Indirect tax update for period ending 19 October 2016

1. © 2016 Grant Thornton UK LLP. All rights reserved.
ITU
Summary
B&M Retail Ltd (B&M), one of
the UK's leading variety retailers
has lost its excise duty case at the
Upper Tribunal. The issue –
whether B&M was liable to pay
excise duty on a consignment of
alcohol – was decided in
HMRC's favour. The Tribunal
confirmed that even though a
duty point (the time when excise
duty becomes payable) may well
have occurred before B&M
acquired the consignment, the
fact remained that the goods
were in B&M's possession at a
time when it could not prove that
the duty had been paid at a
previous stage in the supply
chain.
The Upper Tribunal has also
ruled this week that a supply of
stalls (at a craft fair), was not a
supply of the land and was not,
therefore, exempt from VAT.
Finally, we look at a First-tier
Tribunal case on 'alternative'
evidence for reclaiming input
VAT.
21 October 2016
HMRC v B&M Retail Ltd – Upper Tribunal
The law in relation to the charging of excise duty is set out in regulations. These
regulations state that a duty point – the time when the excise duty becomes payable –
occurs at one of four moments in time. The issue in this case was whether B&M's
holding of the goods (beer and wine) triggered such a duty point. HMRC's view was
that, as B&M could not prove that excise duty had been paid in relation to the
consignment at an earlier point in the supply chain, the fact that it was in possession of
the goods made it liable to such payment. HMRC assessed B&M for over £5.8 million
of duty and also issued a penalty assessment in excess of £1.1 million.
B&M's appeal to the First-tier Tax Tribunal (FTT) was allowed. B&M argued that as it
had neither imported the goods in question nor produced them, a duty point must
have occurred earlier in the supply chain. That being the case, B&M argued that it
could not be held to be the person liable to pay the duty. The FTT agreed, ruling that
there could only ever be one duty point and that this had occurred at an earlier point.
HMRC appealed to the Upper Tribunal. It argued that, notwithstanding the fact that a
duty point may have occurred earlier in the supply chain, the fact remained that B&M
could not provide any evidence that the excise duty due had been paid previously. The
Upper Tribunal agreed with HMRC. Irrespective of the fact that a duty point may
have been triggered earlier, B&M were liable to pay the duty. The law is quite clear. A
duty point is triggered at any point where a person is holding the goods outside a duty
suspension regime and excise duty has not been paid, relieved, remitted or deferred.
The Tribunal confirmed that the law makes it clear that the burden of proof in relation
to whether duty has been paid rests with B&M and in the absence of any evidence,
HMRC was well within its legal rights to levy the duty against B&M.
Comment – Traders purchasing exciseable goods need to take notice of this
judgment. If a liability to excise duty is to be avoided, businesses need to be
able to provide HMRC with definitive evidence that the duty has been paid at a
previous stage in the supply chain. Businesses cannot simply rely on a
'delivered duty paid' warranty in the contract. Given the amount at stake in this
case, it is possible that B&M will seek leave to appeal to the Court of Appeal.
However, until such time as this judgment is overruled, HMRC will
undoubtedly use it to levy excise duty against any business holding the goods.
Caveat emptor indeed.
Issue30/2016
B&M Retail hit by £7m Excise Duty
bill
Indirect Tax Update

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GRT100456
Craft Fair stalls – not a supply of land!
K Zombory-Moldovan – Upper Tribunal
Mrs Zombory-Moldovan runs a craft fair business whereby she arranges events where local
craftsmen can 'pitch-up' and sell their wares. Her income is split between entrance fees charged to the
public and pitch fees charged to stall holders. She accounted for VAT on the income derived from
entrance fees but, considering that the pitch fees related to an exempt supply of an interest in or right
over land, she did not account for VAT on this income.
HMRC took the view that the money paid by the stall holders was not simply consideration for a
supply of the right to occupy the land but was consideration for the right to attend a craft fair. As
such, HMRC contended that that supply was standard rated for VAT purposes. Whilst there was an
element of the supply that related to the occupation of the stall, this was in fact and in law a single
supply of the right to attend the fair. Mrs Zombory-Moldovan appealed to the First-tier Tax
Tribunal (FTT) which, in its decision released in May 2015, agreed that what was being supplied was
a license to occupy the land. HMRC appealed to the Upper Tribunal.
In its judgment released this week, the Upper Tribunal has overruled the FTT. In essence, the
contractual arrangements between the taxpayer and the stallholders was more than simply allowing
them to occupy the stall. Under the terms of the contract, the taxpayer agreed to stage the event and
provide all of the facilities. This was a single supply of the right to attend and was taxable.
Comment
For a supply to be
exempt from VAT as a
letting or leasing of
immovable property,
the Court has said here
that, in effect, that is all
that can be supplied.
Where a business
provides 'other' services
of which the land
element is ancillary, the
supply will not be
regarded as a supply of
an interest in or right
over land and will likely
be taxable at the
standard rate.
Input VAT reclaims – invalid VAT invoices
Comment
HMRC has discretion
to allow other evidence
(other than a VAT
invoice) when
considering whether a
taxpayer is entitled to a
refund of input VAT.
This case demonstrates
that if HMRC does not
give any or adequate
consideration to
alternative evidence,
the Tribunal will
consider that failure as
unreasonable.
In the circumstances of
this case, the Tribunal's
view was that HMRC
had acted unreasonably.
First-tier Tax Tribunal
In the case of GMK Building Contracts Ltd (GMK), HMRC took the view that invoices raised by
subcontractors to GMK were not valid VAT invoices and disallowed GMK's claims for input tax. It
was clear that HMRC suspected that GMK was involved in a form of fraud. They were not
convinced that the supplies of sub-contract labour had actually taken place. Some of the invoices had
been raised by GMK themselves under self billing arrangements and some invoices had purportedly
been issued by the sub-contractors. In both cases however, it was clear that the invoices did not
contain all of the detail that is required to make them valid VAT invoices. As such, HMRC
disallowed the input VAT claimed.
The Tribunal agreed that none of the invoices in question were valid VAT invoices. However,
HMRC is entitled to accept other forms of evidence that VAT has been paid in cases where such
invoices are produced. The Tribunal considered that HMRC 's decision not to accept such other
forms of evidence was, in the circumstances, unreasonable. GMK had produced a schedule of
payments made to subcontractors which the HMRC officer dealing with the case had not given
adequate consideration to. This was sufficient in the Tribunal's view to render HMRC's decision not
to consider alternative evidence wholly unreasonable. Accordingly, the issue must be reconsidered by
a different review officer and a fresh decision made by HMRC on whether to allow the VAT claim
based on alternative evidence.
Contact
Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683
Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556