Tag Archives: place-of-supply

VAT: Where do I belong?

By Marcus Ward 7 May 2020

The place of belonging

The concept of “belonging” is very important in VAT as it determines where a supply takes place and thus the rate applicable and the country in which is due. (The so-called “Place Of Supply, or POS). It is necessary, for most supplies, to establish where both the supplier, and the recipient belongs. Because this is a complex area of VAT it is not difficult to be overpaying tax in one country, not paying tax where it is properly due, or missing the tax issue completely.

A relevant business person `belongs’ in the relevant country. A `relevant country’ means:

the country in which the person has a business establishment, or some other fixed establishment (if it has none in any other country);
if the person has a business establishment, or some other fixed establishment or establishments, in more than one country, the country of the relevant establishment (ie; the establishment most directly concerned with the supply); and
otherwise, the country of the person’s usual place of residence (in the case of a body corporate, where it is legally constituted)

A person who is not a relevant business person `belongs’ in the country of his usual place of residence. The `belonging’ definition applies equally to a supplier and the recipient of a supply, where relevant.

Business establishment is not defined in the legislation but is taken by HMRC to mean the principal place of business. It is usually the head office, headquarters or ‘seat’ from which the business is run. There can only be one such place and it may take the form of an office, showroom or factory.

Fixed establishment is also not defined in the legislation but is taken by HMRC to mean an establishment (other than the business establishment) which has both the technical and human resources necessary for providing and receiving services on a permanent basis. A business may therefore have several fixed establishments, including a branch of the business or an agency. A temporary presence of human and technical resources does not create a fixed establishment in the UK.

Usual place of residence. A body corporate has its usual place of residence where it is legally constituted. The usual place of residence of an individual is not defined in the legislation. HMRC interpret the phrase according to the ordinary usage of the words, ie; normally the country where the individual has set up home with his/her family and is in full-time employment. An individual is not resident in a country if only visiting as a tourist.

More than one establishment. Where the supplier/recipient has establishments in more than one country, the supplies made from/received at each establishment must be considered separately. For each supply of services, the establishment which is actually providing/receiving the services is normally the one most directly connected with the supply but all facts should be considered including

for suppliers, from which establishment the services are actually provided
for recipients; at which establishment the services are actually consumed, effectively used or enjoyed
which establishment appears on the contracts, correspondence and invoices
where directors or others who entered into the contract are permanently based, and
at which establishment decisions are taken and controls are exercised over the performance of the contract

However, where an establishment is actually providing/receiving the supply of services, it is normally that establishment which is most directly connected with the supply, even if the contractual position is different.

VAT groups

A VAT group is treated as a single entity. This also applies when applying the ‘place of belonging’. As a result, a group has establishments wherever any member of the group has establishments.

This is an area which often leads to uncertainty, and therefore VAT issues. It is also an area where VAT planning may; save time, resources and avoid unexpected VAT costs, either in the UK or another country.

For more on our International Services

VAT: Zero rated books? The Thorstein Gardarsson UT case

By Marcus Ward 14 April 2020

Latest from the courts

In The Thorstein Gardarsson T/A Action Day A Islandi Upper Tribunal (UT) case the issue was whether supplies of an “Action Day Planner” (ADP) were zero-rated as supplies of a book.

Legislation

The VAT Act 1994, Schedule 8, Group 3, item 1 zero rates – “Books, booklets, brochures, pamphlets and leaflets.” The words in Group 3 are used in their ordinary, everyday sense.

Background

The Appellants (HMRC) appealed against a decision of the First Tier Tribunal (FTT) which determined that the ADP is a “book” with the result that supplies of it made by Thorstein Gardarsson (TG) were zero-rated for VAT purposes. TG belonged outside the EU but sold its products B2C via the Amazon platform to consumers in the UK.

HMRC argued that the ADP was properly to be considered a ‘diary’ and thereby stationery which is standard rated. Predictably, TG asserted that the ADP is not a diary and despite it having space in which the ‘student’ seeking to master skills of time management may enter information, doing so is merely part of the learning taught through the narrative sections of the book.

The FTT allowed TG’s earlier appeal and considered the judgment of the High Court in Colour Offset Ltd. [1995] BVC 31 to be binding. The FTT concluded that the main function of the ADP is to teach the user how to better or more effectively manage time. The writing space was no different from a student filling out answers to practice papers or someone completing a crossword puzzle. The ADP was therefore a book and zero rated.

Appeal

In this UT case HMRC appealed the FTT decision on the grounds that whilst Colour Offset was binding on the FTT, it failed to:

identify the correct test set out in Colour Offset
apply the test correctly to the facts it had found

The Product

The external appearance if the ADP is that of a black leather covered book. It had an elastic strap attached to the inside of the back cover that can be wrapped around the front to hold it closed. Inside it has 115 pages. The ADP is described as a time management tool developed to “help people to grow; to teach and instruct people time management skills”. The first 16 pages contain text setting out a narrative of the ethos articulated by the appellant for effective time management. The remainder of the ADP is taken up with 52 double page planners. At the back is a cardboard slip pocket.

Decision

The UT noted that the FTT had quoted from VAT Notice 701/10 and this had led the FTT into error. In the Notice ‘crossword books, exam study guides etc.’ are considered books although the statutory provisions do not mention these at all. The Notice only records HMRC’s practice in this regard and does not have force of law. However, the FTT concluded that because crossword books and exam study guides are referred to as books, it should follow that any item with the necessary physical characteristics ‘which has as its main function informing/educating or recreational enjoyment’ is also a book. The tests in Colour Offset do not refer at all to whether the main function of an item is to inform or educate; nor does it refer to recreational enjoyment.

The UT considered that the FTT approached its task by applying a test that was different from that articulated in Colour Offset and this had the ability to produce a different outcome from the correct test. In doing so, he FTT made an error of law. It also concluded that the ADP is not a book as its main function is to be written in (as distinct from being read or looked at) and that the comparison to crossword puzzles or revision guides is irrelevant. Therefore, ADPs were standard rated and output tax was due on the sale of them.

HMRC’s appeal was allowed, the FTT decision is set aside and directed the matter back to the FTT for reconsideration. It was directed that the FTT makes a decision predicated on the basis that the ADP is not a book.

Commentary

The zero rating of printed matter has long been a moot point in VAT and the amount of detail that the guidance goes into demonstrates this. It should be noted that HMRC guidance set out in Public Notice 701/10 is purely that, and does not have the force of law. This logic extends to all HMRC published guidance unless the narrative specifically states that it has the force of law. A lot of the guidance is based on case law, but certain definitions are unhelpful.

Even the FTT can get it wrong and apply the wrong tests, so if you or your clients have any doubts about the VAT liabilities of supplies made, it is worthwhile having these reviewed by a specialist.

VAT and Duty on exports and imports post Brexit – a guide

By Marcus Ward 7 April 2020

Exports and Imports – post Brexit

VAT and Duty on exports and imports

With Brexit soon to become a reality, it is important that UK business understand the importance of exporting and importing goods. As matters stand, the UK will become a “third country” and as such will need to go through all the processes that apply to non-EU countries when goods cross borders to sales and purchases to/from existing EU countries. This mainly means customs duties applying to goods that have, to date, been duty free as the EU is a single market.

Whether importing or exporting, there are important VAT and duty rules and procedures. A business must ensure that it charges and pays the right amount of VAT and duty. The first step for moving goods into, or out of, the UK will be to obtain an EORI number. Details here.

Responsibilities for importers

the importer is normally responsible for clearing the goods through UK customs and paying any taxes
the supplier needs to provide the documentation an importer needs to clear the goods through customs (and to make payment to the supplier)
now, if you are importing (even from EU countries) you are likely to have to pay import duty. This cannot be reclaimed from HMRC
a business’ responsibilities depend on what it has agreed in the contract. To minimise the risk of disputes, your contract should use one of the internationally recognised Incoterms. These are explained here
check what import duty applies – import duty is based on the type of goods you are importing, the country they originate from and their value
HMRC’s Integrated Tariff sets out the classification of goods and the rates of duty in detail. Your Trade Association or your import agent may be able to assist with classification. You can find reputable freight forwarders through the British International Freight Association here
an importer may need proof of the origin of the goods to claim reduced import duty for goods from certain countries
a valuation document is also normally required for imports above a set value
complete an import declaration. This is normally done using the Single Administrative Document (SAD)
pay VAT and duty to get the goods released
the VAT applicable is the normal UK rate for the imported goods when sold in the UK
regular importers can defer payment of VAT and duty by opening a deferment account with HMRC. A security payment will need to be provided and payments must be via Direct Debit
From 1 January 2021 Postponed Accounting for import VAT to be introduced for all goods including those from the EU
account for VAT on returns
HMRC will send a C79 certificate showing the import VAT you have paid
VAT on imports (supported by C79 evidence) may be claimed in the same way as reclaims of input tax incurred on purchases in the UK
import duty cannot be reclaimed

Responsibilities for exporters

- the exporter is normally responsible for clearing goods outwards through UK customs
- the customer is normally responsible for overseas customs clearance and taxes (depending on the Incoterms). Further details on how other countries handle import duties and taxes are available from the Department for International Trade
- the exporter will need to provide its customer with the documentation they need to clear goods into their country (and to pay you)
- the exporter’s responsibilities depend on what it has agreed in the contract (see Incoterms above)
- the exporter will need to provide its customer with the documents they need to import the goods into their country. These documents can also be part of the process of getting paid
- as a minimum, the seller will need documents recording details of the:

- exporter
- customer
- goods and their value
- export destination
- how the goods will be transported
- route they will take
keep copies of all documents giving details of all the sales which have been made.
record the value of your exports on your VAT return
consider any responsibility you have for overseas customs clearance and taxes. Normally, as an exporter, you will have agreed that your customer handles this. However, take specialist advice, or use an expert agent, if you are responsible – this will depend on Incoterms

Tips

freight forwarders can handle customs clearance as well as transport
exporting can be simpler if you choose to sell to a single agent or distributor in an overseas country. However, this may not suit your export strategy
exports are usually zero-rated. However, exporters must keep proof that the goods have been physically exported along with normal commercial documentation
the exporter must declare the export. This is usually done by completing a Single Administrative Document (SAD), also known as form C88

Excise duty

check whether any goods being purchased are subject to excise duty
excise duty is payable on; fuel, alcohol and tobacco products
if goods are subject to excise duty, it is paid at the same time as payments for VAT and import duty are made
VAT is charged on the value of the goods plus excise duty

Customs warehouses

If you expect to store imports for a long time it will be worth considering using a Customs warehouse.

goods stored in a customs warehouse, will not be subject to import duty and VAT until they are removed from the warehouse
storage ‘in bond’ is often used for products subject to excise duty, such as wine and cigarettes, although it is not limited to these goods

Relief for re-exported goods

it may be possible to take advantage of Inward Processing Relief (IPR) rules so that no import duty and VAT is payable
IPR can apply to imports that you process before re-exporting them

If you import or export regularly, find out about alternative procedures

For example, businesses that import regularly and in large volumes can use processes such as Customs Freight Simplified Procedures.

Summary

If you are new to acquisitions, importing or exporting, it may be worthwhile talking to an expert. This article only scratches the surface of the subject. There can be significant savings made by accurately classifying goods, and applying the correct procedures and rates will avoid assessments and penalties being levied. Planning may also be available to defer when tax is paid on imports and acquisitions.

VAT overpayments – HMRC to consider changes

By Marcus Ward 24 February 2020

VAT overpayments – New direct claims?

If a recipient of a supply makes an overpayment of VAT (usually as a result of standard rated tax being charged when a supply is reduced rated, zero rated or exempt) the remedy for the customer is to go to the supplier to obtain a new invoice/VAT only credit note and. repayment of the VAT paid. However, this can cause practical problems, disputes and an actual cost if a supplier has ceased business or become insolvent. HMRC has recognised that if the supplier has paid output tax on the supply then there is an inherent unfairness.

Following the decision in PORR Építési Kft. (C 691/17) which considered the principles of; proportionality, fiscal neutrality and effectiveness, HMRC invited interested parties to discuss a direct HMRC claim process where the taxpayer has pursued a refund via its supplier for overpaid incorrectly charged VAT but where, as stated in the cases, “recovery is impossible or excessively difficult”. In such cases the taxpayer “must be able to address its application for reimbursement to the tax authority directly”. In the past, HMRC has directed that such claims from them are pursued via the High Court (or County Court if under £30,000). The meeting discussed the new route to direct claims without initial court action including guidance, time limits and claim processes.

We await the outcome eagerly as this situation is quite common, I have found it is an issue particularly in; property and construction supplies, Financial Services and cross-border transactions (place of supply issues). If HMRC are minded to introduce a “direct claim” this will bring welcome relief to taxpayers and introduce fairness for all parties and do away with windfalls received by HMRC.

A Round-Up of three new EU VAT measures

By Marcus Ward 24 February 2020

With the end of the Brexit transition period looming, the EU have announced new measures:

e-commerce VAT fraud

The first measure is the European Commission (EC) approving (this month) new measures to transmit and exchange payment data in order to fight e-commerce VAT fraud. Member States will be assisted in their fight against e-commerce VAT fraud by the launch of a Central Electronic System of Payment (CESOP) information arrangement.

CESOP will keep records of cross-border payment information within the EU, as well as payments to third countries or territories, for a period of five years. This will allow tax authorities to properly control the correct fulfilment of VAT obligations on cross-border Business to Consumer (B2C) supplies of goods and services.

The measures will be implemented on 1 January 2025.

Simplified rules for small businesses

The EC has also recently adopted simplified VAT rules applicable to small businesses. The new measures are intended to reduce the administrative burden and compliance costs for small enterprises and create a fiscal environment which will help small enterprises grow and trade across borders more efficiently.

The measures foresee that small enterprises will be able to qualify for simplified VAT compliance rules where their annual turnover remains below a threshold set by a Member State concerned, which cannot be higher than 85 000 EUR. Under certain conditions, small enterprises from other member states, which do not exceed this threshold, will also be able to benefit from the simplified scheme, if their total annual turnover in the whole of the EU does not exceed 100 000 EUR.

The new rules will apply as of 1 January 2025.

New rules for exchange of VAT payment data

In addition to the anti e-commerce fraud proposals above, new measures will enable Member States to collect, in a harmonised way, the records made electronically available by payment service providers, such as banks. These complement the VAT regulatory framework for e-commerce coming into force in January 2021 which introduced new VAT obligations for online marketplaces and simplified VAT compliance rules for online businesses.

The new measures will apply as of 1 January 2024.

How these new incentives affect UK businesses remains to be seen as our future trading relationship with the EU is, to put it diplomatically, unclear.

Brexit – Introduction of new import controls on EU goods

By Marcus Ward 17 February 2020

More red tape and delays

The government has announced new plans to introduce import controls on EU goods at the border from 1 January 2021, the day after the end of the Brexit transition period.

This will almost certainly mean additional complexity and delays at borders and will damage businesses, especially those which operate on a Just In Time (JIT) basis or import fresh food, flowers or any other goods which are subject to rapid deterioration.

It is difficult to divorce politics from commerce in these circumstances, but I have avoided commenting on this decision on a political basis, although I think it is fair to say I am not in favour.

The government commented that all UK exports and imports (currently called dispatches and acquisitions from the EU) will be treated equally. This will mean traders in the EU and GB will have to submit customs declarations and be liable to goods’ checks. It was also confirmed that the policy easements put in place for a potential No Deal Brexit will not be reintroduced as businesses have time to prepare. (HMRC have withdrawn a collection of guidance on issues including tariffs, origin, and quotas, which was prepared for a potential No Deal Brexit).

It is difficult to identify how businesses could have had time to prepare as HMRC guidance was unhelpful on this point and it was, and still is, unclear what precise arrangements a business has to prepare for. It is assumed that this a unilateral UK’ decision and it cannot be helpful for cooperation negotiations, unless these controls are what are actually wanted. In the document, it is stated that: ”Business can prepare for border controls by making sure they have an Economic Operator Registration and Identification (EORI) number, and also looking into how they want to make declarations such as using a customs agent”. That is the extent of the advice provided and repeats what has been said before.

Without wanting to amplify government propaganda, but in the interest of even-handedness, below are the reasons given for implementing import controls:

to keep our borders safe and secure so we know who’s coming in and how often, what they are bringing in, and why
to ensure we treat all partners equally as we begin to negotiate our own trading arrangements with countries around the world
to collect the right customs, VAT and excise duties
the EU has said it will enforce checks on our goods entering the Eurozone. We will likewise enforce our own rules for goods entering the UK

Also, HMRC extended the deadline for businesses to apply for customs support funding to 31 January 2021. To date, applications have been made for around £18.5 million out of a possible £26 million.

This announcement follows on from the consideration of the introduction of UK freeports here.

I hope that there are enough customs agents to go round, although the lack of any evidence that HMRC is recruiting new Customs officers suggests that perhaps it is not fully prepared itself.

Government Freeports consultation

By Marcus Ward 14 February 2020

The Government is consulting on plans to create up to ten freeports. Freeports may provide tariff flexibility, customs facilitations and tax measures designed to encourage global trade and attract inward investment post-Brexit. The proposed Freeports will have different customs rules to the rest of the country.

What is a Freeport?

Freeports are secure customs zones located at ports where business can be carried out inside a country’s land border, but where different customs rules apply. The paper says that Freeports may:

reduce administrative burdens and tariff controls
provide relief from duties and import taxes
ease tax and planning regulations
offer simplifications to normal customs processes on imported goods
encourage global trade
provide hotbeds for innovation
increase prosperity areas surrounding Freeports by generating employment opportunities
attract inward investment post-Brexit

Typically, goods brought into a Freeport do not attract a requirement to pay duties until they leave the Freeport and enter the domestic market. No duty at all is payable the goods are re-exported. If raw materials are brought into a Freeport from overseas and processed into a final good before entering the domestic market, then duties will be paid on the final good.

Government aims

It is stated that the government wants Freeports to boost trade, jobs and investment. They say that is why they are proposing cutting red tape by streamlining customs processes, exploring the use of planning measures to speed up planning processes and accelerate development and housing delivery in and around Freeports, and consulting on a comprehensive set of tax breaks to support businesses. Of course, all this would be unnecessary if Brexit had not have occurred.

Deadline

The consultation deadline is 20 April 2020 so there is not a lot of time to make your views known.

Changes to the VAT registration limits for overseas businesses

By Marcus Ward 16 January 2020

The (current) EU Member States have reached political agreement on correcting the current discriminatory and unfair rules on non-resident businesses. Unfortunately, these new measures will not come into effect until 1 January 2025 (well after the UK will have left the EU).

Background

Under the current rules a Non-Established Taxable Person (NETP) is required to register and account for VAT in a Member State as soon as any supply is made there. There is a zero threshold, so, for example, if a French company makes a UK supply of £100 it will be required to register here. Compare this to a UK company which will be able to make supplies up to £85,000 per annum without needing to register or pay UK VAT. Blatantly discriminatory and arbitrary based on where a company belongs. It also distorts competition and is inherently unfair. This is the position across the EU, so UK businesses will be suffering in other countries. This has long been a bugbear of mine!

New rules

From 2025 EU Member States have agreed to extend the threshold to all business making supplies. NETPs will have similar VAT registration thresholds as domestic businesses in each country. The registration limits will not be able to exceed €85,000 per year and overseas businesses may only benefit from this if their total sales across the EU are below an amount of €100,000. This is to avoid large enterprises benefiting from the small company threshold.

Outcome

The change will bring a level playing field between domestic and overseas business and will remove significant compliance costs which fall disproportionally on SMEs. This could also encourage small businesses to explore overseas markets without falling foul of; overseas regimes, potential penalties for innocent errors and the disincentive of domestic businesses having a commercial competitive tax advantage over those based overseas.

It is a pity that these changes will not be applied for another five years. It does beg the question why it will take so long. Of course, we have yet to see how Brexit plays out. It is not outside the bounds of reason to imagine the EU Member States excluding the UK from the new rules, nor the UK not implementing them at all here.

VAT: Digital newspapers zero-rated. The News Corp case

By Marcus Ward 10 January 2020

Latest from the courts

Hot on the heels of the update to e-publications here comes new from the Upper Tribunal (UT) in the News Corp UK and Ireland Ltd case.

Background

The issue was whether electronic editions of The Times (plus other e-newspapers from the same company: The Sunday Times, The Sun and The Sun on Sunday) were “newspapers” within the meaning of The VAT Act 1994, Schedule 8, Group 3, Item 2 and could therefore be treated as zero rated.

The relevant part of Schedule 8, Group 3 (where relevant), lists the following items:

“1 Books, booklets, brochures, pamphlets and leaflets.

2 Newspapers, journals and periodicals…”,

At the First Tier Tribunal (FTT) the appeal was dismissed, and the decision went in favour of HMRC. Details here. The facts were consistent throughout both hearings.

Decision

The UT agreed with the FTT in that there was no material difference between the two types of supply despite the sale of e-newspapers being supplies of services and the sale of physical newspapers being supplies of goods.

That being the case, it was possible to interpret Schedule 8, Group 3. Item 2 as extending to e-publications, which, of course, did not exist when the legislation was drafted in 1972. Consequently, the appeal was allowed, and the e-newspapers were zero rated. Such treatment did not extend the scope of UK zero rating which would not be permitted by the EU.

The UT also indicated that the zero rating would be subject to some restrictions in respect of what may be treated as e-publications.

It was observed that it is important that the legislation should be interpreted in a way that maintained its relevance and that the “always speaking” * principle is preserved.

Commentary

The EC European Council (EC) has previously agreed to allow Member States to apply reduced VAT rates to electronic publications. This UT case appears to confirm that this will extend to UK zero rating. Other Members States have already applied reduced rates or are in the process of doing so. The UK have not previously announced its approach, so this decision is likely to force their hand (notwithstanding the fallout from Brexit…).

Action

Supplies or e-publications should review their sales and decide whether their supplies are on fours with this case. If so, it may be possible to make a retrospective claim for overpaid output tax, subject to certain conditions.

Recipients of such supplies should consider approaching their suppliers and obtain a repayment of overpaid VAT if it represents a cost to them.

“Always speaking” is an influential principle that is recited in materials on legislative drafting as the justification for using the present tense, adopted in many common law jurisdictions as a principle of interpretation, and accepted as a foundation for the linguistic analysis of the use of tense in statutes. It is particularly relevant where technology has outpaced the law.

VAT: New guidance on Cryptoassets

By Marcus Ward 9 January 2020

HMRC Guidance

Further to my articles on cryptocurrencies here, here and here HMRC have update their guidance on cryptoassets which was published on 20 December 2019.

Background

VAT is due in the normal way on any goods or services sold in exchange for cryptoasset exchange tokens.

The value of the supply of goods or services on which VAT is due will be the pound sterling value of the exchange tokens at the point the transaction takes place.

Definition

Cryptocurrency (an example being Bitcoin) is a line of computer code that holds monetary value. Cryptocurrency is also known as digital currency and it is a form of money that is created by mathematical computations. In order for a Bitcoin transaction to take place, a verification process is needed, this is provided by millions of computer users called miners and the monitoring is called mining. Transactions are recorded in the blockchain which is public and contains records of each and every transaction that takes place. Cryptocurrency is not tangible, although they may be exchanged for traditional cash. It is a decentralised digital currency without a central bank or single administrator (which initially made it attractive) and can be sent from user to user on the peer-to-peer network without the need for intermediaries.

Cryptoassets

For VAT purposes, bitcoin and similar cryptoassets are to be treated as follows:

exchange tokens received by miners for their exchange token mining activities will generally be outside the scope of VAT on the basis that:

- the activity does not constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration; and
- there is no customer for the mining service

when exchange tokens are exchanged for goods and services, no VAT will be due on the supply of the token itself
charges (in whatever form) made over and above the value of the exchange tokens for arranging any transactions in exchange tokens that meet the conditions outlined in VAT Finance manual (VATFIN7200), will be exempt from VAT under The VAT Act 1994, Schedule 9, Group 5, item

The VAT treatments outlined above are provisional pending further developments; in particular, in respect of the regulatory and EU VAT positions.

Bitcoin exchanges

In 2014, HMRC decided that under The VAT Act 1994, Schedule 9, Group 5, item 1, the financial services supplied by bitcoin exchanges – exchanging bitcoin for legal tender and vice versa – are exempt from VAT.

This was confirmed in the Court of Justice of the EU (CJEU) in the Swedish case, David Hedqvist (C-264/14). The appellant planned to set up a business which would exchange traditional currency for Bitcoin and vice versa. It was not intended to charge a fee for this service but rather to derive a profit from the spread (the difference between his purchase and sell price).

Questions were referred to the CJEU on whether such exchange transactions constitute a supply for VAT purposes and if so, would they be exempt.

The CJEU referred to the judgment in First National Bank of Chicago (C-172/96) and concluded that the exchange transactions would constitute a supply of services carried out for consideration.

The Court also ruled that the exchange of traditional currencies for non-legal tender such as Bitcoin (and vice versa) are financial transactions and fall within the exemption under VAT Directive Article 135(1) (e).

A supply of any services required to exchange exchange tokens for legal tender (or other exchange tokens) and vice versa, will be exempt from VAT under The VAT Act Schedule 9, Group 5 item 1.

Commentary

As always, the legislation and case law often struggles to keep pace with technology and new business activities. Although the focus of the guidance is more towards direct taxes, it is a helpful summary of HMRC’s interpretation of UK and EU law and decided case law.