Practitioners are often required to determine whether mixed supplies are (for VAT purposes) a single supply with one VAT rate applying to all elements of that supply, or separate supplies with separate VAT rates.
In the ECJ case of BGŻ Leasing sp. zoo v Dyrektor Izby Skarbowej w Warszawie (C- 224/11, released on 17 January 2013), the taxpayer invoiced its customer for a lease of goods and for insurance on those leased goods. The insured party was the taxpayer and the insurance costs were re-invoiced without a mark-up.
The taxpayer believed there were two separate supplies: a lease of goods which should bear a VAT charge, and a recharge of insurance which should be exempt. The Polish VAT authorities argued that there was one single supply which was subject to VAT at the standard rate (the lease of goods) and that the re-charged insurance was also subject to the standard rate as part of that single supply.
The ECJ decided that the taxpayer was correct, on the grounds that the insurance could be obtained by the lessee either via the taxpayer or from any other insurance provider. In this case, the lessee had obtained the insurance via the taxpayer (the lessor), but the insurance remained an independent supply which it was not so closely linked to the lease of goods that it was artificial to split the two supplies.
This decision could have helpful implications for businesses which lease items from lessors and make other purchases from lessors. Consider a tenant who leases a property from a landlord, but also purchases other services from the landlord. If the tenant is a business which cannot recover all its input VAT; and if the landlord charges VAT on its commercial rent and on all other services it supplies to the same tenant; then this ECJ case provides the tenant with grounds for claiming that VAT should not be charged at the standard rate on those services which could be obtained elsewhere but which are not ordinarily standard-rated (e.g. insurance).
Business tenants which are unable to recover all their input VAT include the following.
- Financial service providers (e.g. financial advisers, share brokers, banks, etc.)
- Insurance providers
- Education providers
- Health care businesses
- Building developers
- Sports bodies
- Gambling businesses (e.g. betting, gaming, lotteries, etc.)
- Cultural bodies (e.g. museum, art gallery, zoo, theatre, etc.)
- Associations (e.g. trade unions, professional associations, public interest bodies, etc.)
HMRC has not yet issued a response to the ECJ decision and could yet choose to challenge claims made by taxpayers on the grounds provided by this case. Nevertheless, businesses often incur significant charges on non-rent items from their landlords (e.g. insurance) and such businesses should consider making claims to recover the VAT charged by their landlords on such items in the past, as well as seeking to ensure VAT is not charged on such items in the future.