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In this month's VAT news we mainly consider the potential wider impact of the judgment in the case of Airtours Holidays Transport Ltd/My Travel ('Airtours'), in particular for tripartite agreements.

Recent case law
Independent Business Review costs
The Supreme Court delivered its judgment in the case of Airtours. Further to our VAT news of August 2014 (please find attached a link here for further details on the case), the Supreme Court held that Airtours was not entitled to deduct the input tax incurred on the costs of an Independent Business Review (IBR).

Whilst this case specifically relates to IBR costs, there is potential that HMRC could now seek to apply this VAT decision more widely and look to restrict input tax recovery on acquisition costs and other similar transactions involving tripartite arrangements. This judgment further demonstrates the importance of accurately drafting to whom the services will actually be supplied as payment for the services is never sufficient to evidence that a supply was received.

This judgment may affect transactions that have more than two parties to a contract (for example, private equity acquisition arrangements) and we expect HMRC to update its guidance in light of this case and its previous success in the case of British Airport Authority ('BAA'), particularly with a focus on acquisition costs incurred by existing acquisition vehicles, or newly formed acquisition vehicles (for example, Newcos or Bidcos).

Takeaway food sales
A First-tier Tribunal ('FtT') decision was released around the VAT liability of take-away food sales in which it was held that Chilango's takeaway food sales were standard-rated both before and after the applicable law changed on 1 October 2012.

Chilango sold Mexican-style fast food from various retail outlets and its premises had limited facilities for eating in, with the majority of its sales being takeaway food. A significant element of the salads sold by Chilango included hot ingredients (i.e. meat, rice and beans).

HMRC's view was that all of Chilango's takeaway sales were standard-rated both before and after the change in law. The FtT held that Chilango had failed to demonstrate that the products (containing all or some of meat, rice and beans) were not heated for the common purpose of enabling them to be consumed at a temperature above the ambient air temperature. Accordingly, the appeal was dismissed. The FtT further found that a significant element of the salads sold by Chilango post 1 October 2012 included ingredients which had been kept hot after being heated. Accordingly, Chilango's appeal relating to the salads post 1 October 2012 was similarly dismissed.

However, based on the evidence in this case it was possible for a customer to only choose cold fillings. Where this happened, the product would have been zero-rated as no part of it would have been above ambient air temperature at the time of sale.

Credit and debit card handling fees
In a recent judgment, the ECJ held that the card handling services in the cases of Bookit Ltd and National Exhibition Centre Ltd failed to qualify for VAT exemption.

The two cases concerned the VAT treatment of credit and debit card handling fees charged to customers making advance bookings for concert and cinema tickets and, specifically, whether they qualify for exemption as consideration for a supply of payment processing services. The ECJ concluded that the card handling fees are taxable for VAT purposes. This judgment may impact businesses operating across a range of industries and sectors, with affected businesses now being required to analyse their role in each payment and supply chain.

HMRC news
Permitted Development Rights
HMRC issued its Revenue and Customs Brief 9/2016 clarifying its position on the VAT treatment of conversions of non-residential buildings into dwellings where an individual planning application is not necessary because statutory planning consent has been granted under permitted development rights ('PDRs').

PDRs are a national grant of planning permission for particular types of development. PDRs serve to streamline the planning process by removing the need for a full planning application. The introduction of PDRs in relation to the conversion of certain non-residential buildings into dwellings will make it difficult for some developers to meet the conditions for VAT zero-rating or reduced-rating, which currently require statutory planning consent.
The brief sets out the evidence that HMRC will still require to demonstrate that the work is lawful in order for the zero-rating or reduced rating to apply, including certain forms of correspondence with the local planning authority. The brief can be accessed here.

Unjust enrichment – VAT refund claims from sports clubs
HMRC also finally released its Revenue and Customs Brief 10/2016 on how it will treat unjust enrichment and VAT refund claims from sport clubs, but mainly relating to golf clubs, following the First-tier Tribunal ('FtT') in the case of Berkshire Golf Club and others. As we have previously reported, the FtT found that non-profit making members' sports clubs which had incorrectly charged VAT on exempt supplies of sporting services made to non-members were entitled to a 90% refund of the VAT incorrectly paid. The remaining 10% being denied on unjust enrichment grounds.

HMRC's brief confirms that HMRC has decided not to appeal the decision and will be making VAT refunds, subject to claims meeting the terms of its VAT Information Sheet 1/2015 (please click here), which has been updated. HMRC's two previous briefs which it had issued following the ECJ judgment in the case of Bridport and West Dorset Golf Club Ltd have now been cancelled. The new brief can be accessed here

Practical guidance to assist Senior Accounting Officers
HMRC released some practical guidance on its website to assist Senior Accounting Officers ('SAO') with their statutory duty to establish and maintain appropriate tax accounting arrangements. HMRC's updated guidance (which you can access here) does not introduce any new responsibilities. Instead, it aims to provide practical example to SAOs of what best practice looks like, as well as setting out HMRC's responsibilities for checking compliance with the SAO regime. We understand that this guidance is being rolled out to HMRC's Customer Relationship Managers ('CRMs') as part of a training programme over the next 12 months. Therefore, businesses can expect to see its approach to SAO certification benchmarked against HMRC's guidance during future business risk review meetings.

European Commission news
The European Commission ('EC') has further updated its VAT guidance containing general information and practical rules and compliance obligations for all 28 EU Member States and this updated guidance can be accessed here.

On 20 May 2016, the VAT Expert Group ('VEG'), which assists and advises the EC on VAT matters adopted an 'Opinion' on the EC's Action Plan (which we covered in last month's article) on VAT and this opinion can be accessed here.  In summary, the VEG welcomes the EC's initiative to further explore potential options for implementing the 'destination principle' for B2B cross-border trade to provide consistency across the EU and, at the same time, tackling the issue of VAT fraud.

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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