Credit: Alan Cleaver
From Sportech trying to reclaim millions in VAT payments for their spot the ball competition to a great milestone cake/biscuit debate with Tunnocks Tea Cakes, there have been some very interesting tax cases in 2014.
Whether you’re self-employed or getting planning permission for a house there are also some useful precedents, where taxpayers have made successful appeals against unjust tax penalties. We asked Manchester-based accountancy firm Alexander & Co for their defining cases of the year:
Table of Contents
Sportech
Sportech had reclaimed several years’ VAT on its “spot the ball” competition, totalling £93m, on the grounds that it was a game of chance not skill and, as such, should not give rise to VAT. The First Tier Tribunal had originally agreed with Sportech. On appeal, the Upper Tribunal has found in favour of HMRC and the company may need to repay the £93m unless they are successful in an appeal.
Airtours Holidays Transport Ltd v R & C Commrs
The Court of Appeal, by a majority decision, upheld the Upper Tribunal’s (UT) decision that VAT charged by PricewaterhouseCoopers LLP (PwC) in respect of services provided in the context of a large-scale restructuring of Airtours Holidays Transport Limited (Airtours) was not deductible by Airtours as input tax. The Court held that the services were actually provided to the banks involved and paid for by Airtours rather than the services being provided to Airtours. Further although Airtours was a party to the engagement letter the Court held that PwC had contacted with the Banks. This may well go to Appeal, but as this is quite a common occurrence on transactions it is well worth keeping an eye on and considerable care needs to be taken with the engagement arrangements in transactions where finance is being provided.
Beacon Estates
The taxpayer was a company in construction and the management of commercial property but had divested into yacht chartering. The chartering business made a loss in the first year but profits in the following two. However, in the 4th year the yacht suffered from engine failure and following this there were a series of errors regarding the engine which resulted in litigation by the company. As a result, they suffered losses of £1m in 2009 to 2012. HMRC tried to deny relief for the losses. They agreed that the yacht chartering business was run as a commercial venture but did not believe that it was “with a view to the making of a profit in the trade or so as to afford a reasonable expectation of making such a profit” which is required by the losses legislation. The taxpayer successfully argued that “with a view” meant “allow a reasonable possibility.” They considered that there was a reasonable possibility of profits in the future. The Tribunal agreed noting that there was no time limit imposed by the legislation as to the period in which profits should be made.
S Murphy
The taxpayer registered with HMRC as self-employed in 1995. He discovered 17 years later that he had paid no class 2 National Insurance (NI), because the Department for Work and Pensions (previously the Department of Social Security) had not kept him informed. The Revenue told him he could pay only from the period April 2009, unless he could show the failure to make the NI contributions was due to his ignorance or error, and that there was no failure on his part to exercise due care and diligence. The taxpayer appealed and the appeal was allowed because he relied on his accountant to deal with his financial affairs. This was not due to a failure on his part to exercise due care given that he had relied on his accountant.
Fisher & Ors
The taxpayer had moved their tele betting business offshore to Gibraltar. The rest of the tele betting industry moved offshore and had they not moved their business as well it would have failed. They set up a separate company not to avoid corporation tax, but because they considered it necessary to protect against potential prosecution under the Betting and Gaming Duties Act. They claimed that they met the exclusion from what are known as the Transfer of Assets Abroad rules as they had no tax avoidance motive. The Tribunal agreed that they did not intend to avoid corporation tax or income tax but found that not only was the avoidance of betting duty one of the purposes of the transfer, it was also the main purpose. They, therefore found the taxpayer liable under these rules
CRC V A Patel
The taxpayer had planning permission to extend a house that later needed to be demolished and rebuilt. He submitted a claim in August 2011 for repayment of VAT incurred during the work. HMRC rejected the claim on the basis the planning permission had not provided for the demolition of the existing building and the construction of a new one and, as a result, the requirements of the VAT Act had not been met. The taxpayer received retrospective planning permission in September 2012. The Upper Tribunal, said the First Tier Tribunal had not given sufficient consideration to the requirements of the VAT Act which requires that “ A claimant shall make his claim in respect of a relevant building by … (b) at the same time furnishing to them … (iv) documentary evidence that planning permission for the building has been granted.” HMRC contended that when submitting a claim, the taxpayer must provide documentary evidence that planning permission had been granted and the taxpayer was not able to do so in 2011 because he did not have the correct permission until a year later.HMRC’s appeal was allowed.
Lees of Scotland Ltd and Thomas Tunnock Ltd
Another great addition to the ongoing VAT cake/biscuit saga. The two taxpayers were separate companies that made snowballs: coconut-covered marshmallows similar to teacakes but not the same, having no biscuit base. The businesses said the items were zero-rated cakes and claimed repayment of VAT amounting to £2.8m. The Revenue refused the claim, saying the products were confectionery and should be standard rated. The taxpayers appealed. The judge said the decision was mainly concerned with findings of fact rather than of law, and made the following rather hilarious comment: “A snowball looks like a cake. It is not out of place on a plate full of cakes. A snowball has the mouth-feel [texture] of a cake. Most people would want to enjoy a beverage of some sort while consuming it. It would often be eaten in a similar way and on similar occasions to cakes: for example, to celebrate a birthday in an office. We are wholly agreed that a snowball is a confection to be savoured, but not while walking around or, for example, in the street. Most people would prefer to be sitting when eating a snowball and possibly, or preferably – depending on background, age, sex, etc – with a plate, a napkin or a piece of paper, or even just a bare table so that the pieces of coconut which fly off do not create a great deal of mess. Although by no means everyone considers a snowball to be a cake, we find that these facts in particular mean that a snowball has sufficient characteristics to be characterised as a cake.”
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