Customs duties

Customs agent and steel quotas

The High Court has considered an application for summary judgment by a customs agent (John Good Logistics) whose client (Tornado Wire) had made a claim for damages for breach of contract and/or negligence. 

Between August 2020 and June 2021, John Good Logistics processed 327 or more import declarations for Tornado Wire’s galvanised steel imports. Some of the import declarations did not have the appropriate information or quota number in the CHIEF system and made incorrect use of duty override codes. Consequently, Tornado Wire’s imports did not fall within the duty free quota and import duty of £953k (at 25%) had to be paid. The High Court concluded that Tornado Wire’s claim was not necessarily time-barred and should proceed to a full trial. 

The judgment highlights how important it is for customs declarations to be correctly completed and submitted. 

Tornado Wire Limited v John Good Logistics Limited [2024] EWHC 212 (KB)

From the Weekly VAT News dated 26 February 2024, published by Deloitte

Employment taxes

Footballer loses appeal on payments to agent

The First-tier Tribunal (FTT) has dismissed an appeal from a footballer who paid fees to his agent to arrange a move between clubs. These were not necessary for his employment, so not deductible against employment income.

The taxpayer, a professional footballer, moved to a different football club. His agent charged him fees for the transfer, and the taxpayer claimed these as deductions against his employment income from the club he joined. The club had agreed to make the payments to his agent on his behalf during the contract negotiations.

The taxpayer argued that he was obliged to incur the fees due to his employment with the new club. It was “almost obligatory, if not customary” to use an agent in this scenario and he could not have concluded the contract without the agent. The FTT found against him, agreeing with HMRC that his duties as a footballer did not create an obligation to pay the fees. The fees were incurred under the contract for transfer, not the subsequent contract of employment. These were separate, not part of the same framework as argued by the taxpayer. No evidence was provided to prove that an agent was necessary and, in fact, professional association rules include an express statement that players can represent themselves. Ultimately, the bar that expenses must be incurred wholly, exclusively and necessarily in the performance of the duties of the employment was not met. The closure notices were upheld.

His subsidiary argument, that he should be classified as a theatrical artist or otherwise entertainer – who are permitted to deduct agents’ fees – was also dismissed.

The taxpayer also lost his appeal against penalties for late filing. The taxpayer had not proved that he did not receive the notices to file and in any case the appeals against several of the penalties were out of time. On those, the FTT refused to admit them late, so upheld the penalties. All of the other penalties were upheld as well, as there was not reasonable excuse for the late submissions.

Niasse v HMRC [2024] UKFTT 179 (TC)

From Tax Update March 2024, published by Evelyn Partners LLP

VAT

Further education business activities

Colchester College reclaimed VAT of c. £2m on its 2008 campus redevelopment project, applying the Lennartz mechanism, which (at the time) allowed VAT recovery on costs relating to non-business activities, subject to a balancing output tax charge over the next 10 years. In 2014, the college decided that the provision of fully-funded further education was actually an exempt business activity and it submitted a claim for repayment of the balancing charge. 

On reaching the Upper Tribunal (UT) in 2020, it was held that the college’s supplies were exempt and it should never have applied Lennartz. However, the UT ruled that the college’s claim should be reduced to nil, applying rules on set-off. Nonetheless, the decision on exemption potentially justified the college’s decision (in 2015) to stop paying any more output tax. HMRC disagreed and assessed the college for under-declared output tax, which they saw as properly due. The college appealed, and the First-tier Tribunal (FTT) has allowed its appeal. 

HMRC recognised that this was a foregone conclusion, as the FTT was bound by the UT’s decision in Colchester No. 1. However, the fact that HMRC pursued the appeal anyway means that it is likely that they will apply for permission to appeal to the UT. If so, any decision by the UT that confirms that fully-funded further education is an exempt business activity may adversely affect the further education sector’s ability to access VAT reliefs such as the zero rate on the construction of relevant charitable buildings, and the reduced rate on supplies of fuel and power. 

Colchester Institute Corporation (No 2) v HMRC [2024] UKFTT 191 (TC)

From the Weekly VAT News dated 18 March 2024, published by Deloitte

Pre-registration input tax

As a state-regulated provider of residential care and services for individuals with autism, learning difficulties and behavioural problems, Aspire in the Community Services Ltd (AICS) had applied the welfare exemption to its services and had never registered for VAT. Following the conclusion of LIFE Services in 2021, which confirmed that activity that is not required to be state regulated is taxable, private welfare providers could provide unregulated care services to local authorities and charge VAT that the authority could recover. This permitted them to recover some VAT on their costs. Consequently, AICS restructured, started making taxable supplies and recovered a proportion of VAT on its costs. However, it also wished to recover £31,727 as pre-registration input tax.

HMRC eventually exercised its discretion and allowed AICS to recover a proportion of this VAT in recognition that initially the costs may have supported pre-registration exempt activity. AICS applied for disclosure of various documents showing how HMRC had exercised their discretion. The First-tier Tribunal (FTT) has refused the application, finding that the tribunal had a supervisory jurisdiction to review HMRC’s decision on pre-registration VAT, and HMRC’s decision-making process might need to be considered in that context. However, that discretion had been exercised in favour of AICS. How much of that deemed input tax could be recovered was a separate exercise. Consequently, the question of how HMRC had calculated AICS’ repayment was not relevant and the application was refused. 

Aspire in the Community Services Limited v HMRC [2024] UKFTT 176 (TC)

From the Weekly VAT News dated 18 March 2024, published by Deloitte

VAT and hospital car parking

NHS hospitals that operate their own hospital car parks should ensure that users can park “as safely, conveniently and economically as possible”, according to guidelines issued by the Department of Health in 2015. Although these ‘2015 Parking Principles’ are guidance rather than specific requirements, hospitals are legally required to comply with them unless they have a good reason not to.

In the Court of Appeal’s judgment in Northumbria Healthcare NHS Foundation Trust, this meant that the NHS operated car parks under a different legal framework to private car parks (which the court saw as being operated with a view to profitability). Consequently, NHS Northumbria was operating under a special legal regime and (as a public authority) should not charge VAT on car parking unless this would lead to a significant distortion of competition with the private sector. In the court’s judgment, HMRC had not provided sufficient evidence at tribunal that such a distortion would arise. Distortion of competition could not be assumed based simply on participation in the car parking market. NHS Northumbria’s appeal was allowed. 

Northumbria Healthcare NHS Foundation Trust v HMRC [2024] EWCA Civ 177

From the Weekly VAT News dated 11 March 2024, published by Deloitte

VAT liability of Nakd and Organix bars 

Are Nakd and Organix bars ‘confectionery’? In considering the matter of classification in Procter & Gamble, the Court of Appeal held this “…is a short practical question calling for a short practical answer”. However, the answer involves a multifactorial assessment and tribunals therefore have to set out which factors point to what outcome, and the weight they give to each.

In Wm Morrison Supermarkets plc, the First-tier Tribunal (FTT) originally concluded (in 2021) that the bars were confectionery, but the Upper Tribunal ruled (in 2023) that it had failed to pay any attention to the actual or perceived healthiness of the products and their ingredients (specifically the absence of cane sugar, butter and flour). Following a further hearing, the FTT has now decided that the most important indicators of whether the bars were confectionery were the look, feel and taste of the bars. The ingredients, production process, and circumstances of consumption were also significant. Less important were the healthiness of the bars, the packaging and marketing, and the target market for the bars. Taking all these factors into account, the FTT once again concluded that the bars were confectionery and dismissed Morrisons’ appeal. 

WM Morrison Supermarkets PLC v HMRC [2024] UKFTT 181 (TC)

From the Weekly VAT News dated 11 March 2024, published by Deloitte

Export evidence for scrap copper

In 2016, H Ripley & Co Ltd (HR) exported scrap copper to Recylink in Belgium. In May 2017, HMRC assessed HR for VAT of £1.1m on the basis that it had provided insufficient evidence to justify zero-rating. 

HR tried to find additional evidence, and provided P&O boarding cards and emails in March 2018. However, HMRC declined the additional evidence as it has been obtained more than 18 months after the exports, far outside the three-month time limit prescribed by the relevant VAT Notice (which had force of law). HR argued that the time limit required the export and the creation of the documentary evidence to be contemporaneous. However, the First-tier Tribunal (FTT) rejected this argument. The notice required HR to “obtain and keep valid commercial evidence” of the export within three months and it was not enough that the evidence had come into existence, but had not yet been provided to HR. Even if the boarding cards had been considered, the FTT’s view was that they contained insufficient information to link a particular export to a specific sailing. 

The FTT also considered other evidence obtained by HR at the right time. In its judgment, sales invoices, bank statements and weighbridge tickets contained no direct evidence of the movement of the scrap. International consignment notes had not been fully completed by the haulier or signed by the consignee. Annex VII documents (which accompany shipments) contained deliberate inaccuracies, as Recyclink did not want HR to know who its customer was. 

Given these deficiencies in the export evidence, HR had failed to satisfy the conditions for zero-rating its exports and its appeal was dismissed. 

H Ripley & Co Limited v HMRC [2024] UKFTT 125 (TC)

From the Weekly VAT News dated 4 March 2024, published by Deloitte

Transfer of residence relief

In September 2022, Antri Georgiou took delivery of a Hyundai Tucson from a motor vehicle dealer in Cyprus. In February 2023, she moved to the UK and applied for transfer of residence (ToR) relief so that she could import the car without paying import VAT. HMRC refused, considering that she had moved to the UK in February 2023 and therefore failed to meet the condition that the car should have been in her possession and used by her in Cyprus for at least six months. 

The First-tier Tribunal (FTT) has ruled that the ToR relief conditions were satisfied, as the relief requires at least six months of possession prior to importation, not prior to transfer of residence. Ms Georgiou had contacted HMRC in advance of importing her car, and by the time of the FTT hearing she had owned and used it in Cyprus for more than six months. The ToR relief requires property to be declared for relief up to six months before or 12 months after the change in normal residence, so the time limit for making an application operates by reference to transfer of residence. But the validity of the application refers to the date of import. Ms Georgiou’s appeal was therefore allowed. 

Antri Georgiou v HMRC [2024] UKFTT 152 (TC)

From the Weekly VAT News dated 4 March 2024, published by Deloitte