This week’s edition begins with yet another case about the tricky borderline between liquid food, beverages, medicinal liquids and liquid medicine. This case serves to highlight the sheer number of tests, derived from case law, that have to be considered in order to decide if something is a beverage or not. There must be an easier way to resolve this question, surely. If you asked the fabled person on the Clapham omnibus whether a 60ml shot that was mostly turmeric (35g) was a beverage you could legitimately expect the answer to be no. Just because it is drunk rather than eaten does not automatically make it standard rated. Like wheatgrass juice (which was also the subject of a Tribunal that HMRC lost) these shots seem to be one of those products that epitomise the theory that if something is going to do you good it would be wrong for it to also taste delicious. They are not cheap, but at least they are now VAT free. A quick search shows how many similar sized shot products (ginger, fruit, vegetables etc) are on the market. Some might have more base liquid content than others though.

The next case is an interesting one about HMRC’s discretion and appeal rights and the scope to apply legislation retrospectively. The taxpayer had opted to tax without HMRC’s permission in a situation where permission was needed, because exempt supplies of the property had previously been made by the taxpayer, meaning the option was invalid. HMRC has had, since June 2008, the power to dispense with the requirement for prior permission and to treat a purported option as if it had instead been validly exercised. This is what happened here meaning VAT was due on the property sale in 2015 even though the option to tax the property had been invalidly exercised. Although the option had been invalidly exercised before 2008 the FTT was content HMRC could exercise its discretion in respect of supplies made after 2008 so the taxpayer lost the case as the sale was after 2008. The analysis of whether the taxpayer had the right to appeal HMRC’s decision to exercise its discretion is fascinating. Generally, an appeal about discretion concerns HMRC’s refusal to exercise discretion and whether that decision is reasonable so strictly the taxpayer had no right of appeal against HMRC’s decision to exercise its discretion. However, for the sake of fairness the FTT proceeded as though the taxpayer did have such a right, though in the end the taxpayer lost anyway. This case also looks at another question which comes up a lot – what did HMRC “know” at the time of the control visit in January 2008, (the visit which triggered the invalid option to tax), and how should this knowledge have affected HMRC’s subsequent decision to exercise its discretion eight years later.

Our third UK case this week should probably be read with a cold towel round the head. It is a classic who supplied what, to whom and where one. A UK sports agent received a lot of money from the club who signed a football player, for arranging the transfer of the player from one EU (non-UK) club to another. This is all pre- Brexit. HMRC argued most of the fee was third party consideration paid by the club for a supply to the player (a non-taxable person) meaning UK VAT was due under the default B2C rule (supply taxed where supplier belongs). The taxpayer argued the payment was just for the supply to the club as it had waived the payment it would otherwise have been entitled to for its services to the player. As a matter of contractual reality, the FTT decided the payment was only for the supply to the club. It is the alternate argument about the scope of Schedule 4A para 10 (the place of supply of B2C intermediary services) though that is the really interesting bit of this decision. The FTT decided that HMRC’s assertions about the meaning of intermediary (that an intermediary must have the power to bind) and that para 10 cannot apply if what is arranged is not itself a supply within the scope of VAT (i.e., the transfer of an employment contract) , were not in line with the Directive. So the taxpayer won on both arguments, but it will be interesting to see if HMRC appeal. The comment by the FTT that the club does not act as a taxable person when it acts in its capacity as employer is questionable Sports agents seem to be one of the few categories of agent that can make supplies to both parties in a deal.

After all the complexity of these UK cases it is a relief to finish with a much more straightforward ECJ case about what is supplied at a public charging point for electric vehicles. Electricity surely, I hear you cry, and indeed that was the answer. That is what the customers wanted. The fact they also received a parking space, access to fast chargers, an IT platform to pre book a connector and see transaction history and can obtain technical support if required did not change the nature of the supply.

The taxpayer appealed against a decision of HMRC refusing its Error Correction in relation to its supplies of turmeric shots which it argued were food falling within Group 1 Sch 8 VATA and subject to the zero rate. HMRC argued that the turmeric shots are beverages within Excepted Item 4 and are standard rated.The taxpayer manufactures, produces and sells turmeric shots with the aim of capitalising on the trend for “natural, raw nutrition to support and aid optimum health.”

Definition of beverage - There is no definition of “beverage” in the legislation and guidance has been adopted through case law. The Tribunal confirmed in The Core FTT that it is necessary to carry out a multi-factorial assessment to determine if a drinkable liquid is a beverage. The multi-factorial assessment comprises the five limbs of the Bioconcepts test, the unexpected guest test, the lunchtime substitute test, how the product is marketed, why it is consumed by the customer and the use to which it is put. HMRC guidance has adopted the Bioconcepts definition which defines a beverage as a drinkable liquid that is commonly consumed; and it must be

• characteristically taken to increase bodily liquid levels; or
• taken to slake the thirst; or
• consumed to fortify; or
• consumed to give pleasure.

The taxpayer argued that for the purposes of VAT law, “beverage” is not used in the sense of meaning all drinkable liquids. They submitted there are three non-exhaustive tests for determining whether a product falls to be excepted from the zero rate (not being a liquid food): the unexpected guest test, the lunchtime substitute test and the Bioconcepts test. Whilst the Tribunal in The Core FTT set out a longer multi-factorial test, the taxpayer argued this merely highlighted the need to consider the marketing and circumstances of consumption

The tests – The taxpayer argued the shots would not be classified as a beverage under the three tests.

Unexpected guest test: this overlaps with the requirement to consider the circumstances in which the product is consumed. HMRC accepted that the shots would not be classified as a beverage under this test. You would not offer a guest a turmeric shot as a drink.

Lunchtime substitute test: the test advanced in Kalron would not be satisfied as the shots would not be consumed in place of a beer over a City lunch or in place of any common beverage that might be served in a pub or restaurant

Bioconcepts test: argued that none of the five limbs which must consider the intention and purposes of who buys and consumes the product are met.

The taxpayer also argued that the shots are marketed to support wellbeing and do not compete in the same market as ordinary beverages and are not substitutes for common beverages.

HMRC argued that the Bioconcepts test was satisfied. If the shots did not satisfy the Bioconcepts test, the multi-factorial assessment in The Core FTT was satisfied as when considering taste, texture, manufacturing, marketing and use, the shots are consistent with the hallmarks for beverages.

FTT discussion – The FTT agreed with HMRC that the shots are a drinkable liquid commonly consumed.

They also accepted that there is no legal test for how much bodily liquid levels need to be increased to satisfy the second limb. However, the FTT did not accept that the shots were characteristically taken for that purpose – given the size of the shots, if this was the intention the consumer would choose an alternative liquid of greater volume with a lower unit cost.

On the third limb, the FTT also rejected HMRC’s submissions that the shots were used to slake thirst. Given the size of the shot, their taste and inclusion of flax oil and pepper, the FTT found a consumer would use a more pleasant tasting liquid of greater volume with a lower cost per unit if this was the purpose of consumption. No evidence was provided that the shots were “characteristically taken to slake thirst”.

The FTT agreed with the taxpayer on the meaning of “fortify” to mean “increase one’s vigour quickly” and the Tribunal in The Core FTT which considered “fortify” implied a short term boost rather than long term benefits. The shots do not provide an immediate or short-term physical or mental boost to the consumer but are designed to be consumed regularly to achieve an improvement in joint pain and reviews on the website and the way the product is marketed supports this view.

On the fifth limb, the FTT found that the shots have a strong taste and would not be consumed for pleasure or enjoyment. This was supported by the fact no sugars or sweeteners were added to make the shots more pleasant tasting and the taxpayer agreeing that the raw ingredients are an “acquired taste.”

The Tribunal then considered the other tests. The court agreed with the taxpayer that a shot would not be offered to an unexpected guest, as the size and taste of if renders it unsuitable to be offered as a general drink in a social situation. As it is intended to be consumed on a long-term basis in order to obtain any health benefits, there would be no reason to offer the shot as a one-off drink.

The FTT also rejected HMRC’s submission that the marketing of the shots made them akin to competitors’ beverages in the market that can be consumed on “the go” and be drunk by sports and non-sports people alike. The court found the shots were not marketed as beverages for a number of reasons. Firstly, the marketing is based on the nutritional content of the ingredients and as requiring regular daily consumption over at least three months to secure the advertised health benefits. Secondly the most popular method of purchase is direct from the taxpayer via a subscription service. Thirdly, the shots are marketed as unpasteurised and must be refrigerated, reducing retail distribution possibilities, and therefore not competing in the same market as common beverages.

For the above reasons the Tribunal decided that the shots should properly be zero-rated for VAT purposes as being a drinkable food (a medicinal liquid) but not a beverage.

This case shows the multitude of tests that need to be considered in order to decide if a liquid product that is commonly consumed is a beverage. NB there is a mistake in the decision – the bottles each contain 35g of turmeric, not 35mg.

To access the decision, click here.

This case concerns the option to tax, particularly HMRC’s discretion to treat an invalid option to tax as if it has been validly exercised under Sch 10 para 30. It also looks at the principal of estoppel, whereby a person may be prevented from relying on a particular fact or argument in certain circumstances.

Estoppel by convention “is founded, not on a representation of fact made by a representor and believed by a representee, but on an agreed statement of facts the truth of which has been assumed, by the convention of the parties, as the basis of a transaction into which they are about to enter.” Where a party A has assumed some responsibility for the common assumption, and another party B has relied upon that and as a result suffered some detriment sufficient to make it unjust for A to assert the true factual position (rather than the agreed assumption), then A may be estopped from relying on the point.

Where exempt supplies of a property have already been made by a taxpayer, permission to opt to tax must be sought from HMRC prior to opting (unless the automatic permission criteria are met). However, under VATA, Sch 10, para 30, HMRC have the power to retrospectively dispense with the requirement for prior permission, and to treat a purported option as if it had instead been validly exercised. This provision was introduced with effect from 1 June 2008 (when the old Sch 10 was replaced).

In this case, the taxpayer (“Rolldeen”) purchased a property in 2006 (on which it was not charged VAT). Following a compliance visit in January 2008, a VAT 1614A option to tax notification was submitted in relation to the property, and Rolldeen reclaimed VAT on repairs and other property costs and charged VAT to its tenants. The property was sold in 2015 but Rolldeen did not charge VAT. In 2017 HMRC issued assessments including £50,000 relating to the failure to charge output VAT on the sale, but the assessments were not appealed. The following year, Rolldeen’s new representative wrote to HMRC claiming that leases dated prior to the effective date of the OTT showed that Rolldeen had already made exempt supplies, and that as permission to opt to tax was required but had not been sought the OTT was not valid. In response HMRC issued a decision stating that HMRC were exercising their discretion under Sch 10, para 30 to treat the property as opted with effect from 10 January 2008, and it was this decision (“the OTT Decision”) that Rolldeen appealed.

Despite Rolldeen having confirmed twice in writing (on the VAT 1614A and in response to a follow up from the officer dealing with the OTT) that it had made no exempt supplies of the property, it subsequently tried to argue that because HMRC knew (as a result of the compliance visit) that it actually had previously made exempt supplies, it was unreasonable of HMRC to have exercised the para 30 powers because they had failed to take this into account.

The Tribunal decided that:

• Even though the deeming provisions in para 30 only came into effect from 1 June 2008, this does not prevent them from being applied to purported OTTs given before that date, as far as they relate to supplies made after that date.
• Rolldeen had no right of appeal against the OTT Decision - even though HMRC accepted that Rolldeen did have a right of appeal under s.83(1)(wb), the Tribunal decided that the appeal right is against a “refusal” by HMRC to exercise a discretion under Part 1 of Schedule 10, and in this case HMRC have not refused to do anything. Rolldeen’s alternative argument that the appeal should be regarded as being against HMRC’s refusal to reverse its OTT Decision, but the Tribunal noted that “that was not what happened”.

However, given both parties were of the view there was an appeal right, and the apparent imbalance where a person who applied for HMRC to use their discretion under para 30 would have an appeal right if they refused to do so, the Tribunal went on to consider the position were Rolldeen to have an appeal right.

• In the alternative, if Rolldeen did have an appeal right, the Tribunal found that Rolldeen is estopped from putting forward the argument that HMRC acted unreasonably in failing to take into account that an HMRC Officer had known that exempt supplies had previously been made before VAT1614A was submitted.

This is interesting because of the analysis of the scope of appeals that relate to the exercise of HMRC’s discretion rather than a refusal to exercise discretion.

To read the decision click here.

The taxpayer (the “agent”) who is in the UK, received a payment of €4 million (the “payment”) from Football Club Internazionale Milano SpA, (“the Club”) an Italian football club in relation to the transfer of a Portuguese football player to it from Sporting Clube de Portugal (“Sporting”), a Portuguese football club. The taxpayer had three main business activities. Firstly, entering into representation agreements with players to be their exclusive agent. Secondly, advising football clubs including facilitating player transfer to clubs. Finally, providing advice on the negotiation of employment contracts between a player and a club. Under the contract with the player, the taxpayer was entitled to a fee of 10% of the player’s gross salary of €30 million from the Club, however the taxpayer had waived its entitlement to be paid anything by the player.

The facts of this case are complex as the parties and supplies are made between the UK, Italy and Portugal. The issues are:

• whether the services are supplied to the player or to the Club;
• was the payment of all or part of the €4 million paid by the Club to the agent payment for services supplied to it or third party consideration for services to the player; and
• was the place of supply the UK or Italy?

It was accepted that the Club is a relevant business person, but that the player is not, for the purposes of s7a VATA. The taxpayer argued that all of the payment from the Club was consideration for services supplied by it to the Club, and the place of supply was Italy (default B2B place of supply) and that it was not consideration for a supply of services to the player. The contracts do not suggest that the Club was making a payment as a third party in consideration for the services supplied to the player and there is no reciprocity of supply and consideration between the player and taxpayer.

Alternatively, if there was a supply to the player then it falls within the place of supply special rules for intermediaries in para 10 Sch 4a VATA and was outside the scope of UK VAT as the supply arranged was not a UK supply:

• “10(1) A supply of services to which this paragraph applies is to be treated as made in the same country as the supply to which it relates.
• (2 )This paragraph applies to a supply to a person who is not a relevant business person consisting of the making of arrangements for a supply by or to another person or of any other activity intended to facilitate the making of such a supply.”

HMRC disagreed and argued that the supply to the player was that of negotiating his employment contract with the Club, so that the taxpayer was facilitating the transaction between the Club and the player but was not acting as an intermediary. Intermediaries must have the power to bind and in any case there was no underlying supply arranged as the player is an employee and does not make supplies to his employer so para 10 does not apply and the default B2C place of supply rule applies. Only €1 million related to services supplied by the taxpayer to the club. As a result output VAT was due on €3 million of the payment as this amount was third party consideration paid by the Club for a supply made by the taxpayer to the player which was a supply made in the UK. HMRC’s argument about the meaning of intermediary (its response to the alternative argument) is interesting. HMRC says that as the taxpayer did not act in the name and on behalf of another person because it has no power to bind, it cannot be an intermediary as Schedule 4A para 10 must be read in conformity with the Directive.

In reaching its conclusion, the court adopted the approach in Newey CA which stated that there is a supply of services for consideration only where there is a legal relationship between the provider of the service and the recipient to which there is reciprocal performance, and the remuneration received constitutes the value actually given in return for the service. The contractual arrangements cannot by themselves determine the VAT – it is necessary to look at the economic and commercial reality. The court had sympathy for HMRC’s position that there would be untaxed consumption by the player of the services provided to him – but for there to be taxable consumption, there must be a supply of services for consideration, and the court found there was no consideration provided for the supply of services by the taxpayer to the player. This is supported by the economic and commercial reality (the waiver letter). The paid for services were supplied to the Club and therefore the place of supply was Italy.

Para 10 Sch 4a – although the taxpayer won on its first argument, the FTT did briefly consider the alternative para 10 argument. The court found that at face value it was clear the taxpayer was undertaking activities to facilitate the supply of the player’s transfer between the two Clubs. It had to ensure the registration and employment contract was transferred to the Club. This brought its services within para 10. In this case, there is a non-taxable transaction because when acting in its capacity as employer, the Club does not act as a taxable person as it is not acting independently and therefore supplies made by it in that capacity are outside the scope of VAT. However the FTT decided the intermediaries’ rule can apply even if the underlying transaction that is arranged is outside the scope of VAT.

To access the decision click here.

The taxpayer operated electric vehicle recharging stations. Its customers obtained, for a single price, (which would depend on the duration of the recharging session as well as the amount of electricity used), access to the recharging devices, the electricity needed to recharge their vehicles and any technical support needed. The taxpayer also planned to build an IT platform which would allow customers to reserve connectors and view their transaction and payment history.

It wanted to treat its supplies as services not goods. The reason for this is not explained but it may have something to do with the different time and possibly even place of supply rules for services as customers could opt to pay at the end of a billing period and the decision does not say whether all the customers are Polish resident consumers.

The referring court mentions the fact that the fee charged includes a fee for parking and that a non-VAT Directive (2014/94) refers to recharging as a service as factors that persuaded it the position was not clear and a reference was needed.

The ECJ has decided there is a single complex supply of goods (electricity). Electricity is the predominant element. The technical support and access to the IT platform are ancillary while access to the connectors is a minimal supply of services necessarily accompanying the electricity supply and should be ignored when assessing the part played by services in the complex supply. The inclusion of a fee for standing time simply means the unit price charged for the electricity reflects the time the recharging devices are in use. The unit price is slightly higher where a fast recharger is used but that does not mean the user is paying for access to the quicker device as a separate supply.

This is an eminently logical decision. While the availability of a fast recharge at these recharging points by comparison to recharging at home or at work is attractive, it is indisputable that what the customer wants and needs when it uses a public recharging point is the electricity. How it is charged for does not change that, and as we know from cases on the meaning of insurance, the terminology used in non-VAT Directives does not impact or affect the nature of a supply for VAT purposes.

To access the decision click here.