This month we see the European Court of Justice has effectively confirmed tax authorities cannot rely on the defence of unjust enrichment when a business reclaims overpaid VAT on supplies made to unregistered customers. In another case the Court confirmed zero rating can apply to the supply of goods, even though the delivery was changed by the customer from an EU to a non-EU destination.
In the First Tier Tribunal HMRC received some criticism in the Tribunal for their approach to an input tax claim by an insurance provider.
TC09608 Derby College Group, TC09609 Cornwall College, TC09616 Colchester Institute Corporation and TC09614 City of Portsmouth College.
All of the appeals concerned assessments raised by HMRC for output tax adjustments for ‘Lennartz’ accounting purposes. The Colleges originally claimed significant sums of VAT on capital costs, on the basis that they would subsequently declare output tax over ten years calculated by reference to the non-business use of the capital asset.
There have been many twists and turns in the Lennartz story, not least that the CJEU decided it could only apply where private use was in point, rather than non-business use by a corporate body.
This dispute arose because HMRC assessed when the Colleges stopped declaring output tax. The agreed position in the FTT is that if the funding received by the Colleges is consideration for supplies of education, as confirmed by the Upper Tribunal in Colchester Institute Corporation, the appeals must succeed. The FTT is bound by a decision of the Upper Tribunal so there is negligible discussion in the Judgement, and the appeals were upheld.
Comment: These cases must be treated with caution, and clearly are not the end of the dispute. We predict that HMRC will appeal, and ask for the cases to be stayed as the legal point may be considered by the Court of Appeal in due course (probably summer 2026).
TC09603 Motorplus Limited
Motorplus submitted an input tax claim on the basis that supplies to it by two insurance intermediaries had been standard rated, rather than exempt. HMRC rejected the claim as Motorplus did not hold tax invoices.
HMRC based its reasoning on what it saw as the similar case of Zipvit (where the appellant tried and failed to get the Post Office to provide tax invoices for certain delivery services). Motorplus appealed and after various pre-hearing issues, HMRC asked for the appeal to be struck out because it had no reasonable prospects of success.
The FTT denied the application and criticised HMRC for its approach, saying the present case is not the same as Zipvit (where both customer and supplier were under the impression and had earlier agreed the liability was exempt). In this case Motorplus asserted the services were taxable, but the suppliers did not agree. Furthermore, HMRC failed to provide a decision on the liability, and provided “odd” advice that if VAT invoices could be obtained, then the claim would be paid. The final straw for the FTT was the suggestion by HMRC's counsel that the correct approach would be an application for judicial review.
Comment: Reading between the lines, this looks like an example of a relatively inexperienced officer grabbing at the wrong reason to reject a claim, her colleagues then closed ranks and forced and expensive preliminary hearing, instead of investigating and providing a well-argued decision on the liability of the services.
TC09611 Webb
Mr Webb had operated as a VAT registered self-employed builder many years ago but ceased to work because of ill health. He did undertake some property transactions, but it seems these were mostly loss making. He continued to claim some input tax but on investigation, HMRC disallowed the input tax and issued penalties (albeit with significant mitigation). The FTT found Mr Webb's evidence unconvincing, and allowed HMRC to cancel the registration, disallow the input tax and uphold the penalties. The main point from this case is reference to the Upper Tribunal decision in Babylon Farm Limited which disapproved of the old Lord Fischer tests of business activities.
Case C‑794/23 P Gmbh-Austria-Unjust enrichment–indoor playground
Background: P is an Austrian company that operates an indoor playground. In 2019, P applied the Austrian standard rate of VAT (20%) to the playground admission fees. However, it subsequently found it was entitled to use the reduced rate of 13%.
P had issued over 20,000 cash register receipts to its customers in the disputed period. These are allowed by Austrian law and the PVD. When P corrected its annual VAT return for the year 2019 to be credited for the overpaid VAT, the Austrian Tax Office refused to issue a refund on the grounds that P GmbH had not corrected the invoices and furthermore, would have been unjustly enriched by a refund of tax that was not legally due.
The Advocate General disagreed with the tax authority in her opinion published in December 2024, and the Court has gone down the same lines since it is clear that most if not all the customers for an indoor play space (children) would not have any right to deduct any VAT charged.
Comment: This judgement puts another nail in the coffin of a tax authority's defence of unjust enrichment where the customer is a final consumer (not VAT registered). If there is a mix of customers, then the Judgement indicates estimating the proportion of supplies to taxable persons is acceptable.
Case C‑433/24 Galerie Karsten Greve - France - Artworks margin scheme
Carsten Greve is an artist who operated though a limited company, and the Court has confirmed that the company can be treated as the creator of artworks, so subsequent sales by a gallery can be accounted for using a margin scheme.
Case C‑602/24 W. sp. z o.o.,- Poland - goods diverted from EU destination to third country still zero rated.
In this dispute W had zero rated its supply of goods on the basis they were destined for another member state. However, unbeknown to W the goods were actually sent outside the EU. The Polish tax authority denied zero rating, but the Court has taken a pragmatic approach, to allow zero rating knowing the goods had left Poland, either to an EU member state or to a destination outside the EU.
HMRC has published an evaluation report summarising the conclusions of its study into the impact of Uncertain Tax Treatment (UTT) notification policy.
The policy, introduced in April 2022, requires large businesses to notify HMRC when they adopt uncertain tax positions exceeding £5 million in tax advantage. It applies to Corporation Tax, Income Tax, and VAT, and targets businesses with turnover over £200 million or balance sheets exceeding £2 billion.
Comment: The report looks at the Uncertain Tax Treatment regime as a whole and does not make any firm statements on its impact from a VAT perspective. Overall, HMRC believes that this policy has been a success and clearly intends to keep it. The high thresholds applying to the requirement to report under UTT suggest that only large businesses would fall into its scope and thankfully there is no suggestion in these evaluation reports that HMRC has any plans to lower those thresholds.
We have an update on the status of the recent FTT decision in Solent Pathway Campus, which raised considerable interest in the education sector, with HMRC confirming it will not appeal further.
In that appeal, the FTT found that a provider of university pathway/access courses was an eligible body for the education exemption as a college of a university and was also a provider of English as a Foreign Language courses.
