VAT Connect – June 2017

College court success opens the door for claims of overpaid VAT

Despite the Advocate General’s opinion released in January, the European Court of Justice (ECJ) has issued a preliminary ruling to Brockenhurst College that the charges to patrons for catering in student restaurants and admissions to student events are VAT exempt.

Brockenhurst College have been seeking clarification of this issue since 2013, when they appealed to the First-Tier Tribunal that the charges to the public for both catering in their trainee restaurants and admission to student performances were VAT exempt.  They believed that supplies of this nature were ‘closely related’ to the student’s education, and the supply could be treated as exempt instead of taxable at the standard-rate of 20%.

Whilst we await confirmation from the Court of Appeal following the ECJ’s judgement (and HMRC’s guidance on their position, including the treatment of retrospective claims from further and higher education providers), those affected should consider their position, taking into account the effect that this has on historic periods, including the rules on unjust enrichment and how a claim would impact the historic partial exemption calculations.  If you are affected, and would like to discuss your position, please get in touch with the VAT Team.

Tribunal reminds us that HMRC guidance is exactly that

The First-Tier Tribunal has reiterated that HMRC’s guidance does not override VAT law.

In the case of Ellon Car Clinic Limited, the business did not treat the recharges of MOT tests to their customers as disbursements, and HMRC raised an assessment for VAT on the whole of the MOT charge.

In reducing the assessment and determining that VAT was only due on any profit the garage made on the MOT, the First-Tier Tribunal was satisfied that their customers knew that the garage was not an approved testing station at the time, and that it was sympathetic towards businesses who had to rely on HMRC’s guidance which was “less than a model of clarity or a good exposition of the law”.

As we have commented in the past, you should never assume that an HMRC assessment (and penalty) are accurate.  The decision itself, the timing of the assessment, or penalty rates should all be critically assessed to establish if a challenge is possible.

The lack of ‘puppy love’ leads to full VAT charge

The First-Tier Tribunal has determined that puppies sold by breeders cannot by treated as ‘used’ under the second-hand margin scheme.

Little Rascals Pets Limited was a dog breeder who bought and sold puppies.  Most of their puppies were sold with VAT on the full selling price, but when they bought a pup from a private individual, their onward sale was accounted for under the second-hand margin scheme, meaning VAT was declared on the profit margin only.

In making their decision, the Tribunal determined that the wording of the law suggests that ‘goods’ (yes, puppies are ‘goods’) eligible for this type of VAT accounting had to be ‘used’.  As the business did not ‘use’ the puppies as pets but as stock for resale, then they cannot be treated as ‘second-hand goods’ and VAT was due on the full selling price.  The Tribunal commented that the treatment of the puppies by the business “lacks the individual care and attention, and mutual relationship of trust and affection, which would normally characterise a relationship between an owner and a pet”, further adding that “any head patting was an incidental part of the puppies’ socialisation and preparation for onward sale, and was not usage as a pet”.

If any of these articles raise further questions for you, please contact any member of our VAT team.

Alan Davis – VAT Partner

Email: or tel: 07719 295827