This month we see Court and Tribunal Judgements and Advocate General Opinions covering a wide range of topics – black boxes installed in cars, use of the margin scheme for private hire journeys, sales of cider during the pandemic, international app developers, invoiced transfer pricing adjustments and the liability of factoring fees.
In addition, HMRC issued a Brief in respect of the care industry, several consultations, advance notice of changes to the Capital Goods Scheme, and increased several penalties and the rate of interest on VAT paid late.
The Court of Appeal has dismissed the appeal of WTGIL Limited (formerly Ingenie) against the decisions of the Upper and First Tier Tribunals, which decided the installation of black boxes in young drivers' cars did not lead to a deemed supply and the right to recover input tax on the cost of the devices.
The taxpayer, which was an insurance intermediary, developed a car insurance model under which, broadly, insurance was offered at a lower rate to young drivers if they had a device installed in their cars which monitored speed and other details of how they drove.
The company argued that it was making a separate supply of that device to the end user: this was a taxable supply and would enable it to recover input tax. It made a claim in excess of £2 million. HMRC rejected the claim and argued that the arrangements were a single exempt supply of insurance and that no input tax was recoverable.
The First Tier Tribunal dismissed the appeal in April 2022 and arguably that decision broke no new ground but served as a useful reminder of the tests to determine whether a taxable supply for consideration (or a deemed supply) has been made. The tribunal had little difficulty in rejecting the taxpayer’s case and agreeing with HMRC that there was a single exempt supply of insurance services. When the case reached the UT, it provided a forensic examination of the reasoning of the FTT, and in March 2024 it ultimately agreed with the earlier decision.
The Court of Appeal dismissed the taxpayer's appeal on 11 April 2025 with the lead Judge, Sir Launcelot Henderson saying: “Under the terms of its Business Agreement, WTGIL agreed with the insurers that certain services (including the fitting of black boxes in the insured drivers' cars) would be provided. WTGIL was paid an additional amount of £150 when and if it provided the services to the policyholders (but not if it did not, as for example on insurance renewal). Providing the services constituted fulfilment of WTGIL's obligation to insurers to enable them to fulfil their obligation to the policyholders. By fulfilling the insurers’ obligation to policyholders, WTGIL was providing the services to the insurers, in just the same way as the third-party fitters were providing the services to WTGIL under its subcontract to carry out the fitting.” There could be little doubt, in his view, that those services were provided to the insurers by WTGIL acting in an intermediary capacity. To treat the same services as being supplied to the policyholders but not in an intermediary capacity would be the height of artificiality.
For these reasons, he accepted HMRC’s overriding argument that the disputed supplies by WTGIL of the services of providing and fitting the Devices are exempt from VAT and dismissed the appeal.
Comment: With three successive defeats for the taxpayer, it seems likely that this is the last report on this appeal.
The Upper Tribunal (UT) has upheld Bolt Services’ win at the First Tier Tribunal (FTT), which ruled VAT is due on the margin between the amount charged to the traveller and the payment to the driver, rather than the full price paid by the passenger.
Bolt provides on-demand, private hire passenger transport services as principal, ordered and paid for through a smartphone application.
Bolt argued that when it bought in passenger transport (ie private hire journeys) from drivers, it was entitled to use the Tour Operators Margin Scheme (TOMS) to calculate the VAT due to HMRC, rather than account for VAT on the full price.
The FTT undertook a detailed analysis of the UK legislation's conformity with the PVD and CJEU case law, ultimately finding that TOMS is compulsory when travel services are bought in and supplied without material alteration (unless the travel services are ancillary to the main supply, giving the example of a hotel using a taxi to pick up guests from a station or airport).
On this basis, the FTT found Bolt’s Ride Hailing Service fell within TOMS and VAT would be due on the margin only.
HMRC were not satisfied and appealed on several grounds, which the UT summarised in two issues:
Comment: This is a very significant victory for Bolt as the UT agreed with the FTT and dismissed HMRC’s appeal. A significant proportion of Bolt’s drivers would not be VAT registered. Any supplier, which sub-contracts to unregistered traders, will make significant VAT savings by accounting for VAT on its margin, rather than on the full price paid by the consumer.
However, readers should be aware that HMRC consulted on the VAT Treatment of Private Hire Vehicles from April to August 2024. The results have not yet been published, and we can only presume HMRC were waiting for the result of this appeal.
Other UT news: For all KFC fans, especially those who like extra sauces, the big news is that the Dip Pots appeal has been given permission to go to the next stage in the Upper Tribunal.
J D Wetherspoon plc – was cider eligible for the temporary reduced rate of VAT granted to the hospitality industry during the COVID pandemic?
Between 15 July 2020 and 31 March 2021, the government applied a temporary reduced rate of VAT to supplies of restaurant and catering services, with the intention of supporting businesses and jobs in the hospitality sector whose trade had been significantly reduced as a result of COVID restrictions. The rate was initially set at 5% and later raised to 12.5%.
The legislation enacting the temporary reduced rate specifically excluded alcoholic beverages from its scope. However eagle eyed advisors spotted that the food schedule in the VAT Act defined alcoholic beverages as “beverages chargeable with any duty of excise specifically charged on spirits, beer, wine, made-wine and preparations thereof”. This provision did not mention cider. Once this omission had been identified, the government took steps to make sure cider would be included.
Having initially charged VAT on sales of cider at the standard rate during that period, this apparent loophole in the law led to Wetherspoons making a claim to HMRC to recover nearly £5M of overpaid output tax on the basis that its sales of cider between 15 July 2020 and 31 March 2021 had been eligible for the reduced rate of VAT.
However, the FTT has ruled in favour of HMRC, finding in principle that cider was an ‘alcoholic beverage’ for the purposes of the temporary reduced rate. While it agreed that the definition of alcoholic beverage in Group 14 did not at the time include cider and could not be construed to include cider, the FTT held that this was a situation where it has the power, under general principles of statutory interpretation, to correct an obvious error in the drafting of the legislation, provided it does not usurp the legislative power of Parliament.
The FTT was guided by the Supreme Court’s 2001 decision in Inco Europe Ltd v First Choice Distribution, which explored the extent of the court’s powers to do this. Before making such a correction, the court must be abundantly sure of the intended purpose and substance of the statute or provision in question and also be sure that the draftsman and Parliament had inadvertently failed to give effect to that purpose in the legislation in question.
In the context of this dispute, the FTT was satisfied that excluding cider from the definition of an alcoholic beverage in Group 14 would be ‘anomalous and absurd’ given that all other alcoholic beverages fall within it. It also ruled that secondary evidence submitted by HMRC makes it abundantly clear that Parliament had intended to include cider in that definition so that all alcoholic beverages which were subject to excise duty would be excluded from the reduced rate. The FTT looked at the wording of Treasury Policy papers on the temporary reduced rate and the Eat Out To Help Out Scheme, plus HMRC’s guidance and the explanatory notes to the statutory instruments for those measures, which all indicated an intention that the reduced rate would apply only to food and non-alcoholic drinks.
The reason why cider was not specifically included in the definition in Group 14 was that HMRC and the Treasury were under the misapprehension that cider was included in the definition of an alcoholic beverage in Sch 8 Grp 1, on which the definition in Group 14 relied. Had the error been noticed, the tribunal believes the law would have been drafted to include cider as one of the alcoholic beverages that was excluded from the reduced rate.
The FTT also found that including cider within that reduced rate would have breached both EU law on the scope of reduced rates of VAT and the EU principle of fiscal neutrality. The FTT felt that the correct conforming interpretation to address this was to exclude cider from the reduced rate.
Comment: The FTT’s clear ruling in favour of HMRC, which upholds its refusal of Wetherspoons’ claim for a VAT refund, will be of interest to other hospitality businesses who have made similar claims to HMRC. We await news of whether Wetherspoons will seek permission to appeal this decision to the Upper Tribunal.
The decision also has implications for other VAT refund claims that are based on an apparent error or omission in the legislation. Should HMRC be able to show that a drafting error had occurred and produce sufficient evidence to convince the court of the intended scope of the law, a court may decide to use its powers to correct that error with effect from the date the legislation was enacted, not at the time any subsequent correction to the law was made by HMRC.
TC09271 Heaven Dry Cleaners Ltd - Permission granted for late appeal against decision to register appellant for VAT.
Over the last few years we have seen an increasing number of FTT decisions on procedural issues that we do not usually cover. However, there is an intriguing point in this decision that HMRC said even if permission was granted for the late appeal, it should immediately be struck out. The FTT allowed the appeal to proceed, but as there had been a request for a review and it seems HMRC had not responded, the FTT found original decision was still “open” awaiting the review decision. This meant there was no appealable decision so the appeal was struck out.
Comment: We predict HMRC will complete the review, uphold their original decision, and Heaven Dry Cleaners will appeal promptly.
TC09471 Kaffel - retrospective exception from compulsory VAT registration.
Mrs Kaffel ran a counselling business for many years, operating below the VAT registration threshold, but when the COVID crisis hit, her turnover increased substantially, breaching the threshold in July 2020. She did not realise this until March 2021 when her husband was preparing her annual accounts. She informed HMRC and asked for retrospective exception (ie future turnover would be below the deregistration threshold). After some correspondence with HMRC, they denied exception on the basis that, when the threshold was reached, she was not aware so could not have taken steps to reduce future turnover to previous levels.
Comment: There is an interesting discussion of reasonableness of HMRC, and the timing of steps that Mrs Kaffel would have taken to bring her turnover back to “normal” levels. Ultimately since this is a question of HMRC's discretion the FTT found that it had not acted unreasonably and dismissed the appeal.
We have default surcharge appeals with contrasting outcomes. TC09486 WG Recruitment Limited. HMRC failed to produce any evidence that Surcharge Liability Notices or Extensions had been sent, and the Tribunal refused an application by HMRC for an adjournment so they could look for the evidence, so the appeal was allowed. TC09457 Lime and Ginger Location Solution Limited provides mobile catering for the film industry and had racked up several late returns / payments so it was on 15% surcharge, two of which it appealed. HMRC relied on, and the FTT accepted, evidence from its third party supplier that default surcharge liability notices had been posted to the taxpayer. The FTT upheld one surcharge but accepted reasonable excuse for the other (return just on time, payment one day late).
Case C101/24 XYRALITY GmbH - Germany
Background: X, a German app developer, had originally accounted for German VAT on its supplies of apps to an Irish based app store (because it thought it was supplying final consumers and applying the general rule for B2C services – place of supply where the supplier belongs) however it later asked for a refund (because it thought its services were B2B supplies to the app store – reverse charge by the Irish app store).
Comment: The AG supported the assertions of the taxpayer, opining that the final consumer would think they were getting the app from the store, rather than the developer, and Article 28 of the PVD deems the supply to be “to and by” the app store.
The dispute concerns supplies made before 1 January 2015, which is before Art 9a of the Implementing Regs applied to Art 28 of the PVD). He commented the later addition of Art 9a of the Implementing Regs would not radically change the meaning of Art 28 but clarify it, so Art 28 should be read consistently with the provisos of Art 9a.
Where additional purchases are made through the App, again the consumer will initially think they are buying from the App store so the deeming provision in Art 28 continues to apply.
Case C726/23 SC Arcomet Towercranes SRL - Romania
Background: Arcomet is a subsidiary of an international group that supplies cranes for sale or hire. In 2010 the group commissioned a transfer pricing study, which led to an agreement that the Romanian company should make a profit of up to 2.74% or losses of no more than 0.71%.
If in any year it made profits in excess of 2.74% its Belgian sister company would issue an invoice for the excess. If in any year it made losses exceeding 0.71% it would invoice the Belgian sister company to make up the shortfall.
In some years Arcoment made more profit than 2.74%, so it received invoices from Belgium. As it applied the reverse charge to some invoices but not others, the Romanian tax authority picked on the invoices that had not been reverse charged, presumably charging output tax at one point but not allowing input tax until later so interest would be due.
Comment: The AG has opined that such invoices do represent consideration for a supply and are subject to VAT. The situation may be different if there was simply a transfer pricing adjustment in the companies’ Corporate tax returns, not reflected by invoices or accrued costs in the financial accounts.
Case C232/24 Cosmiro - Finland
Background: Cosmiro provides a factoring service either by buying invoiced debts then seeking to collect, or by granting credit against the security guaranteed by invoices.
The AG considers that for any factoring fee consisting of commission, arrangement fees constitute consideration for a single indivisible supply of debt collection, which cannot be exempt because of the specific exception set out in Article 135(1)(d) of the PVD.
Comment: In recent years there have been a number of cases in the CJEU that have widened the interpretation of Debt Collection, in this case the taxpayer, rather than the tax authority, was arguing for standard rating (presumably to improve its VAT recovery) as its customers would be factoring taxable invoices (and would not mind being charged VAT on the factoring costs). The case of AXA UK, was strongly disputed before the CJEU ruled in 2010 that its services constituted debt collection, because the charges were made to dentists who are making mostly exempt supplies.
Case C-213/24 E.T. (Grzera) - Poland
Background: the dispute concerns a married couple, Mr & Mrs T, who owned land in a private capacity but because of the potential for development asked a third party to get planning permission and undertake the work to subdivide the land for sale as building plots. Sales were made in 2017 and 2018 and the tax authority claimed the couple had sold building land which was subject to VAT.
Comment: The judgment concludes that appointing a third party to act as your agent with a view to development can amount to an economic activity carried out by the couple. In the UK we do not have the compulsory taxation of building land so this judgement will have no direct effect.
HMRC would only register the couple if they could show their intention to follow through with zero rated house sales or if they opted to tax the land.
On 1 April 2025 HMRC published Increase to VAT and other taxes late payment penalties percentage rate relating to penalty reform.
This raises the First Penalty percentage to 3% (from 2%) and the Second Penalty percentage to 10% per annum (from 4%), these changes are effective from 1 April 2025. For those of us who wish to be reminded of how this works here is HMRC's guidance (with the old percentages not yet updated) How late payment penalties work if you pay VAT late.
On 27 March 2025 HMRC published HMRC interest rates for late and early payments.
From 6 April 2025 the margin above Bank of England Base Rate (BOEBR) is 4% for tax paid late (from 2.5% on or before 5 April 2025). Repayment interest is set at BOEBR minus 1%, with a lower limit of 0.5% (known as the ‘minimum floor’).
BOEBR is currently 4.5% so the HMRC rates are 8.5% and 3.5% - a huge incentive to pay the right tax at the right time.
On 24 April 2025 HMRC published Revenue and Customs Brief 2 (2025): the use of VAT grouping within the care industry .
HMRC have stated the purpose of this brief is to prevent care providers being able to recover VAT on costs associated with the supply of welfare services that would otherwise be exempt from VAT.
The brief refers to the practice of creating a VAT group registration comprising a state regulated provider of welfare services and an entity which is not state regulated (ie not registered with the Care Quality Commission in England or equivalent bodies in Scotland Wales and Northern Ireland).
