VAT Newsletter October 2004

"Best Judgement" Appeals

The Court of Appeal has given further guidance on "best judgement" challenges to VAT assessments and the procedure for making such appeals. " Best Judgement" appeals have rarely succeeded: the higher Courts have consistently stated that assessments will only be set aside in their entirety (because of a failure to exercise "best judgement") in exceptional cases.

The Court of Appeal has delivered a further, possibly fatal, blow to such appeals in the decision in Pegasus Birds Limited. The thrust of the Court of Appeals judgement and the approach to be taken is that "best judgement" appeals should very rarely be made.

VATease recommends that an appeal should normally be made against the quantum of an assessment and not on best judgement grounds. This is allowed for under VAT Act 1994 s83(p)(i).

Please contact us if you need any advice on this matter.

3G VAT Appeal goes to Europe

In 2000, five telecommunication licences were granted in accordance with the Wireless Telegraphy Act 1998. In total, the operators spent £22.5 Billion on the 3G licences. They reclaimed input tax totalling some £3.35 Billion on these payments.

Customs & Excise rejected the claim on the basis that the grant of the licences was not subject to VAT. The companies appealed to a VAT Tribunal who reviewed the evidence in detail and directed that the cases be referred to the European Court for rulings on whether the issue of licences was an "economic activity".

Validity of VAT assessments further to recent DFS and Laura Ashley Cases

Customs have issued Business Brief 25/04 clarifying their policy on raising assessments to recover money paid, repaid or credited to taxpayers in error, usually, for example, after Customs have lost a case in the High Court but subsequently won on appeal. In future, Customs will not repay claims during the course of litigation unless the taxpayer signs an undertaking to return any payment if Customs are ultimately successful. NB this does not have any retrospective effect.

Debenhams/Merchant charges

Customs have issued Business Brief 27/2004 in which it is confirmed that they are appealing against the High Court decision (which was in favour of Debenhams). Customs state that retailers using the scheme should continue to account to Customs for VAT on the full price paid by customers for standard rated goods. Claims already lodged with Customs for VAT accounted for on the purported card-handling charge, and any subsequent claims retailers may wish to make, will be held in abeyance, and not repaid until the value for VAT has been finally determined by the Courts.

Customs and the Inland Revenue - Large Business Units to Merge.

Customs Large Business Group (LBG) will shortly merge with the Inland Revenue's Large Business Office (LBO). This seems to be the first fruit of the merger between Customs & Excise and the Inland Revenue. It has been announced that David Garlick has been appointed as the Head of the Large Business Service (LBS) in the new HM Revenue & Customs. His appointment represents the first step towards creating a new integrated service for the largest businesses (top 1000) which will bring together the existing LBG and the LBO. Creating LBS is one of the first steps in setting the HM Revenue & Customs agenda offering the largest companies a much improved customer service and the opportunity to deal with only one taxation department.

Interest Rates Up

Customs have announced the rate of interest charged on under declared VAT will increase to 7.5% from the 6th September. The rate of statutory interest paid by Customs where an official error has been made will also increase by 1% to 4%.

EC Sales Lists declarations via the Internet.

A new service is now available to businesses to submit their EC sales list (VAT 101) declarations via the Internet. There are two submission options:-

1. Completion of an online form;
2. Upload facility for bulk files using CSV or M or XML formats.

The service is free and registration is via the Government gateway using pin and password.

Call to remove VAT on condoms

The Independent Advisory Group for Sexual Health and HIV is reported to have suggested that VAT be removed from all contraceptives. The Treasury refused to comment on the issue saying it was a matter for the Budget process.

New C&E Notices

Amongst others, Customs have recently issued two important Notices as below:-

1. Notice 701/39. This notice is a list of which goods and services are not subject to VAT at the standard rate. The notice affects many businesses notably those in the Land & Property, Medical and Finance Industries.
2. Notice 706. This notice updates and replaces the October 2002 edition. Changes are being made to improving readability, but in addition, changes are being made to incorporate the introduction of the special method override notice and policy changes following some recent Tribunal decisions.

Stop Press

Further to the above regarding the creation of the LBS (regarding the merger of Customs & Excise and Inland Revenue), it has just been announced that the Inland Revenue Prosecutions and Customs Prosecutions are to merge into a single independent Prosecuting Authority.

The Attorney General, Lord Goldsmith, announced that the Government has decided to create a single Prosecuting Authority to deal with Revenue and Customs prosecutions work, in line with the creation of H.M. Revenue and Customs. The new prosecuting Authority will be known as the Revenue and Customs Prosecution Office (RCPO).

It therefore appears that the merger of Customs & Excise and the Inland Revenue is beginning to happen.