We know that burying a deceased person is exempt, but exhumation is standard rated and we now know, thanks to the UK Funerals On-line Ltd FTT case, that the service of the repatriation of the body of a deceased person can be viewed as either an exempt supply of funeral services or a zero-rated supply of transport services.
This being the case, zero rating trumps exemption via of The VAT Act 1994, section 30(1).
Hard or soft? Stiff or floppy?
Sssh at the back, this is important…
Whether cakes and biscuits go hard or soft when stale helps to determine whether they are indeed cakes or biscuits (cakes go hard, biscuits go soft). This is the difference between VAT at 20% and zero rating for some products – yes… Jaffa Cakes!.
Whether printed matter is stiff or floppy can also result in either 20% or zero rated treatment. In this case, for single sheet products, eg; leaflets, limp is good and hard can result in the VAT hit.
What did you think I was talking about? Stop making up your own jokes…
Land and property transactions are often complex and high value for VAT purposes. One area which we have been increasingly involved with is overages.
What is an overage?
An overage is an agreement whereby a purchaser of land agrees to pay the vendor an additional sum of money, in addition to the purchase price, following the occurrence of a future specified event that enhances the value of the land. This entitles the seller to a proportion of the enhanced value following the initial sale. Overages may also be called clawbacks, or uplifts.
Overages are popular with landowners who sell with the benefit of development potential and with buyers who may be able to purchase land at an initial low price with a condition that further payment will be made contingent on land increasing in value in the future – this may be as a result, of, say, obtaining Planning Permission.
VAT Treatment
This is not free from doubt. HMRC’s current view is that the VAT treatment of the overage follows the VAT treatment of the initial supply. This means that it is deemed to be additional consideration for the original supply, so if the land was subject to an Option To Tax (OTT) when originally disposed of the overage payment would be subject to VAT at 20%. Conversely, if the land was sold on an exempt basis, the overage is similarly VAT free and it is important to recognise this and not to charge VAT unnecessarily which would create difficulties for the buyer (because it would not be a VAT-able supply, HMRC would disallow a claim for input tax).
It is crucial to identify this VAT outcome, especially as there could be a long period between the original sale and the overage and there may be a succession of overage payments. Comprehensive records should be made and retained on the VAT status of land sold.
Uncertainty
Uncertainty arises because HMRC have changed its view on overages. The original interpretation was that there were two separate supplies, each with distinct VAT treatments. As there was no link to the original supply, the overage was mandatorily standard rated, even if the initial supply was exempt.
Additionally, take the position where the original sale was standard rated due to an OTT on the land, and the buyer subsequently built and sold new dwellings (which effectively disapplies the OTT via para 3, Notice 742A) it could be argued that the overage should be exempt as it is linked to the sale of the new houses.
We understand that HMRC’s analysis is that VAT treatment of overages is determined at the time of the original supply such that it cannot be affected by subsequent events.
In our view, the “new” HMRC view may be open to challenge – We await updated published guidance on this.
Popcorn is standard rated, but microwavable popcorn is VAT free.
In this hot weather it is important to drink sufficient fluids. If you buy a bottle of water, you will pay VAT, but milk is zero rated.
The sale of ducks is zero rated, but racing pigeons are standard rated.
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.
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:
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:
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.
Eels, salmon and trout are VAT free when sold dead or alive, but bream, perch, pike and tench are standard rated.
Embryos of animal species which are used for human food may be zero-rated but “anything below” the embryo stage is standard-rated.