VAT Focus

The Upper Tribunal (UT) has ruled that an essay-writing business acted as principal for third-party writers. It was therefore liable to VAT on the full consideration for the supply. The UT reiterated that the terms of a contractual agreement and the commercial and economic reality of the arrangement need to be examined to determine if an agency relationship exists. 

The taxpayer operates an online business where third-party writers produce essays and dissertations for academic customers. The writers were not employed by the taxpayer and were often not VAT registered. Customer fees were shared between the taxpayer and the writer. The taxpayer only accounted for VAT on the element that it retained.

HMRC argued that the supply was a single supply of academic work to a customer by the taxpayer. The full amount payable by the customer should therefore be subject to VAT at the standard rate. The taxpayer argued that it was acting as agent on behalf of the third-party writers. On that basis, it was not required to account for VAT on the amount received by the writers. The First-Tier Tribunal (FTT) had ruled in favour of HMRC that the taxpayer made the supply to the customer as principal.

The UT examined the meaning and effect of the relevant contractual terms. It then determined whether or not these terms reflected the commercial and economic reality of the supply. It upheld the FTT’s decision, though on slightly different grounds. The contracts imposed the ‘core’ obligations on the taxpayer, not on the writers, and this was consistent with the commercial and economic reality of the arrangements. It found that the taxpayer, as principal, had been the sole supplier of the academic work.

S&W Comment 

The case highlights the difficulties in establishing the difference between an agency or principal agreement. For VAT purposes this is a fundamental point in order to ensure that the parties account for VAT correctly. It is also interesting in that the UT disagreed with some aspects of how the FTT had reached its decision, but still agreed that the right decisions had been reached. 

Source: All Answers Limited v HMRC [2020] UKUT 0236 (TCC) 

Government and Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice from their financial adviser before making financial decisions. Sourced from gov.uk. 

NTGH61020116

HMRC has released Revenue and Customs Brief 12 in response to two decisions by the Court of Justice of the European Union (CJEU). The Brief sets out HMRC’s revised view that early termination fees and compensation payments are generally subject to VAT.  

The CJEU recently released its judgments in the cases of Meo (C-295/17) and Vodafone Portugal (C-43/19), which examined the VAT treatment of contract termination fees and compensation payments. Following these decisions, HMRC has published its revised Brief and guidance in respect of these types of payment. Historically, the view was that they were outside of the scope of VAT. This was on the basis that there was no supply being made in return for the consideration.

Following the above CJEU cases, HMRC has revised its guidance to note that such payments are now considered to be in return for contracted supplies of goods or services. The payments are therefore generally within the scope of VAT.

S&W comment 

HMRC has made it clear that this change takes retrospective effect. Businesses may need to consider how such fees and payments have been dealt with in the past, and whether or not there is now a VAT liability to settle.

Source: Revenue and Customs Brief 12 (2020): VAT early termination fees and compensation payments  

Government and Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice from their financial adviser before making financial decisions. Sourced from gov.uk. 

NTGH61020117

On 24th September 2020, the Chancellor announced further aid for VAT registered businesses. Between 20th March 2020 and 30th June 2020, businesses were given the option of deferring their VAT liabilities until March 2021.  Those businesses can now spread the repayment of the deferred VAT liabilities over 11 smaller, interest free repayments.  This is designed to give businesses more time and flexibility to manager their VAT payments.

On the same day, the Chancellor also announced an extension to the VAT rate reduction for certain supplies made in the hospitality sector. The temporary VAT rate cut, initially announced in August 2020, was scheduled to end on 12 January 2020. The 5% reduced rate has now been extended to 31 March 2021.

Government and Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice from their financial adviser before making financial decisions. Sourced from gov.uk.