Recent VAT Cases

In our latest episode, our in-house VAT expert, James Hurst, shares some brief thoughts on recent VAT cases that caught his eye.

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Transcript

Hello, this is James Hurst at Mercia, talking about VAT at Mercia. We've recently finished our spring sessions of what's new for VAT updates, and so the task begins of pulling together material for the next six monthly updates, which will take place in the autumn. Now these VAT updates are traditionally focused around HMRC policy changes, plus developments in the courts that highlight points of wider interest and on occasion result in a new way of looking at certain areas of VAT. 

At the same time, I'm always keen to identify any trends in areas of HMRC’s focus. What I thought I'd do here is give a bit of a brief taster, and by this I do mean a brief taster, not going into great detail, but just to wet the appetite as it were, of a couple of the areas I'll be exploring in the next round of what's new for VAT in the autumn, based on some VAT tribunal decisions that have been published very recently. 

And talking of brief tasters and wetting the appetite. And yes, I do apologise for this none too subtle link here. What about the perennial topic of VAT and food? Well, we've very recently had the tribunal decision in Walker snack foods, and in particular, looking at the VA treatment of sensations Mini Popadoms has, has been back in the tribunal this time with walkers at the upper tribunal attempting to overturn their loss at the first tier tribunal last year, where Walkers unsuccessfully try to argue that sensations potatoes are zero rated. 

As with traditional Popadoms made largely from Graham flour rather than being a standard rated product as potato crisps, which is what HMRC have maintained. Mean, what do you think? Is a bag of sensations? Mini Popadoms really the same as a bag of crisps? Well, here, various factors were taken into account by the upper tribunal. 

Things like marketing perception, the packaging, the use of the word Popadoms, and so on. However, a key fundamental that the upper tribunal rightly focused on is the law. You have zero rating for food, but. Snacks are made from the potato. They're accepted items, meaning they fall outside of zero rating and hence they're standard rated. 

So what's the main ingredient of sensations? Popadoms. It's potato granules. So does this mean that potato granules is the same as made from the potato? Walkers argued. No, it, it didn't mean that. So, so did Walkers like the tortilla chip have a point. Again, apologies for the terrible pun. The upper tribunal thought not, and spoiler alert walkers have. 

Lost their latest case, albeit the reasoning is much more detailed than in this brief summary. But on these occasions, I always ask the question, why does any of this matter? We know, why do we talk about the VAT treatment of food? Well, there's several reasons, in my view, wider issues. For example, the VAT law on food is complex. 

It's archaic. New food products get invented. They're often don't easily sit in the existing legal framework. Um, it matters for manufacturers such as walkers because it's big business. The evidence is that where a product was sold as a standard rated item, but you can then argue for zero rating. 

You can adjust the selling price downwards. You make it more attractive to customers, you sell more of it, and you make more money in the long run through greater sales volumes. And then the complexity of the law around v at and food prompts debate about simplifying the law governing this particular area. 

So some suggest, for example, getting rid of zero rating altogether, having a reduced rate of VAT on all food stuffs. But then again, the economic analysis is. That lower income households spend a high proportion of household income on basic foods than wealthier house households. So is imposing VAT on basic foods really a fair thing to do for society? 

So I think there's lots to ponder there. Moving on. Then another ongoing trend in VAT cases highlighted by some very recent tribunal decisions concerns HMRC's attempts to limit the scope of exemption for medical services and in particular HMRC have been trying to ensure that standard rating applies to any. 

Treatments that are deemed to be cosmetic rather than medical in nature. So the last couple of years, HMRC been notably successful in the courts with a series of wins where they argue that the treatments in question are cosmetic and the hence fall outside of the scope of the medical exemption. 

What's, notable to me in the latest. Batch of tribunal decisions in the last week or so is that there have been, some taxpayer wins at last in this particular area. So this is where the taxpayer successfully defends exemption for their services. And the cases that have come out recently, concern areas such as dental prothesis for straightening teeth, and also intravenous drips and vitamin injections. 

There's also a recent case where HMRC took on an NHS trust for zero rating rather than standard rating supplies of drugs to cancer patients, which felt to me like a questionable use of resource by HMRC. Anyway, thankfully the courts have, again, found in favour of the taxpayer. So you know, that's noteworthy in terms of having some cases that have bucked the trend over the last couple of years. 

So, to draw these thoughts to a close what we always try to do in these, what's new for VAT sessions, in addition to thinking about the specific sectors, of course, is to bring out the wider learning points that might apply to other client situations. I do hope you can join us at one of the next sessions in the autumn. 

This is James Hurst at Mercia. Thank you for listening and goodbye.