This month’s disputes are dominated by the application of concessions (Student Union Catering and Residential Management Services) in which HMRC have won the first round. However, HMRC suffered a resounding defeat at the Upper Tribunal in its interpretation of the Charity Fund Raising Event exemption.
In a blow for suppliers of short term serviced accommodation, the Upper Tribunal found that Sonder is not entitled to use the margin scheme to account for VAT when it provides apartments to travellers and visitors.
We have an Advocate General’s opinion (not a final decision of the CJEU) that certain bus subsidies are not subject to VAT.
Finally, HMRC are consulting on e-invoicing and we provide a link to Grant Thornton’s insight.
The Student’s Union claimed that its supplies of catering should have been exempt from VAT because they were made from within a higher education institution in accordance with HMRC guidance.
HMRC refused, saying the catering was supplied in a bar, so the concessionary treatment does not apply.
The Tax Tribunal would not have been able to hear an appeal, since it does not have the jurisdiction to decide on the application of concessions, so the Union applied to the High court for Judicial Review.
Where a Student Union provides catering supplies in a higher education establishment, Section 5.5 of VAT Notice 709/1 allows for those catering supplies to follow the VAT treatment of the parent institution, provided that those supplies are not made from a bar (or certain other outlets).
The main issue to be determined in this case was whether the Union’s café is in fact a café, or a bar. The Union argued that it is a café and as such its catering supplies should follow that of the University and therefore be exempt. However, the Court seems to have been persuaded by photos showing a counter with beer taps, and shelves behind which held various bottles of alcoholic and other drinks, that the premises came within the ordinary meaning of a “Bar”.
The Union also argued that if it were a bar, HMRC’s policy to not exempt those supplies was not rational, but again the Court was not persuaded, because there are specific rules applying to a university as an eligible body that its student catering can be treated as closely related to education and therefore exempt. The court explained that a University providing exempt educational supplies is not a suitable comparator as it cannot be materially identical,since a Student Union is not an eligible body.
Comment: Student Unions are usually treated as separate from their associated University and HMRC guidance is provided in VBNB60960 - Clubs and associations: Definition and registration of Student Unions. It states: “Exceptionally a Union (other than a Union which is completely independent of a university) may be included in the VAT registration of its parent institution if the institution agrees.” If this was the situation in the present case, with a single VAT registration arguably the outcome would have been different.
Background: Sonder leased apartments from the landlords for two to ten years, it then provided short term accommodation, usually a few days to a few weeks to visitors and travellers. Since the landlords did not charge VAT to Sonder it sought to apply the Tour Operators Margin Scheme (TOMS) so it would only have to account for VAT on its margin.
The FTT allowed Sonder’s appeal in 2023 and HMRC appealed. The UT was not convinced by the reasoning of the FTT, in particular its emphasis on any physical changes or alterations to the apartments and their furnishings. Instead, the UT concentrated on the interest in the property supplied by the landlord to Sonder (2 to 10 year leases with internal repair and maintenance obligations) when compared to the short term licences provided to visitors.
The UT concluded “we are satisfied that the FTT fell into error in the test which it applied pursuant the TOMS Order because it failed to have regard to the requirement that the bought-in supply must be for the direct benefit of the traveller, and mischaracterised the precise nature of the supplies to which the test is to be applied. These were material errors of law and we must allow the appeal and set aside the Decision.”
Comment: The conclusion of the UT is disappointing for taxpayers and their advisors. The next TOMS case going forward is Bolt (buying in and supplying car journeys) and it seems more likely the UT will see the individual bought in journey is not materially altered when supplied to the passenger/traveller.
[2025] UKUT 4 (TCC) Yorkshire Agricultural Society
The Yorkshire Agricultural Society’s main event each is to organise and runs the annual Great Yorkshire Show. It argued the entry fees paid to see the show were entitled to the Charity Fundraising Exemption.
The FTT agreed with the Society, but HMRC appealed to the UT on the grounds the FTT erred in interpreting whether the event met the conditions, being:
The UT agreed with the conclusion of the FTT on the first point that, in the case of a charity set up to run an agricultural show and raise money to continue such activity, the primary purpose of a show in raising money is inextricably linked with its purpose of putting on the show.
The consideration of the second point was more complex as it required analysis of EU rules that applied because the dispute arose before Brexit. The UT considered that the FTT was correct in deciding that the promotion condition is ultra vires. It went on to say it is possible to interpret the second point as conforming with the directive when the relevant event is promoted as being for the raising of money, but without requiring that it is promoted as being primarily for that purpose.
Comment: This was a comprehensive defeat for HMRC. There was a great deal of emphasis in the arguments on the underlying rules in the PVD, perhaps because the dispute was about the VAT liability in 2016, however the conclusions reached by the UT about the application of this part of the law (Charity Fund Raising Events) surely set a binding precedent for current and future events.
Background: This was an appeal by a property management company (CCML) in respect of its supplies of management services for apartments which were subject to long leasehold interests. HMRC had registered CCML for VAT from 1 November 2018 and directed a long period VAT return to be filed for 4 ½ years on the basis that its supplies were standard rated. CCML and HMRC both agreed that the supplies were not connected to exempt supplies of land (because the landlord was Realreed Ltdf not CCML).
CCML argued that it should not be VAT registered or liable to VAT, and had treated these supplies as exempt under HMRC’s Extra Statutory Concession 3.18 (ESC 3.18).
HMRC also argued that the tribunal did not have jurisdiction in relation to a concession as this dispute was not a matter of law.
The FTT agreed that it did not have jurisdiction in respect of the VAT registration since the obligation to register is mandatory under Schedule 1 to VATA 1994 and HMRC was not exercising a discretion in registering CCML for VAT or as to the date from which such registration has effect. The FTT also agreed that the VAT return direction was not an appealable decision.
In case they are wrong in relation to the jurisdictional matters, the FTT still went on to consider the substantive submissions and in doing so, found as fact that CCML’s supplies were made directly to the leaseholders who pay the freeholder for the management services via a service charge. As these charges were mandatory, toward the upkeep of the property and paid by the occupants of residential property which are not holiday accommodation, the FTT found that they did meet the required criteria to fall within the concession for exemption and that CCML has an entitlement to require HMRC to apply ESC 3.18.
Comment: It is curious that the Concession was published in 1994 and was widely interpreted for many years by both HMRC and taxpayers. However in 2018, without changing a single word, HMRC provided additional guidance indicating a very significant narrowing of its scope. The second part of the FTT judgment considered only the words of the concession and not the wider context. We understand CCML has also applied to the High Court for Judicial Review and we await the outcome with interest.
Advocate General recommends the Court should not include a subsidy in the taxable consideration.
A Polish bus company agreed to provide passenger routes that would not be viable without a subsidy from local authority funds. The subsidy was expressed in terms of an amount payable based on distance driven, rather than per passenger journey, then calculated and payable after the event.
The AG referred to the body of CJEU cases on subsidies and narrowed the arguments to the wording of Article 73 of the PVD, in particular “the taxable amount shall include… subsidies directly linked to the price of the supply”.
She concluded that the subsidy only had an indirect rather than direct link to the price of the fares (perhaps because these were controlled prices) so it did not need to be included in the taxable amount. The AG opinion is not the final word on this case, but it seems likely that the Court Judgment (the final word) will follow the same lines.
Comment: it seems extraordinary that after nearly 60 years of European VAT we still see disputes on the fundamental issue of whether grants or subsidies should be included in the taxable consideration. Again, we await the outcome of the Court in this dispute. The impact the decision will have on UK court’s is of course even more uncertain.
On 13 February HMRC & DBT (Department for Business and Trade) started 12 week consultation on E-Invoicing Promoting electronic invoicing across UK businesses and the public sector - GOV.UK For Grant Thornton’s insight please read: UK E-invoicing consultation launched: What businesses need to know
