enrolled.

VDL is a UK incorporated company and a member of the Vision Direct corporate group. VDL has a sister group company called Vision Direct BV (“VDBV”) which is based in The Netherlands. VDL operates a warehouse facility in the UK. Goods (contact lenses and other optical products) belonging to VDBV were stored in the warehouse and dispatched to purchasers by VDL, using its own workforce. VDL also employed customer assistants, who deal with a range of enquiries from customers. VDBV operates the website visiondirect.co.uk through which prescription contact lenses and other optical goods are supplied to UK customers. Customers purchasing prescription contact lenses or other optical products online enter two contracts; one with VDBV for the supply of contact lenses and one with VDL for the supply of dispensing services. There is also a contract between VDL and VDBV. VDL is not paid a fee by VDBV, its income comprises by the fee paid by customers.

The arguments

HMRC contended that there is little evidence to support that there was advice being provided to customs by VDL and consequently, there were serious questions about whether healthcare services are being supplied. The supplies fall short of a number of regulatory requirements and that the supplies described as dispensing services cannot properly be described as professional clinical advice or therapeutic care. HMRC stated that VDL has never seen a single customer. Clinical advice cannot be delivered in an impersonal or generic way.

HMRC pointed out that:

the website makes it clear that VDL does not provide advice on which customers can depend. Consequently, it cannot rely on the website as evidence of medical care
there is no direct link between the use of the website and payments to VDL. For there to be a supply, there must be a direct link between the supplier and the recipient

VDL contended that its dispensing services are superior to those available on the High Street. Contrary to HMRC’s case, it is able to identify multiple examples of clinical advice and the purpose of its supplies is to assist in the treatment of defective eyesight. All services are directly supervised by those with the appropriate qualifications.

Deliberation

The FTT was required to determine whether VDL’s services constituted medical care and were those services wholly performed or directly supervised by appropriate persons?

It was agreed that the advice does not need to be complex or personalised to be covered by the exemption as long as it contributes to the efficacy of the overall therapeutic process. The material provided on the website was comprehensive and covered the entire process from an eye test, the diagnosis of an eye defect, and then the selection, measuring and fitting of spectacles or lenses to the supply of those spectacles or lenses.

It was concluded by the FTT that the provision of the website was by VDBV as in the T&Cs VDBV operates it and owns the intellectual property rights to its content. Consequently, the provision of the website could not be part of the supply by VDL. VDL supplied the material or reviewed its content for VDBV pursuant to a contract between the two companies.

Decision

The FTT concluded that:

the quality, quantity, and nature of the optical information on the website was such that its provision could amount to medical care, but;
the information on the website is not provided by VDL (but by VDBV)
even if it were provided by VDL, the terms on which it is made available mean that it is not part of any supply made by VDL to customers and must be left out of account when it comes to characterising the supplies VDL does make
what VDL does do is choose the correct lenses and dispatch them. There is no element of medical care in VDL’s supply
there was little evidence as to how the opticians monitored the performance of the staff so that they could satisfy themselves that their performance was of a suitable standard, so it could not be said that there was direct supervision.

As a result, VDL did not provide medical care and in any case, the services were not wholly performed or directly supervised by appropriately qualified individuals so exemption could not apply

The appeal was dismissed.

Commentary

Opticians have long produced VAT challenges since the cases of Leightons and Eye-Tech in the 1990s. Any businesses using a similar business model are advised to review the treatment of their supplies in light of this case.

VAT: Partial exemption – updated HMRC guidance

By Marcus Ward 17 October 2023

HMRC has published updated partial exemption guidance in Manual PE21500.

The main changes are in respect of updated case law, including the Royal Opera House Court of Appeal case dealing with the attribution of input tax.

In that case the CoA considered: the test of direct and immediate link, economic necessity, business/non-business, and chains of transactions.

VAT: Powers of HMRC – The Impact Contracting Solutions Limited UT case

By Marcus Ward 5 September 2023

Latest from the courts

In the Impact Contracting Solutions Limited (ICS) Upper Tribunal (UT) case the issue was whether HMRC had the power to cancel the VAT registration where that person has facilitated the VAT fraud of another ie; the scope of the “Ablessio” principle. It also illustrates the impact of EU cases on UK courts.

Background

ICS’s customers were temporary work agencies, and its suppliers were approximately 3,000 mini-umbrella companies (“MUCs”) which supplied labour. HMRC decided to cancel ICS’s VAT registration number with reliance on the principle in the decision of the Court of Justice of the European Union (CJEU) in Valsts ienemumu dienests v Ablessio SIA (C-527/11) (“Ablessio”). HMRC considered that ICS was registered for VAT principally or solely to abuse the VAT system by facilitating VAT fraud, and that, in such circumstances, they were empowered by the principle in Ablessio to cancel the registration. In particular, HMRC considered that the arrangements between ICSL and the MUCs were contrived, with the effect that the MUCs failed properly to account for VAT on their supplies to ICS.

ICS appealed against HMRC’s decision to cancel its registration.

The Issues

Does the principle in Ablessio apply only to a party that has itself fraudulently defaulted on its VAT obligations, or does it similarly apply to a party who has facilitated the VAT fraud of another party?

If the Ablessio principle does apply to a party who has facilitated the VAT fraud of another party, is simple facilitation sufficient, or must it additionally be proved that:

(a) the facilitating party was itself dishonest, or

(b) the facilitating party knew that it was facilitating the fraud, and/or

The First Tier Tribunal (FTT) decided that Ablessio applies both to a party that has fraudulently defaulted on its VAT obligations and to a party who has facilitated the VAT fraud of another party. Further that simple facilitation by a party of the VAT fraud of another is not sufficient to apply the Ablessio principle. However, it is not necessary to prove that the facilitating party was itself dishonest. It must, however, be proved that the facilitating party knew or should have known that it was facilitating the VAT fraud of another party.

Decision

The appeal was rejected an the FTT’s decision was upheld. HMRC powers are not contrary to UK VAT legislation.

The application by HMRC of Ablessio is not contra legem or otherwise prohibited by the VAT legislation where it is applied to deregister a taxpayer who has either fraudulently defaulted on its VAT obligations or facilitated the VAT fraud of another party and at the relevant time has also made taxable supplies unconnected with such fraud or facilitation of fraud and which would result in a liability to be registered.

Ablessio applies to the deregistration by HMRC of a person as well as to a refusal by HMRC to register a person. It also provides for the deregistration of a person who has facilitated the VAT fraud of another, where the person to be deregistered knew or should have known that it was facilitating the VAT fraud of another.

Commentary

This decision was released this month and illustrates the ongoing influence of EU legislation and cases, “despite” Brexit

EU legislation does not, by itself, fall within the scope of retained EU law (see below). However, domestic legislation implementing EU rules forms part of EU-derived domestic legislation and is preserved in domestic law.

The VAT Act 1994 is not affected by Brexit because it is an Act of Parliament and, therefore, remains effective unless it is changed by Parliament.

Overview of the impact of EU legislation

Post-Brexit, the UK could have decided that UK courts should not be bound by EU case law. However, this would have resulted in a situation where the UK courts effectively had to begin with a blank piece of paper in deciding how a piece of retained EU law should be interpreted or applied. This approach would have resulted in considerable uncertainty for business over how retained EU law would operate. In order avoid this, section 6 of the European Union (Withdrawal) Act 2018 provides that:

CJEU judgments made on or before 31 December 2020 are binding on UK courts
CJEU judgments made after that date are not binding, but the UK courts are free to have regard to them, so far as they are relevant to the matter before the court.

Going forward

Helpful guidance is provided in the e-Accounting Solutions vs Global Infosys case (not a VAT case).

The Retained EU Law (Revocation and Reform) Act 2023 means that the principle of EU-law conforming construction is a corollary of the supremacy of EU law (which is abolished under Section 3 of the Act) and will therefore no longer apply from 2024.

The principles of statutory construction under English Law require a purposive interpretation of legislation, whether or not EU law principles are engaged. This involves considering the context in which the legislation was made. Depending on the legislation concerned, this process may be guided by “external aids”. External aids referred to in the judgment include Explanatory Notes and Government White Papers, and could also presumably include references to Hansard where seen as appropriate by the courts. To the extent that domestic enactments were made for the purpose of implementing EU law, the EU law position is such an “external aid” and the UK law should be construed accordingly.

Where Parliament used the same language as the Directive, one may assume that it intended to mean the same – accordingly, the CJEU interpretation of Directive-terms informs the interpretation of the UK statute.

However, the statutory language remains paramount – “external aids”, to which EU law instruments are effectively downgraded in UK law from 2024, cannot displace unambiguous statutory language in UK enactments that is inconsistent with EU law.

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

By Marcus Ward 12 July 2023

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: How to characterise a supply – The tests

By Marcus Ward 27 June 2023

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:

The Mesto predominance test should be the primary test to be applied in characterising a supply for VAT purposes.
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.
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: Charity exemption for show admittance – The Yorkshire Agricultural Society case

By Marcus Ward 9 May 2023

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. 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: Are Turmeric shots zero rated food? The Innate-Essence Limited case

By Marcus Ward 5 May 2023

Latest from the courts

In the Innate-Essence Limited (t/a The Turmeric Co) First Tier tribunal (FTT) case the issue was whether turmeric shots were zero rated food via The VAT Act 1994, Schedule 8, Group 1, general item 1 or a standard rated beverage per item 4 of the Excepted items.

The Legislation

“General items Item No 1 Food of a kind used for human consumption. …

Excepted Items Item No … 4 Other beverages (including fruit juices and bottled waters) and syrups, concentrates, essences, powders, crystals or other products for the preparation of beverages.”

The Product

Turmeric roots are crushed and the pulp sieved to extract the liquid. No additional liquids such as apple juice, orange juice or water are added during the production process.

The Shots contain:

small quantities of crushed, whole fresh watermelon and lemons which act as a base and provides a natural preservative effect
fresh pineapple juice
flax oil and black pepper

All the ingredients are cold pressed to retain the maximum nutritional value of the raw ingredients. The Shots are not pasteurised as this would negatively affect the nutritional content of the Shots. No sugar or sweeteners are added to the Shots. The Shots are sold in small 60ml plastic bottles and it was stated that they provided long term health benefits.

The court applied the many tests derived from case law on similar products, and as is usual in these types of cases, the essence of the decision was on whether the Exception for beverages applied to The Shots.

Whether a product is a beverage (standard rated) is typically based on tests established in the Bioconcepts case (via VFOOD7520) as there is no definition of “beverage” in the legislation. The tests:

it must be a drinkable liquid that is commonly consumed
it must be characteristically taken to increase bodily liquid levels, or
taken to slake the thirst, or
consumed to fortify, or
consumed to give pleasure

The principle of the tests is based on the idea that a drinkable liquid is not automatically a beverage, but could be a liquid food that is not a beverage.

The Tribunal found that the Shots were not beverages but zero rated food items. As The judge put it: “In our view, the marketing and customer reviews demonstrate clear consistency in the use to which the Shots are put. The Shots are consumed in one go on a regular, long-term basis for the sole purpose of the claimed health and wellbeing benefits. The purpose of the Shots is entirely functional: to maximise the consumers daily ingestion of curcumin which is achieved by cold pressing the raw ingredients into a liquid. We consider it highly unlikely that a consumer would attempt to ingest the same quantity of raw turmeric in solid form.

The Shots are marketed on the basis of the nutritional content of the high-quality ingredients (primarily raw turmeric) that are stated to support health and wellbeing. The Shots contain black pepper and flax oil, two ingredients that are not commonly found in beverages. The Shots are marketed as requiring regular daily consumption over a long period of time (at least three months) to provide the consumer with the claimed long-term health and wellbeing benefits. A one-off purchase of a Shot would not achieve the stated benefits of drinking a Shot”.

The Tribunal also went to consider the “lunch time pints in pubs” (The Kalron case) issue, but I would rather not comment on whether this is a usual substitute for a lunch…

The appeal was allowed.

Commentary

Yet another food/beverage case. Case law insists that each product must be considered in significant detail to correctly identify the VAT liability and even then, a dispute with HMRC may not be avoided. Very small differences in content, marketing, processes etc can affect the VAT treatment. As new products hit the shop shelves at an increasing rate I suspect that we will be treated to many more such cases in the future. If your business produces or sells similar products, it will be worth considering whether this case assists in any contention for zero rating.

VAT: Charging EVs ruled to be goods not services

By Marcus Ward 24 April 2023

Latest from the courts

In the Court of Justice of the European Union (CJEU) it was ruled that electric vehicle charging via public charging points, was a supply of goods, regardless that some elements of the supply were services, ie; access technical support, reservation of a charging point, and a parking space while charging. The overriding supply was the provision of electricity which is classified as goods.

The full P. In W. case here.

It is unlikely that the UK authorities will form a different view.

Although in most cases there is unlikely to be a significant difference, although there could be issues with the time of supply (tax point).