Summary of recent indirect tax cases – Summer 2019

Tue 15 Oct 2019

highlightsThis article provides a short summary of some recent indirect tax cases. Please get in touch with a member of the Mazars indirect tax team to discuss issues arising from any of the points discussed.

Employment tax and VAT on workers travel expenses and the UT decision in Pertemps

The Upper Tier Tribunal (UTT) has ruled that Pertemps Ltd (Pertemps) did not make a supply for VAT purposes by operating a salary sacrifice arrangement relating to travel and subsistence expenses for temporary staff through its business.  This case illustrates some of the VAT issues that need to be considered when implementing salary sacrifice schemes.

Compensation paid to customers for insurance misselling did not result in a refund of IPT

The FTT case of (Homecare Insurance) held that compensation paid to customers in respect of insurance misselling did not result in a refund of insurance premium tax (IPT) for the business. The indirect tax treatment of compensation payments is not always straight forward.

Land & Buildings Transaction Tax and late submission penalties

Revenue Scotland won’t be appealing the Upper Tribunal decision in two cases (Begbies Traynor and Michael Harrison and Sharon Ross) relating to LBTT late submission penalties case (see 21 Aug LBTT Bulletin).   The administration around late submission penalties had created some concern about whether LBTT penalties were properly levied, and it may be worth reviewing your circumstances in the light of these cases.

Determining which party in a tripartite arrangement receives a supply of payment services

In the case of American Express Services Europe Ltd (AESEL) The First tier Tribunal has held that cash payments between two UK entities owned by a US parent were advances or loans, rather than contractual payment services between the two UK entities.

HMRC had contended that the advances paid by AESEL to AEPSL did in fact represent contractual requirements for AESEL to pay AEPSL. This would have had the consequence that the payment services were supplied to an entity within the EU (or UK) thus giving no entitlement to input VAT recovery on related costs.

The FTT considered that the reality of the contractual relationships was that the US parent (American Express Travel Related Services Company, Inc (‘TRSCo’)) was the network operator with contractual arrangements between the card issuer (AESEL – who issued the cards to individual customers) and the merchant acquirer (American Express Payment Services Limited (‘AEPSL’) – who had the relationship with the stores which accepted payment using the AMEX credit cards).

As a consequence AESEL was entitled to input VAT recovery on its costs, which over a four year period amounted to over £57m.

This case demonstrates that determining the contractual position is critically important for determining the VAT, and that this will only be overridden by the economic reality if the contractual position does not properly represent that position. In a global group with a centralised treasury operation, movements of cash between two entities may not directly represent the underlying contractual position.