News

Monthly VAT news - June 2011 - 2011-06-23

Bridport and West Dorset Golf Club - Green fees are exempt from VAT

The First Tier Tribunal has ruled in favour of Bridport and West Dorset Golf Club Limited, and has found that green fees charged by not-for-profit sports clubs to non-members/visitors (to play golf on its course) should be exempt from VAT. Previously, this exemption only applied to fees paid by club members; fees paid by non-members were subject to VAT at the standard rate. The Tribunal agreed with the golf club that HMRC's distinction between members and non-members breached European law, and consequently UK domestic legislation failed to implement EU law correctly. Moreover, the Tribunal found that green fees could not be described as "additional income" since they were generated regularly and formed a vital part of the club's annual income. Bearing all of this in mind, the Tribunal decided that the green fees charged to non-members/visitors should be exempt from VAT, as essentially members and non-members of such clubs were receiving the same sporting service. This will affect all eligible bodies (charities and not-for-profit organisations) providing sports services.

VAT & emloyment bureaux - supplies of temporary staff

A recent First Tier Tribunal has introduced a new concept in determining the value of supply for VAT purposes of employment bureaux supplying temporary staff, namely the "control" of the staff. Reed Employment Limited sought a refund of VAT from HMRC on the basis that VAT should be accountable on Reed's commission only and not the whole amount payable by the client for the temporary worker. The Tribunal ruled that Reed did not "control" the temporary workers in the same way as an employee, i.e. being able to say where, when and for whom the staff will work. It concluded that Reed could not be interpreted as supplying staff; its role was one of introducer and VAT was due on the amount retained by Reed but not on the amount passed on by Reed to the temporary worker. The Tribunal also ruled that "unjust enrichment" will apply to refunds Reed is now able to obtain, meaning Reed must pass the refund back to its clients and not retain it. This decision will potentially affect businesses in those sectors with input tax restriction, such as insurance, finance, charities, medical and health. It is believed HMRC will look to restrict the scope of this decision to employment bureaux with the same trading relationships as Reed, i.e. those with no contractual control over the temporary workers.

"Fleming" claims and compound interest

The Court of Appeal has overturned the Upper Tribunal's ruling that claims for compound interest in respect of "Fleming" claims for refunds of VAT were out of date. "Fleming" claims involved overpayments of VAT made prior to 1996, the refunds of which were blocked when HMRC introduced the three year capping legislation. The legislation was found to be unlawful by the European Court of Justice (ECJ) in an appeal brought by Marks & Spencer Plc due to the lack of a transitional period. HMRC allowed a limited period for claims to be filed, but in 2000 M Fleming (t/a Bodycraft) lodged a claim for VAT overpaid in 1989 and 1990 and successfully argued it had a right to a refund as HMRC had still not introduced a transitional period for the three year capping as required by the ECJ ruling. As a result HMRC introduced transitional arrangements and a further limited period for claims to be submitted. Many businesses submitting "Fleming" claims also lodged claims for compound interest, not the lower statutory interest, following the House of Lords decision in Sempra Metals Ltd concerning interest applying to a refund of corporation tax. HMRC rejected claims for compound interest for "Fleming" claims and John Wilkins (Motor Engineers) Ltd & others appealed against this ruling. The Upper Tribunal ruled the claims for compound interest were out of date; the Court of Appeal has overruled this decision. The matter is now on hold pending the outcome of the ECJ's decision in Littlewoods Retail Ltd.

For further information or advice about any of these issues please contact indirect tax partner Bob Jones on 020 7516 2295 or by email rjones@littlejohnllp.com