May 2024 VATWatch

Image of stationery, paper and a calculator on a desk with the letters VAT in scrabble letters
No Room For Debate in Apartment Rental VAT Case

Chelsea Cloisters, a property owned by Realreed, contains studio, one-bedroom, and two-bedroom apartments. This first tier tribunal (FTT) case concerns the letting of 235 of them; Realreed had treated rental income in respect of the apartments as exempt from VAT. 

While additional services were provided, this was a separate supply to the tenants by Chelsea Cloisters Services Ltd (CCSL), an associate company. That supply of services was treated by CCSL as standard rated. HMRC contended that the rental income was standard rated and so VAT was underdeclared. The VAT at stake in this first tier tribunal (FTT) case was well over £4m.

A lot of the bookings for Chelsea Cloisters take place online via intermediary booking websites such as booking.com and Expedia. The CEO of the appellant’s parent company, Chesterlodge Group, described the business model as a ‘home from home’. He claimed that there is no signage suggesting the serviced accommodation is a hotel, and that it differs first and foremost by offering long-term stay.

He further claims that Chelsea Cloisters does not offer any kind of catering or room service, and provides no laundry services, nor does it require the registering of visitors. No services are provided by Realreed, but are instead offered by CCSL who provides a maid service, dry cleaning, wi-fi, luggage storage, and various other services, and charges VAT on these. However, the case report refers to different versions of the Realreed website, including that Chelsea Cloisters offers services such as cleaning, satellite television, dry cleaning, and much more.

In conclusion, the court said that while they accept that all Realreed is doing is letting apartments, CCSL’s services are not to be left out of the account. Just because they are made by another person or company, these services are part of what Chelsea Cloisters offers and commits to upon a contractual arrangement. It was therefore ruled that Chelsea Cloisters is an establishment similar to a hotel and so all the rental income is VATable.

On The Ball as Always – HMRC Have Published Guidance on How to Interpret The Law From 1st January 2024!

Following Brexit, the Retained EU Law (Revocation and Reform) Act removes the supremacy of EU law. However, to make sure there’s stability, a bespoke solution was introduced and took effect in January this year. Section 28, Finance Act 2024, outlines how VAT and excise legislation should be interpreted in light of the Retained EU Law (Revocation and Reform) Act.

Section 28, Finance Act 2024, means that HMRC policy for VAT and excise is unchanged, drawing on rights and principles that have always applied for interpreting UK law, including the principle of abuse. This means that the Marleasing principle (consistent interpretation) continues to apply in interpreting VAT and excise legislation.

However, businesses will no longer be able to rely on the ‘direct effect’ of EU law, as UK law is now supreme. Still, this does not lead to any changes in HMRC policy.

HMRC has so far been satisfied that the businesses who were relying on the direct effect of EU law have not suffered any adverse results. For example, fund management and financial intermediation, where there are generally corresponding domestic provisions that give the same treatment.

The amendments to the European Union (Withdrawal) Act 2018 made by section 6 of the Retained EU Law (Revocation and Reform) Act 2023, will apply to VAT and excise legislation as they do more generally. This includes the rules that the courts must apply in interpreting legislation, including the application of case law.

TOMS for B2B Wholesale Supplies
 

HMRC have published a brief to explain that businesses can choose if they want to apply the TOMS to B2B wholesale supplies, and to clarify their technical position with regard to the mandatory VAT accounting scheme.

 

It’s important to note that with immediate effect:

·       Revenue and Customs Brief 5 (2014): Tour Operators Margin Scheme (TOMS) is withdrawn — following European Court of Justice (ECJ) infraction decisions.

·       Tour Operators Margin Scheme (VAT Notice 709/5) is amended.

 

If you are a tour operator, and you make B2B wholesale services to other tour operators you should read Brief 5(2024) and you can follow this link to access it.

 

VAT Road Fuel Scale Charges From 1 May 2024 to 30 April 2025

 

On the 17th April, HMRC published the updated VAT road fuel scale charges to be applied in the next prescribed accounting period beginning on or after the 1st May 2024.

It will be necessary to establish the correct road fuel charge, based on your car’s CO2 emissions, and the length of your VAT accounting period. This will be either 1, 3, or 12 months and it’s important to note that the flat rate values given in the HMRC guide is specific to one individual, in connection with one particular vehicle, for the relevant accounting period.

 

VAT Treatment of Ride Hailing Apps

 

There is a further update regarding the VAT treating of ride hailing apps as the Treasury releases a consultation. It seeks to understand the potential impacts of the Uber Britannia Limited v Sefton Borough Council High Court judgment that was handed down on 28 July 2023.

 

The consultation will run for 16 weeks starting on 18 April 2024 and ending on 8 August 2024, and you may email enquiries and responses to phvovatconsultation@hmrc.gov.uk Or written enquiries and responses can be posted to HM Treasury, VAT & Excise Team, 1 Horse Guard’s Rd, London, SW1A 2HQ.

 

Following the consultation period, all enquires and responses will be considered in depth and used to inform the government’s response to these High Court judgments. The government will publish a formal response in due course. 

Message From Scammell & Nyland re Potential Fraud Issue

 

We have been made aware a potential fraud issue by Scammell & Nyland who have released the following:

 

“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 or VAT 484 form purporting to be from the taxpayer, and have merely followed up by writing to the taxpayer to say that their (unspecified) details have been amended. This, of course, is unlikely to worry anyone who has asked HMRC to do anything at all in the last couple of years.

 

We do not know to what extent HMRC are aware of this issue; we have alerted them, but they have yet to respond. But for the present, at least, it seems that taxpayers submitting repayment claims need to check regularly that their bank details have not been changed.

By all means let us know of any similar experiences, which might usefully be shared with HMRC.”

 

Thank you for taking the time to read this VATwatch round-up.

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