One minute with Etienne Wong, VPG National Chair, Finsbury chapter.
What development should we look out for later this year?
In VAT city right now, the kaiju monster is the Labour Party’s promise to levy VAT on private school fees. Much of the focus has been on the politics, but there are few fresh arguments there; on the technical (VAT) side, however, everything is new. The exemption for education, including private education, is enshrined in the EU VAT Directive, and if the UK were still in the EU, this simply cannot happen. This, then, is arguably the first unequivocal Brexit dividend.
How the tax will be levied will, of course, be interesting, but what is even more interesting is the notion that schools that, today, are exploring ways to preserve the VAT-free status of their services are somehow engaging in some form of tax avoidance. Can such arrangements really be characterised as tax avoidance when there is no tax on the services under current law and 0% chance of the sitting government ever changing that, and the only possibility of tax ever being levied lies in the hands of the electorate for an election that has yet to be called? Some seem to think so. That raises questions on legal certainty, retroactive legislation and where to draw the line between ‘acceptable’ and ‘unacceptable’ tax avoidance – questions that seem, to me at least, far more interesting than the politics.
If you could make one change to tax, what would it be?
The rules on food (VATA 1994 Sch 8 Group 5). It only matters for VAT whether a Jaffa Cake is a cake or a biscuit (United Biscuits (LON/91/160)), or whether Pringles are made from the potato (Procter & Gamble [2009] EWCA Civ 407), or whether poppadoms sold under the ‘Sensations’ brand are similar to potato crisps (Walkers [2024] UKFTT 31). While I am sure it is every tax practitioner’s dream to analyse in depth the ingredients, process of manufacture, marketing and packaging of a food product like Rebecca Porter (page 12), I query whether in this day and age, the basis of the code is still sound, and whether it ought to be retooled. Should cakes still escape tax? Should out-of-shell nuts be taxed simply because they are salted or roasted? There is at least a good case for debate.
Has a recent case caught your eye?
SC Adient (Case C–533/22). A case that (at the time of writing) is still awaiting judgment. It is a post-Brexit CJEU case, and I refer you to Jeremy Woolf’s article (page 10) for what that means!
It concerns the VAT place of supply rules. Where business A supplies services to business B, the services are normally treated as supplied where B ‘belongs’ for VAT purposes. This is broadly where B has its ‘business establishment’ (usually its headquarters). Only where that produces an irrational result would one look to a different place – a so-called ‘fixed establishment’ the key characteristic of which is having the human and technical resources to receive and use the services.
Questions often arise where the services are actually used by B at multiple locations, or where a third party is involved (such as a B subsidiary). Where then should A’s services be treated as supplied? A host of cases from DFDS (Case C-260/95) to Welmory (Case C-605/12) to Berlin Chemie (Case C-333/20) have clarified and muddied the waters in equal measure, and SC Adient is the latest in this line. It remains to be seen whether it will illuminate or complicate (on when a third party such as a subsidiary can be treated as a ‘fixed establishment’, in particular); and, of course, the extent to which it will be followed in the UK.
Finally, you might not know this about VAT but…
VAT is not 20% of the price (or fee). It is 20% of such part of the amount as, with the addition of VAT, equals the amount (VATA 1994 s 19). So if you provide services and ask only for 100, the VAT is 20% of 83, which is 17, which has to be funded from the 100. If you want to keep the whole of the 100, make sure you ask for – i.e. that the contract expressly asks for – 100 ‘plus VAT’.
One minute with Etienne Wong, VPG National Chair, Finsbury chapter.
What development should we look out for later this year?
In VAT city right now, the kaiju monster is the Labour Party’s promise to levy VAT on private school fees. Much of the focus has been on the politics, but there are few fresh arguments there; on the technical (VAT) side, however, everything is new. The exemption for education, including private education, is enshrined in the EU VAT Directive, and if the UK were still in the EU, this simply cannot happen. This, then, is arguably the first unequivocal Brexit dividend.
How the tax will be levied will, of course, be interesting, but what is even more interesting is the notion that schools that, today, are exploring ways to preserve the VAT-free status of their services are somehow engaging in some form of tax avoidance. Can such arrangements really be characterised as tax avoidance when there is no tax on the services under current law and 0% chance of the sitting government ever changing that, and the only possibility of tax ever being levied lies in the hands of the electorate for an election that has yet to be called? Some seem to think so. That raises questions on legal certainty, retroactive legislation and where to draw the line between ‘acceptable’ and ‘unacceptable’ tax avoidance – questions that seem, to me at least, far more interesting than the politics.
If you could make one change to tax, what would it be?
The rules on food (VATA 1994 Sch 8 Group 5). It only matters for VAT whether a Jaffa Cake is a cake or a biscuit (United Biscuits (LON/91/160)), or whether Pringles are made from the potato (Procter & Gamble [2009] EWCA Civ 407), or whether poppadoms sold under the ‘Sensations’ brand are similar to potato crisps (Walkers [2024] UKFTT 31). While I am sure it is every tax practitioner’s dream to analyse in depth the ingredients, process of manufacture, marketing and packaging of a food product like Rebecca Porter (page 12), I query whether in this day and age, the basis of the code is still sound, and whether it ought to be retooled. Should cakes still escape tax? Should out-of-shell nuts be taxed simply because they are salted or roasted? There is at least a good case for debate.
Has a recent case caught your eye?
SC Adient (Case C–533/22). A case that (at the time of writing) is still awaiting judgment. It is a post-Brexit CJEU case, and I refer you to Jeremy Woolf’s article (page 10) for what that means!
It concerns the VAT place of supply rules. Where business A supplies services to business B, the services are normally treated as supplied where B ‘belongs’ for VAT purposes. This is broadly where B has its ‘business establishment’ (usually its headquarters). Only where that produces an irrational result would one look to a different place – a so-called ‘fixed establishment’ the key characteristic of which is having the human and technical resources to receive and use the services.
Questions often arise where the services are actually used by B at multiple locations, or where a third party is involved (such as a B subsidiary). Where then should A’s services be treated as supplied? A host of cases from DFDS (Case C-260/95) to Welmory (Case C-605/12) to Berlin Chemie (Case C-333/20) have clarified and muddied the waters in equal measure, and SC Adient is the latest in this line. It remains to be seen whether it will illuminate or complicate (on when a third party such as a subsidiary can be treated as a ‘fixed establishment’, in particular); and, of course, the extent to which it will be followed in the UK.
Finally, you might not know this about VAT but…
VAT is not 20% of the price (or fee). It is 20% of such part of the amount as, with the addition of VAT, equals the amount (VATA 1994 s 19). So if you provide services and ask only for 100, the VAT is 20% of 83, which is 17, which has to be funded from the 100. If you want to keep the whole of the 100, make sure you ask for – i.e. that the contract expressly asks for – 100 ‘plus VAT’.
