The VAT Bulletin May 2024

Editor’s message

I have some great news to share! The GE VAT team has been shortlisted for Best VAT/Indirect Tax Team in the prestigious Tolley’s Taxation Awards 2024. We are delighted to be recognised in this field and for the team’s hard work to be acknowledged. Although, we face some tough competition. Fingers crossed!

I thought I would also mention in passing a recent tribunal case regarding insurance policies and the supply of black boxes. I was amused to see that the judge referred, and also added, to a much-used and loved quote in the VAT world, made by Lord Justice Sedley in 2001 in the Royal and Sun Alliance case. He said, ‘beyond the everyday world, lies the world of VAT, a kind of fiscal theme park in which factual and legal realities are suspended or inverted’.  

In this new case, the judge added ‘although that perhaps suggests a level of enjoyment not always inherent in navigating the process’. The idea of VAT as a fiscal theme park idea always makes me chuckle. I am sad enough that I do often have fun navigating the process, and I also think that probably goes for all my team – after all we are shortlisted! 

In this edition, we cover recent Non-Established Taxable Person (NETP) queries, fraudulent letters to HMRC and even share some of the recent food cases at Tribunal.

Happy reading!

Non-Established Taxable Person (NETP) queries

We have noticed that many of our clients who are non-resident companies and have registered for VAT in the UK have run into some problems with HMRC. For example, HMRC are querying the NETP status or indeed are asking for evidence that a company who is not registered as an NETP does have an establishment.

NETPs also seem to be more affected by HMRC’s actions when they do not submit a VAT return. In that instance, HMRC will issue a centrally issued assessment, which is an estimated amount of VAT that is due, and this will be what is owed until a business submits the VAT return. We have clients who have paid the assessments, however these assessments are often very different to the actual VAT due, so a business may have overpaid what is actually owed to HMRC. If the payment is too low, the business can incur a penalty for deliberately under declaring VAT when they finally submit the actual return. If the payment is too high, HMRC will not automatically repay the difference. 

We would always advise that a business submits and pays their VAT return on time. If that is not possible, care should be taken before paying an estimated amount.

Fraudulent letters

Disturbingly, we have heard of several recent cases where taxpayers’ bank account details have been amended on the HMRC portal, without their knowledge, so that VAT repayments have been diverted to a third party. It seems that HMRC have been acting on the basis of a letter purporting to be from the business and have merely followed up by writing to the taxpayer to say that their (unspecified) details have been amended. Those repayments are then made to an unconnected third party and this only comes to light when the business starts chasing up money owed to them. 

If you regularly receive repayments, maybe being a housebuilder or bookseller, please check with HMRC if you receive a letter saying some details have changed. Fraudsters are targeting those businesses that are in a normal VAT repayment position.

Increased VAT inspections

Finally, we seem to be experiencing a large number of VAT inspections at the moment. It does appear that HMRC has recruited and trained more officers. If you are a new business or just expect to receive a large repayment it might be worth considering taking out our insurance which will cover the fees at a VAT inspection.

Learn more about our tax investigation services.

Register for our tax investigation insurance.

Food cases at Tribunal – flavour of the month?

In the last six months, there have been no less than five tribunal cases regarding whether a product should be classified as a food (zero-rated) or confectionery (standard-rated). These cases have ranged from partially covered chocolate biscuits to protein bars to giant marshmallows! 

It is interesting to see so many cases coming to tribunal and how the tribunals are approaching these issues. Two out of the five cases concerned healthy alternative foods. In one case, Duelfuel launched their ‘healthy’ flapjacks in January 2022 and were planning to sell them zero-rated as cake. They were quickly picked up by HMRC and the flapjacks were deemed to be confectionery and standard rated.  

Another case was lost by Morrisons recently over Nakd and Organix bars. Once again, the tribunal decided these were confectionery and VAT should be charged at the standard rate. VAT law does not concern itself with where something is inherently healthy. The only recent case where HMRC lost at tribunal involved mega marshmallows. Here the decision was that these marshmallows were generally roasted prior to eating. It is an odd quirk that in the world of marshmallows only ‘standard’ sized ones attract VAT at 20%; very small ones have long been accepted as cooking ingredients and zero-rated. The ingredients are the same and this just goes to show how care should be taken when working out the VAT liability. One could say it’s ‘food for thought!’ 

The Gerald Edelman VAT team

If you would like to discuss anything raised in this newsletter or a query you have, please get in touch.