HMRC don’t believe the Wurst will happen here in the UK
Following the recent European Court decision regarding the VAT treatment of certain food items in Germany (Manfred Bog and others), HMRC has now issued its’ view in Revenue & Customs Brief 19/11.
The case revolves around the definitions applied to the supply of food as a good, as opposed to the supply of food as a catered service. The European Court considered that where the supply involved limited preparation, as for grilling a sausage or burger, to be taken away for consumption, the supply was that of a supply of goods, subject to the reduced rate of VAT in Germany. By comparison, a catered service would consist of a more involved service, such as the provision of tables and chairs, knives and forks etc., creating an environment for enjoyment of the food.
The UK has not adopted a reduced rate for food, and when the zero rate was introduced certain exceptions were drawn into the legislation, which mean that they are excepted from the zero rate and therefore subject to VAT at the standard rate. A supply in the course of catering is one such exception. However, this is further defined within the Notes as any supply for consumption on the premises on which it is supplied, and any supply of hot food for consumption off those premises, i.e. hot takeaway food.
It is this line that HMRC is relying on in to deny the application of the European Court decision in the UK – but this presumes that the UK legislation is compatible with the direct effect of the EU legislation. This is part of the challenge creating the opportunity for UK businesses to protect their position in respect of the last four years. Of course, businesses can wait for the outcome of the legal debate, but this will not happen overnight and may restrict the ability for the business to recover the full extent of overpaid VAT available.
In short, this is HMRC’s polite way of saying ‘Bog-off’, and not for the first time. Some years ago a European decision in another German case determined that takings from certain gaming machines were exempt. The initial reaction from HMRC was that the decision had no effect in the UK, however, many of you will be aware of the recent significant repayment of overpaid VAT to the Rank Group in the UK – just the latest instalment in this long running debate.
To coin a well used gambling phrase, ‘you’ve got to be in it, to win it’. How true!
For more advice on this issue, get in touch with Karen Mulcahy karen.mulcahy@thevatconsultancy.com or call her on 01962 735350.
Life’s for sharing and so is ECJ ruling on VAT on telecoms services
The ECJ delivered its decision in the Everything Everywhere (formerly T-Mobile) case today.
This case was focused on charges levied on customers who did not pay their telecoms bill by BACS or direct debit. The charges were invoiced separately to customers. T-Mobile argued the charge should be exempt from VAT as a payment handling service. The ECJ disagreed with this viewpoint, stating that the charge should be regarded as ancilliary to the VATable supply of telecoms services, on the basis the charge is not distinct and independent from the principal supply.
The circumstances of this case differ slightly from those in the recent ECJ decision in AXA/Denplan as T-Mobile is providing the telecoms and payment handling service as principal. It is therefore relatively clear as to why the court arrived at its decision.
The same cannot be said of the AXA/Denplan decision however which has raised more issues than it has resolved and impacts a broad range of industries including travel agents, ticket agencies, clearing houses, charity fund raising companies – it remains to be seen how the AXA/Denplan decision will be adopted in practice.
For further advice on this contact Julie Park, Director
VAT on business entertainment of overseas customers now recoverable
Following the ECJ judgement in the joined case of Danfoss and AstraZeneca, HMRC have announced some changes in the tax treatment of business entertainment of overseas customers.
Subject to evidence of the details of the overseas customers and the type of expenditure, they will now allow the VAT paid out on business entertainment to be reclaimed.
In order for the VAT on entertainment costs to be recovered HMRC expect the business to meet two tests: a necessity test and a strict business purpose test. If the tests are not met then any vat recovery is subject to an equal output VAT payment as a private use charge. The tests are designed to ensure that the entertainment is only to enable the smooth running of the business, i.e. food provision at business meetings, and that the element of private benefit is incidental to the provision of the underlying services or goods by the business i.e. paying for transportation to enable attendance at remote sites.
Clearly as a result of these changes it is now possible to claim back vat incurred on the costs of entertaining overseas business customers, subject to the normal four year cap, and the usual evidence will be required to support any Input Tax claim.