VAT Connect – December 2014
‘Private Tuition’ of Yoga and Pilates subject to VAT at 20%
HMRC have successfully defended two separate Tribunal cases involving Yoga and Pilates, who had sought to apply the VAT exemption to their supplies of private tuition of a subject ordinarily taught in a school or university.
In Stuart Tranter t/a Dynamic Yoga (UKFTT 959) the appellant provided Yoga lessons and argued that yoga was a subject taught in a large number of schools and universities and that his classes correspond to the yoga taught there.
HMRC argued that yoga was recreational and not educational, and relied on the findings in an European Court of Justice (‘ECJ’) case Haderer v Finanzamp Wilmersdorf (Case C-445/05), where it was held that:
“[The] concept [of education] is not limited only to education which leads to examinations for the purpose of obtaining qualifications or which provides training for the purpose of carrying out a professional or trade activity, but includes other activities which are taught in schools or universities in order to develop pupils’ or students’ knowledge and skills, provided that those activities are not purely recreational.”
HMRC were successful and the appeal was dismissed.
A similar case was subsequently brought by Christine Joy Hocking UKFTT 1034. In this case, Pilates was being taught and the appellant argued that this was a subject ordinarily taught in schools and universities. The Tribunal again considered the Recreation v Education arguments, concluding it appeared that the Pilates taught in schools/universities and by Ms Hocking was ‘educational in character’. However it relied on the meaning of ‘ordinarily’ and found that Pilates was not ordinarily or commonly taught in schools or universities.
These two cases considered together may signal a clear focus and change in HMRC’s approach to private tuition. Care should be taken in examining what you are supplying and whether it can qualify for VAT exemption. Getting this wrong could prove costly in the event HMRC disagree, and advice should be sought where there is material uncertainty.
Supplies of ‘other services linked to education’ – HMRC state their position
HMRC have issued updated guidance on the developing issues in Brockenhurst College, and in doing so have given an opportunity to submit claims for the repayment of over declared VAT relating to supplies closely linked to education – specifically related to catering and admissions to theatres. They have, however, reserved their position and will take the matter to the Court of Appeal.
Brockenhurst College first appealed to the First Tier Tribunal (‘FTT’) against a decision by HMRC to reject a repayment claim for VAT previously paid on (a) supplies of catering and (b) admission to theatre performances. The College claimed that these were services “closely linked to education” and the VAT exemption for education applied.
The College was successful at the FTT and also at the subsequent hearing at the Upper Tier Tax Tribunal (UTT). The FTT decided that the supplies are closely related to the exempt supplies of education because they allowed the students to enjoy better education. It was the College’s argument that the catering and theatre supplies formed a practical element of the students’ qualifications and that they were essential to them gaining that. HMRC argued that what was being supplied was catering and theatre admissions to non-students for a consideration which was taxable at the standard rate of 20%.
HMRC have announced that they will consider and repay claims for VAT over-declared where the circumstances are exactly the same as in Brockenhurst, with any repayment being subject to a protective assessment which will only be enforced in the event that they are successful at the Court of Appeal.
VAT MOSS Update
HMRC have issued a Revenue & Customs brief targeted at UK businesses making B2C (Business to Consumer) supplies of digital services to customers in the EU. The brief and changes aim to offer a simplification measure to micro and small business whose turnover is less than the UK VAT registration threshold – currently £81,000.
Although it is a condition in order to use the VAT MOSS (Mini One Stop Shop) that businesses have a UK VAT registration, the simplification measures being introduced mean businesses will not lose their UK VAT registration threshold.
The steps required to register for VAT and MOSS are detailed in the Brief which can be found here and mean that a business can also recover VAT directly incurred in making cross border EU sales covered by MOSS. VAT will not be due on UK sales if they remain under the registration limit in force.
‘UK Corporate Portal’ – Phishing scam warning
A standard ‘phishing’ letter has been received by a number of clients, or by us on behalf of clients, claiming to require the recipient to enter their VAT registration details onto the ‘UK Corporate Portal’ as part of “changes to the EU economic package”. Reading of the small print reveals that an annual charge of £797 is due upon issue of the invoice, for the privilege of being on this non-existent portal.
HMRC has acknowledged the existence of the scam and advised that the ‘UK Corporate Portal’ are not connected in any way to them.
A copy of the letter template can be viewed here. Please be alert to such letters and contact one of the VAT team if you are unsure about any similar requests.
HMRC keep an up to date register of known phishing attempts on their website.
VAT and Pension Schemes – opportunities
HMRC have announced significant changes in the treatment of defined benefit and defined contribution pension schemes. Two recent cases bring different developments and both present opportunities for VAT savings and claims for over payment of VAT.
In the case of PPG Holdings, the employer’s entitlement to recover VAT paid on services in relation to the administration and management of defined benefit pension schemes was considered.
The ECJ concluded that PPG were entitled to recover the VAT incurred by it in relation to the services received for the management of its defined benefit pension schemes for its employees, where there was a direct and immediate link between the services and its own taxable supplies.
It was previously HMRC policy to allow deduction in relation to the administration services only and not the management of the investment assets held in the scheme. This was known as the 70/30 split – the 30% being the amount of the invoice that HMRC would accept as being in relation to the administration where one invoice was raised for both services. This will continue as a concession until 31 December 2015, however HMRC accepts it has no grounds to differentiate and the administration simplification will be removed after that date.
Following the decision in PPG, HMRC is now inviting and accepting claims for the deduction of input tax where the employer is the recipient of a supply of services in relation to the management and administration of the defined benefit pension scheme. Whether it is the recipient is a fact-sensitive question which will no doubt be covered by agreements between the parties. You will require a valid VAT invoice to evidence your claim. In circumstances where you have recharged the costs on to the Pension schemes, the consideration is for an onward taxable supply and VAT will be due.
Claims will be subject to the normal capping rules (4 years) and must set out the basis of the error, the amount being claimed and how that has been calculated.
In the case of ATP, the ECJ considered the VAT liability of the services of a fund which pooled investments from a number of defined contribution occupational pension schemes qualified as a Special Investment Fund (SIF) for the purposes of the VAT exemption for fund management services.
Previously HMRC did not consider any pension funds to be SIFs and considered services provided in connection with all types of pension fund to fall out with the VAT exemption for fund management services.
Following the decision in ATP, HMRC now accepts that pension funds with all of the characteristics noted below are SIFs for the purpose of the fund management VAT exemption,
- they are solely funded (whether directly or indirectly) by persons to whom the retirement benefit is to be paid (i.e. the pension customers)
- the pension customers bear the investment risk
- the fund contains the pooled contributions of several pension customers
- the risk borne by the pension customers is spread over a range of securities
HMRC also accepts that funds that contain the pooled assets of personal pension schemes and that have all of the above characteristics will also fall within the VAT exemption for fund management services.
Only fund management and administration services that are integral (i.e. specific and essential) to the operation of a pension fund will qualify for exemption.
HMRC are now accepting claims from businesses who have accounted for VAT on pension fund management services which qualify for exemption. They will be subject to the normal 4 year capping rules and should be properly evidenced and calculated. These claims will also be subject to the unjust enrichment rules – as it was not the claimant who bore the burden of the tax in question.
If you need further advice or help in making a claim, please ask your VAT contact at Henderson Loggie.
Stop the Press! Autumn Statement Update
Help for hospices – Following the Fair Playing Field Review, the government will refund the VAT that hospice charities incur.
VAT refunds and shared services – As part of the shared services agenda, from 1 April 2015 ‘non-criminal legal services’ will be added to the VAT refunds scheme to facilitate legal advice being shared across departments. Non-departmental public bodies will benefit from this shared service if their parent department agrees.
VAT and Christmas
It’s that time of year for staff Christmas parties – and perhaps gifts for your hard working staff? Employers who throw their staff Christmas parties, can reclaim the VAT incurred, provided the party is for staff only. This does not unfortunately extend to the spouses or partners of staff. Similarly if you are generous enough to give your staff a gift this Christmas, provided the cost to you is less than £50 (excluding VAT) you will not be required to account for any VAT.
As this is our last newsletter of 2014, our VAT team would like to wish you a very Happy Christmas and all the very best for 2015.