Weekly VAT round up 25 November 2011

Floor space special partial exemption method acceptable

London Clubs Management Ltd ran a casino, bar and restaurant and successfully contended that the use of a floor space partial exemption method was fair and reasonable and was acceptable in place of a values based method.

The Court of Appeal (FTC/25/2009 UKUT 365) upheld the Upper Tribunal’s decision who had previously upheld the First Tier Tribunal’s decision.  The proposed partial exemption method apportioned residual input tax according to the use of floor space adjusted for drinks and food given away to customers using the gambling facilities.  Floor-based partial exemption methods often provide fair and reasonable results with regard to input tax recovery, but are often disliked by HMRC.  Businesses that have had a floor space method rejected should now review their positions.

To whom were the supplies made?

Canotec (TC01503) was entitled to recover the VAT charged to it by a leasing company on a payment to terminate the leases of its customers’ existing equipment.  Canotec supplied new equipment to its customers and agreed to secure the ending of lease payments to be made by their customers under the old agreement.  HMRC considered that Canotec was not entitled to the VAT charged on the termination fee.  The First Tier Tribunal disagreed with HMRC stating that as a result of the arrangements with its customers, Canotec was discharging its own obligations when making the payments to the leasing company and was therefore receiving the supplies from the leasing company and was entitled to reclaim the VAT charged.  This case highlights the importance of determining who is receiving a supply for VAT purposes.

Short lease does not spoil a transfer of a business as a going concern

In the German case of Christel Schriever (C-444/10), the ECJ determined that the fact that the transferee could give notice immediately on a lease of premises of indefinite length did not imply that the transferee was going to immediately cease the business or that part transferred.  The business was transferred as a going concern and was outside the scope of VAT.  This decision highlights the fact that if a business is transferred and can immediately be run as such, provided the other criteria are met the transfer of going concern conditions will be satisfied.

What is your snack made of ?

United Biscuits (UK) Ltd successfully contended in the First Tier Tribunal (TC01515) that their supplies of savoury snacks called Frisps and Discos which were made of wheat and potato should be zero rated. The First Tier Tribunal asked themselves, "can Discos and/or New Recipe Frisps be classified as similar products to potato crisps, potato sticks or potato puffs, made from the potato or from potato flour or from potato starch?".  They concluded that the supplies were not similar and should therefore be zero rated.  Businesses selling similar products should review their VAT liabilities.

For further information on how these decisions may affect your clients, please contact TaxDesk on 0845 4900 509 and ask for Vaughn Chown