When is income not liable to VAT?

In the First Tier Tribunal case of Dr Amir Ali Majid [2012] UKFTT 144(TC) published on 6 March 2012, HMRC sought to argue that income from Dr Majid’s self employed office as a part-time Immigration Judge rendered him liable to VAT registration due to the level of his taxable supplies.  However, the Tribunal considered there was no clear association between his past practice as a barrister and his acceptance of the office of Immigration Judge. Dr Majid was not liable to be registered for VAT solely in respect of his earnings as a part-time Immigration Judge and accordingly the Tribunal allowed his appeal.

This was an unusual and exceptional case.  The Tribunal found that the process by which HMRC arrived at the decision that Dr Majid was liable to register for VAT omitted a step in the required logic. Merely because Dr Majid had been deemed for income tax purposes to be self-employed, it was assumed that he was a taxable person for VAT purposes and that he should therefore have been registered. The question whether he was a person independently carrying on an economic activity did not appear to have been asked. In the Tribunal’s view, this led to an erroneous decision by HMRC.  His legal qualification was (and is) essential to his role as an Immigration Judge, but there was no evidence that he accepted the role as part of his practice. Accordingly, the Tribunal found that he did not fall within VATA 1994 s 94(4).

This case highlights an important issue when considering VAT registration often overlooked in EU legislation…a person must be independently carrying on an economic activity.

For further information please call TaxDesk on 0845 4900 509 and ask for Vaughn Chown.