Weekly VAT Update – 4 July 2017
J3 Building Solutions was not making zero-rated supplies in respect of a particular construction project
This Upper Tribunal case concerned whether or not construction work was zero-rated. The facts can be briefly stated. The property in question comprised a coach house with some modern flat-roofed extensions, and a limited amount of un-built-on land. The coach house had been used as a residential dwelling. The plans for its redevelopment involved demolishing the coach house. The northern and western exterior walls and part of the southern exterior wall were retained. The retained walls were stripped of their plaster on the inside and new walls were erected inside the old north wall with a membrane between the new and old walls in order to prevent the ingress of water.
HMRC contended that the works were taken out of zero-rating by one or more of the items in 16 (a) Group 5, Schedule 8, VATA 1994 which include conversion, reconstruction or alteration of existing buildings, as items that shall not be considered new build. They further suggested that the approach of the First Tier, who found for the appellant, was flawed because it did not consider note 16 along with note 18. The Upper Tribunal agreed with HMRC’s suggestion. The Upper Tribunal stated that there remained an existing building and it was incorporated into the new structure. That was an alteration, so Note 16 operates to exclude the supplies from the zero-rating. HMRC’s appeal was therefore allowed. There was a question of whether a previous case, Astral Construction, was incorrectly decided but rather than pursue the point it was instead dealt with by distinguishing this case from that of Astral.
Lithuanian Beer Limited and the import of cider
The appellant, Lithuanian Beer Limited (“LBL”), carries on a business which includes the import of flavoured ciders. It was common ground between LBL and the respondents, HMRC, that, because of their composition, the ciders attract excise duty at the rate applicable to made-wine, rather than the lower rate charged on conventional cider. However, by what HMRC accept was mistake rather than design, between December 2007 and January 2011 LBL imported flavoured ciders and paid duty on them at the rate applicable to cider. The mistake was discovered and on 14 November 2011 HMRC assessed LBL for the underpaid duty, amounting (after some downward adjustment) to £189,662. LBL appealed against the assessment, on the sole ground that it was made out of time, which has now been heard by both First Tier and Upper Tier tribunals.
This case therefore concerned whether HMRC had evidence of facts sufficient to justify making the assessment. Evidence being the means by which the facts are proved.
HMRC said that the circumstances of the visit of their officer, Mr Ansah’s were that he saw various documents but it did not follow that the contents of those documents came to his knowledge at the time. Instead, he asked for copies to be sent to him for perusal. Importantly, the judge found, in the First Tier decision, that a complete set of documentation had yet to be provided at 29 November 2010, a date less than a year before the making of the assessment; it was not until 3 December that Mr Ansah received everything he had requested. That was a finding of fact which LBL cannot challenge in this Upper Tribunal appeal.
The Tribunal resorted to an illustration of the point. It said – suppose an officer has attended a trader’s premises, as Mr Ansah did, with a specific enquiry in mind. He did not know, before he attended, what documents the trader might have which would assist him, but observed during his visit that the trader had various records which might or might not be relevant. As he did not have the time to examine them there and then he asked for copies to be sent. When the copies arrived the officer examined them, discovering that some were and some were not relevant to his enquiry. They reveal an underpayment of duty or tax which become the subject of an assessment. We do not see how it can reasonably be said that “evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment” came to their knowledge on the occasion of the visit; all the officer was able to do was determine that material which might contain evidence existed. In this case Mr Ansah identified material which was, rather than might have been, relevant, he identified the material, but was not in a position to identify the “evidence of facts” until the copies were supplied and he had the opportunity of examining them. The Upper Tribunal therefore concluded that the assessment was in time and allowed the appeal of HMRC.
You might think that it was not unreasonable to apply the rate for cider duty to the import of cider but this case demonstrates how important it is to apply due diligence to duty rates.
Coinstar’s charge for changing coins – exmpt or standard rated
Coinstar provides machines that are sited in many supermarkets that facilitate customers exchanging a bag of change in return for a voucher that can be redeemed at the supermarket. Coinstar charged a fee of 9.9% which the screen described as: “Coin counting fee: 9.9 pence for every pound’s worth of coins counted.” This description was probably not accurate or ideal, and on the basis that it was described as a fee for counting coins HMRC raised assessments at the standard rate of VAT. The company who treated the fees as exempt financial services appealed first to the First Tier where it won, but HMRC appealed it to the Upper Tier.
Coinstar submitted that the FTT had been right to detect no significant difference between Coinstar’s service and an ATM transaction. In each case, the customer exchanged one form of money (with Coinstar, cash and coins; with an ATM, credit in their account) for another form of monetary value (with Coinstar, a voucher; with an ATM, cash in notes). That exchange and the change in the legal and financial circumstances described above, were the essential features which brought both transactions within the finance exemption. The Upper Tribunal agreed that the fee was exempt and dismissed HMRC’s appeal.
Subcontracted road freight and exports
The supply of services, including transport and ancillary transactions, where these are directly connected with the exportation or importation are by EU law not subject to VAT. A Latvian case referred to CJEC looked at a specific example involving subcontractors. On the basis of contracts concluded with several consignors, ‘Atek’ SIA undertook to ensure the transport of goods placed under a transit procedure, from the port of Riga (Latvia) to Belarus. Under another contract, ‘Atek’ assigned the effective performance of that freight transport to ‘L.Č.’. That transport was carried out with vehicles belonging to ‘Atek’ and leased to ‘L.Č.’, bearing in mind that, as regards the consignors of those goods, ‘Atek’ acted as the carrier. For its part, ‘L.Č.’, was responsible for driving the vehicle, repairs, refuelling, customs formalities at border points, surveillance of the goods, transferring the goods to the consignee and the necessary loading and unloading tasks. The company did not charge VAT but the Latvian VAT authorities disagreed and LC appealed.
The CJEC decided that the non charging of VAT does not apply in relation to a transaction consisting in the transport of goods to a third country, where those services are not provided directly to the consignor or the consignee of those goods. L.C. therefore lost.