V@ update - May 2023

Welcome to the May 2023 edition of RPC's V@, a monthly update which provides insightful analysis and news from the VAT world relevant to your business.

News

• In light of the increase in the Bank of England base rate from 4.25% to 4.5% on 11 May 2023, HMRC's interest rates for late payment and repayment are also increasing. The default rate and statutory interest rate applicable to VAT increase to 7% and 3.5%, respectively, with effect from 31 May 2023.
• HMRC has revised VAT Notice 701/19, clarifying the requirement for certificates to be obtained in relation to non-business use of fuel and power by charities in order for VAT to be charged at the reduced rate.
• HMRC has issued Revenue & Customs Brief 5 (2023), which sets out changes to the VAT treatment of medical services carried out by non-registered staff directly supervised by pharmacists from 1 May 2023, extending the exemption to them and bringing it in line with other registered health professionals providing medical services to the public.

Case reports

Sports Invest UK Limited v HMRC [2023] UKFTT 00376 (TC)

Place of supply of commission paid to agent by football club was Italy not the UK

The appellant was a football agent, established in and registered for VAT in the UK. On 16 May 2016, it entered into a player representation agreement with a player. On 1 August 2016, the appellant and the player entered into a further player representation agreement in anticipation of his moving clubs during that summer's transfer window. Waiver letters were executed by the appellant on the same dates as the two player representation agreements were signed. On 25 August 2016, the appellant and Football Club Internazionale Milano SpA (Inter) entered into an agreement for the supply of the appellant's services to Inter, and on or around 28 August 2016, the player's registration was transferred to Inter from his previous club (which was in Portugal).

Under the player representation agreements, the appellant was entitled to receive from the player 10% of any salary payable as a result of a transfer agreement that it had negotiated. This would have totalled €3m. However, under the waiver letters, the appellant waived its right to this 10%. Under the appellant's agreement with Inter, that club agreed to pay the appellant fees totalling €4m.

Supplies to a person that is not a 'relevant business person' are deemed to take place in the location of the supplier (section 7A, Value Added Tax Act 1994 (VATA 1994), implementing article 45, Principal VAT Directive (PVD)). Supplies of services to a person that is not a 'relevant business person' and which consist of the making of arrangements for a supply by or to another person, or of any other activity intended to facilitate the making of such a supply, are treated as being made in the same country as the supply to which they relate (paragraph 10, Schedule 4A, VATA 1994, implementing article 46, PVD).

HMRC assessed the appellant on the basis that its services had been supplied to the player (who was not registered for VAT) and that therefore the place of supply was the UK.

The appellant appealed to the First-tier Tribunal (FTT).

The FTT held that in order for there to be a taxable transaction, there must be a legal relationship between the supplier and recipient of the supply. This was to be established by looking at the economic and commercial realities of the transaction.

The FTT found that the waiver letter was effective to waive the 10% fee that would otherwise have been charged to the player by the appellant. The commercial rationale for this was to give the appellant a competitive advantage over those agents who would insist on enforcing their commission (either directly against the player or by way of payment from the club). The payment, in the view of the FTT, was made in consideration for the services supplied to Inter and not as consideration for services supplied to the player. The FTT therefore allowed the appeal.

The FTT also went on to note that if it had not found for the appellant on its primary case (that Inter was the recipient of the supplies for which the €4m fee was payable), it would have found that the otherwise taxable services supplied by the appellant to the player fell within paragraph 10, Schedule 4A VATA 1994 and thus would be deemed to have been supplied in Italy as that was the place where the underlying supply (i.e. the transfer of the player's registration) was treated as having taken place.

Why it matters: Football agents' fees have attracted considerable attention from HMRC, and this decision provides useful commentary on the nature of the supplies that are made in connection with the fees charged by agents (in general, as well as in the particular context of football transfers).

The decision can be viewed here.

Yorkshire Agricultural Show v HMRC [2023] UKFTT 00389 (TC)

Admission fees fell within scope of exemption for fund-raising events

The appellant organised and ran the annual Great Yorkshire Show. In 2016, it treated the price of admission tickets as being subject to VAT. In 2017, it treated them as being exempt on the basis that they fell within the fundraising exemption set out in Item 1, Group 12, Schedule 9, VATA 1994 (Item 1), when read compatibly with Articles 131 and 132, PVD.

In April 2020, the appellant's representatives made a voluntary disclosure to HMRC of overdeclared output tax and overclaimed input tax in respect of the 2016 show income, on the basis that it should have been treated as exempt. This disclosure gave rise to a claim for net overpaid VAT, and on 4 May 2020 the appellant submitted an error correction notice (ECN). In November 2020 it confirmed to HMRC that it had treated the 2017 show income as exempt from VAT. On 5 May 2021, the appellant's representatives wrote to HMRC requesting that it issue a decision regarding the ECN and challenging its stance in relation to Item 1. On 7 May 2021, HMRC rejected the repayment claim. On 5 December 2021, HMRC issued a best-judgment assessment (the Assessment) in relation to admission fees, sponsorship income and advertising, for VAT period 12/17. The appellant sought a review, which upheld the Assessment. The appellant appealed both the Assessment and the refusal of the repayment claim to the FTT.

Item 1 exempts:

'The supply of goods and services by a charity in connection with an event:

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

Article 132(1)(o), PVD, requires member states to exempt '[t]he supply of services and goods, by organisations whose activities are exempt … in connection with fund-raising events organised exclusively for their own benefit, provided that exemption is not likely to cause distortion of competition'.

The FTT held that the Assessment was out of time. It had not been made within 'one year after the last piece of material evidence had come to the attention of HMRC' (section 73(6)(b), VATA 1994). HMRC had argued that the limitation period ran from its receipt of the appellant's representatives' letter of 5 May 2021; however, in the view of the FTT, this contained no new information or material. As HMRC had not called evidence from the assessing officer, there was no opportunity for the FTT to assess what particular new information or material HMRC considered had 'crystallised in the assessing officer's mind' upon receipt of that letter.

The FTT therefore allowed the appeal against the Assessment.

In case its decision in relation to the timing of the Assessment was subsequently overturned, the FTT went on to consider whether the income was exempt fundraising income (both in relation to the ECN and the Assessment). Both the appellant and HMRC agreed that the Marleasing principle – that implementing legislation fell to be construed in conformity with the wording and purpose of the EU law that it implemented – still applied despite the UK's departure from the EU. In the view of the FTT, it was clear that one of the main purposes of the Great Yorkshire Show was fund-raising (or alternatively that fund-raising was the main purpose if it were taken to be an inter-dependent purpose along with education), and that was promoted as such. Reading the domestic legislation in light of the wording of the PVD, the FTT concluded that both years' income qualified for exemption.

Why it matters: This decision highlights the importance of statutory time limits and the principles of statutory construction. At the time of writing, the final wording of the Retained EU Law (Revocation and Reform) Bill is unknown and it therefore remains to be seen whether the Marleasing principle will survive enactment of the Bill.

The decision can be viewed here.

Innate-Essence Limited (t/a The Turmeric Co) v HMRC [2023] UKFTT 00371 (TC)

Turmeric shots zero-rated as not a beverage

The appellant manufactured and sold turmeric 'shots' (shots) consisting of the liquid extracted from the crushed pulp of turmeric roots, with small quantities of crushed whole fresh watermelon and lemons as a base, fresh pineapple juice, flax oil and black pepper. The shots were unpasteurised, sold in 60ml bottles, and displayed by retailers in refrigerated cabinets; they were also sold via a subscription service.

The appellant submitted error correction notices claiming a refund of VAT in excess of £80,000 on the basis that its supplies of the shots were food falling within Group 1, Schedule 8, VATA 1994, and therefore subject to zero-rating. HMRC denied the refund sought, and the decision was upheld on review. The appellant appealed to the FTT.

Group 1, Schedule 8, VATA 1994, provides (at Item 1) that supplies of food of a kind used for human consumption are zero-rated. Note (1) provides that 'Food" includes drink'. However, a list of 'excepted items' not subject to zero-rating includes, at Item 4, '[o]ther beverages (including fruit juices and bottled waters) and syrups, concentrates, essences, powders, crystals or other products for the preparation of beverages'.

The FTT sampled the shots. It noted that they were marketed as having been used as a performance aid by athletes, and that consumer reviews on the appellant's website noted that they were consumed on a daily long-term basis as an aid to ailments including arthritis, joint pain and inflammation, to aid general well-being and to assist recovery from exercise and inflammation from physical activity.

The FTT considered that a multi-factorial assessment had to be undertaken in order to determine whether or not the shots constituted a 'beverage' for the purposes of the exception from zero-rating, and endorsed the comment of Jacob LJ in HMRC v Procter & Gamble UK [2009] EWCA Civ 407, to the effect that the question of classification was 'not one calling for or justifying over-elaborate, almost mind-numbing legal analysis. It [was] a short practical question calling for a short practical answer'.

The FTT concluded that:

• the shots were a drinkable liquid commonly consumed;
• their size and composition suggested that they were not characteristically consumed to increase bodily liquid levels or to slake thirst;
• while they were characteristically taken for health benefits, they were not taken to 'fortify', which, the FTT considered, implied a sense of immediacy. In contrast, the shots were marketed as having health benefits predicated on their regular long-term consumption;
• the shots were not commonly or principally drunk for pleasure (indeed it considered them to have a 'very strong and unpleasant taste');
• the shots were not the sort of drink that would be offered to an unexpected guest – even a keen athlete or someone very health conscious; and
• the shots were not marketed as beverages. The main reason for their consumption was not to fortify and/or give pleasure but on a long-term regular basis for potential health benefits. They were more akin to a medicinal liquid, and consumed for an entirely functional purpose.

The FTT therefore considered that the shots should properly be zero-rated, as they were a food but not a beverage and allowed the appeal.

Why it matters: This decision provides a helpful summary of the relevant case law relating to the zero-rating applicable to food and the 'beverages' exemption.

The decision can be viewed here.