VAT Tribunal Cases

JOHN T NEWTH FCA, FTII, FIIT, ATT summarises some recent VAT tribunal decisions.

A complex case

Stoke-on-Trent Citizens Advice Bureau had been funded largely or entirely by gifts or grants from public authorities, but from 1994 onwards moved towards receiving its income by selling its advisory services to organisations who wished them to be delivered to end users.

Subsequently, the organisation completed a contract with Staffordshire County Council. This contract required the appellant organisation to make substantial improvements to its leasehold premises, known as Advice House. The total costs of these works was £240,000 and the appellants 'capitalised' the refurbishment costs and deducted the input tax on them in full.

The organisation did not accept that the apportionment of input tax, contended for by Customs and Excise, was appropriate. The organisation took the view that it was for the taxable person alone to decide whether or not to bring a capital asset into its business, to 'capitalise' the cost of refurbishment and to deduct the input tax thereon in full. The appellant's case was that, in the circumstances, the proper course for Customs and Excise would have been to raise an assessment for output tax in respect of the non-business expenditure. The issue between the parties was therefore one of law.

Counsel for each of the parties dealt with matters in some detail and reference was made to the cases of Lennartz [1995] STC 514, Armbrecht [1995] STC 997, Card Protection Plan [2001] STC 174 and Rayner and Keeler [1994] STC 724.

Counsel for Customs and Excise relied on the tribunal's decision in F and M Mounty (LON/93/2866A) to support the argument that repairs to a building were classified as services, even though they would involve subsidiary supplies of goods for the purpose. The decision in the Lennartz case, as accepted for the purposes of the appeal, did not apply to supplies of services.

The effect of Articles 6(2) and 17 of the EEC Sixth Directive was that, as far as goods were concerned, fiscal neutrality was maintained because full input tax was deductible but output tax was charged on non-business use.

In the current case, an assessment of £43,772 had been made to recover input tax on non-business expenditure and a misdeclaration penalty on £6,386 had been imposed. The issue was whether all the input tax on extensive refurbishment of the building could be deducted, bearing in mind that there was significant non-taxable use of it.

The tribunal chairman, Mr Malachy Cornwell-Kelly, held that the refurbishment of Advice House constituted a supply of services, or in practice, several supplies of services as each phase was completed by each subcontractor. The refurbishment works did not become supplies of goods by virtue of their accounting treatment.

Article 17(2) of the EEC Sixth Directive emphasised the straightforward application of the legislation when it stated: 'It is only to the extent that an item is used for the purposes of taxable transactions that a taxable person may deduct from the tax which he is liable to pay the VAT due or paid in respect of that item'.

Accordingly, it was held that the appeal against the VAT assessment did not succeed. However, the matter was of such complexity that Mr Cornwell-Kelly held that there was a reasonable excuse against the misdeclaration penalty.

(Stoke-on-Trent Citizens Advice Bureau (17296).)

Doctor Woodings decision contradicted

In a 32-page judgment the VAT tribunal, under the chairmanship of Mr J D Demack, had to determine the transaction status where general medical practitioners supplied pharmaceutical services to patients under Regulation 20 of the National Health Services (Pharmaceutical Services) Regulations 1992.

The appellants were a partnership of general medical practitioners in Humberside and in some instances prescribed and administered drugs to patients from within their own 'drug store'.

The agreed questions which came before the tribunal were:

(1)

Categories: