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The latest judgment from the European Court of Justice ('ECJ'), together with recent cases involving transfers of going concerns, are the main features in our latest VAT update.

ECJ judgment: VAT recovery by holding companies and restriction of VAT grouping
HMRC is to review its VAT policy on holding companies following an ECJ judgement on two German referrals.

Revised guidance had been published in September 2014 (please click here to see our website article from last year) in relation to the VAT recovery position of holding companies and, at that time, HMRC acknowledged the ECJ judgment in German referrals would most likely impact its guidance.

On 16 July 2015, the ECJ released its judgment in the joined German referrals (i.e. Beteiligungsgesellschaft Larentia + Minerva GmbH & Co. KG ('Minerva') and Marenave Schiffahrts AG ('Marenave'). This ECJ judgment on the VAT recovery of holding companies is in line with the historic VAT position for the UK but is now at conflict with HMRC's guidance from last year, which had restrictions in relation to the basis of the business/non-business apportionment, together with a requirement for a full recharge of costs over a period of time in order for the VAT to be recoverable.

That is, there does not seem to be any basis in the ECJ judgment for treating costs relating to transactions differently from costs relating to the raising of capital and, therefore, HMRC is to review its policy in light of this ECJ judgment.

Additionally, the ECJ judgement concluded that all persons can be included in a VAT group unless the conditions laid down by national legislation constitute measures which are appropriate and necessary to prevent abusive practices, or behaviour to combat tax evasion or avoidance.

Consequently, where abusive practice, or tax avoidance, is not in point, the ECJ judgment suggests that the German interpretation of the eligibility for VAT grouping is too restrictive. The implication of this for the UK's VAT grouping eligibility rules which, for instance, restrict some partnerships joining VAT groups should mean that HMRC will likely have to change the UK law around eligibility for VAT grouping. This may come as welcome news for some businesses.

Recent VAT case law in relation to TOGCs
Two recent cases highlight the fact that TOGCs continue to give rise to challenge by HMRC and that HMRC is continuing to assess for VAT incorrectly recovered on transfers of business assets that are going concerns.

The first involves a Tribunal case, Amor Interiors Ltd, which considered whether a series of purchases of assets from an associated company constituted a TOGC for VAT purposes and, if so, the result was that the appellant had no entitlement to recover the VAT charged on those transactions. HMRC was successful in its decision to disallow the appellant's claim for input tax (VAT) in respect of the transferred assets.

The second is an Upper Tribunal case, Intelligent Managed Services Ltd, around whether a transfer of a business to a member of a VAT group can be a VAT-free TOGC even if the transferee only makes supplies to another member of the same VAT group.

This case considered the interaction between the TOGC and the VAT grouping provisions. The appellant was successful and the case will be of particular interest to any VAT groups that have acquired businesses with the sole intention of only making supplies to fellow VAT group members.

HMRC Briefs
HMRC issued two Revenue and Customs Briefs at the end of July.

One clarified the VAT treatment of verandahs sold with caravans and provides a potential opportunity to make retrospective VAT reclaims. Those businesses affected by HMRC's clarification should contact us to assess if their specific circumstances qualify for a VAT repayment claim for over paid VAT covering the last four years.

The second Brief explained the UK Government's position in respect of the decision of the European Court concerning its policy around the reduce rate of VAT for the installation of energy saving materials (please click here to see our website article from June 2015).

In summary, HMRC inform that the Government is currently considering the implications of the decision and if there are to be any legislative changes, then these will not be implemented before the Finance Act 2016. Therefore, supplies of the installation of energy savings materials will continue to be reduced rated until any changes are announced.

Summer Budget Update
Delay in implementation of Budget measure in connection with the recovery of VAT relating to foreign branches

HMRC has confirmed that the legislation affecting financial institutions, such as banks and insurers with establishments both within and outside the UK, will not be implemented to the original timetable commencing in August 2015. This follows concerns expressed by respondents to the consultation that the legislation as drafted may have 'unintended consequences'. HMRC is reviewing the current draft and will make a further announcement once this review has been completed.

VAT use and enjoyment provisions
As we reported in our Summer Budget update (please click here to see our website article from July 2015) changes will be made to the VAT 'use and enjoyment' provisions for repairs under insurance contracts (an anti-avoidance measure) and, potentially, for advertising services.

The Government will apply the VAT 'use and enjoyment' provisions to tax UK repairs made under UK insurance contracts from next year, as a means of tackling perceived avoidance and VAT planning measures. Under current rules, repair services carried out in the UK for insurers are typically subject to VAT according to the location of the insurer, rather than either the location of the insured person, or where those repair services are being physically carried out, which may result in a VAT advantage. Additionally, the Government also announced that it will consider a wider review of the scope of 'use and enjoyment' provisions to cover advertising services with a view to implementation in 2017.

VAT treatment of direct marketing services using printed matter
Further to our website article in January 2015 (which can be accessed here), HMRC has issued Revenue & Customs Brief 10/2015 (click here) setting out its approach to supplies of direct marketing that have been wrongly treated as zero-rated supplies of delivered goods.

HMRC has identified that a number of suppliers of printed matter, combined with other services, have been treating the supplies as zero-rated delivered goods. In HMRC's view, these supplies should properly be characterised as supplies of standard-rated direct marketing using printed matter. However, HMRC accepts that its published guidance in this regard was not clear.

Accordingly, HMRC has agreed transitional arrangements whereby no retrospective assessment action will be taken in respect of any supplies made prior to 1 August 2015 where the supplier, having misunderstood the former guidance, has incorrectly zero-rated a separate single supply consisting of either addressed or unaddressed mail only.

Additionally, anti-forestalling rules shall apply to any prepayments made, or invoices issued, after 9 June 2015 for deliveries to take place after 31 July 2015. Therefore, any suppliers wishing to adopt the transitional arrangements, or accept the settlement terms to be held liable for VAT on the full value of any such supplies made in the last four years, must notify HMRC by 30 November 2015.

Contact us

Should you wish further information on the above, please do not hesitate to contact Gary using the details outlined below.


Gary Moore
Direct line 0141 636 9353
Mobile 07812 061 582
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