The document discusses three recent cases from the Upper Tribunal related to VAT and excise duty. In the first case, the Tribunal ruled that freemasonry activities do not qualify for VAT exemption because its main aims were self-improvement and brotherhood rather than philosophical, philanthropic, or civic aims. In the second case, the Tribunal determined that a community sports pavilion did not quality as a village hall for VAT purposes. Finally, the Tribunal ruled that a transport company must pay over £6 million in unpaid excise duties as the guarantor after goods went missing in transit.

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ITU
Summary
January 2016 is only six weeks
away which does not leave much
time for businesses with overseas
branches to regularise their VAT
position following the Court of
Justice judgment in Skandia
America Corp.
The Upper Tribunal has issued a
number of important judgments
this week. The first concerns the
question of whether freemasonry
is a philosophical, philanthropic
or 'civic' activity which should
benefit from VAT exemption.
In a second case, a UK business
has lost its appeal against a
requirement to pay, as guarantor,
an excise duty assessment of
over £6 million.
Finally, the Upper Tribunal has
ruled against a Community
Association that the construction
of its new sports pavilion should
have been zero-rated.
25 November 2015
Impact of Skandia judgment
Readers will be aware that HMRC has issued new guidelines on VAT accounting
where a business has establishments in countries which operate Swedish style VAT
groups (see our Indirect Tax Update 30/2015 and HMRC's R&C Brief 18/2015). – A
Swedish style VAT group is one which only includes the branch in the VAT group
whereas a UK style VAT group includes the whole corporate entity.
In simple terms, from January 2016, affected businesses will be required to account for
UK VAT under the reverse charge rules if it receives taxable services from a branch in
an overseas Swedish style VAT group. Similarly, where services are provided to such a
branch, UK business will be required to report these transactions on a European sales
list. Hitherto in the UK, supplies between branches of an entity were ignored for VAT
purposes but the Court of Justice judgment in the case of Skandia America has turned
previous thinking and policy on its head.
Businesses with no overseas branches are not affected by this judgment but any
business that has branches established in overseas territories (both EU and non-EU)
where those branches are included in a Swedish style VAT group, has only a short
window to regularise its VAT position.
In the Skandia judgment, the Court of Justice ruled that, where a branch is included in
a VAT group, it loses its own identity as a branch. The Court considers that the VAT
group itself becomes an entity and, no matter how many companies and branches are
included in the VAT group, it is the VAT group that becomes the taxable person for
VAT purposes. The consequences of this ruling are far reaching although HMRC
considers that its operation of the VAT group rules in the UK does not require a
change of law.
Comment – The Skandia judgment means that affected businesses must
establish the correct VAT treatment and reporting requirements for any
transactions with overseas branches that are members of VAT groups. The new
accounting and reporting requirements 'kick in' on 1 January 2016 so, with
Christmas and holidays approaching fast, there is now very little time left to
take appropriate action. Businesses should consult urgently with their usual
Grant Thornton VAT specialist to consider the available options.
Issue31/2015
VAT groups – January 2016 deadline
approaching
Indirect Tax Update

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GRT100456
Upper Tribunal
Freemasonry – not VAT exempt
The Upper Tribunal has dismissed The United Grand Lodge of England's appeal in a case which
related to whether the main aim or aims of the activities carried on by freemasons in the UK were
philosophical, philanthropic or civic such that they could benefit from the VAT exemption provided
in EU law by the VAT Directive.
The First-tier Tax Tribunal (FTT) had dismissed the Grand Lodge's appeal and the Upper Tribunal
has found that the FTT was correct to do so. While the aims of freemasonry included aims of a
philosophical, philanthropic and civic nature, the FTT found that these aims were not the main aims.
Indeed, the FTT concluded that, on the evidence, the main aims of freemasonry were those of 'self-
improvement', 'brotherhood', 'fellowship' and, to some extent, 'ritual'. As such, the exemption from
VAT could not apply. The Upper Tribunal could find no fault with the FTT's conclusions or
reasoning and, as a result, dismissed the appeal.
Comment – this case demonstrates that VAT exemptions are generally construed very strictly. For an
exemption to apply, the specific conditions of the exemption must be met in full. Here, for the
exemption to apply, the United Grand Lodge had to ensure that its main aim or aims were qualifying
aims. On the evidence, both the FTT and now the Upper Tribunal were not satisfied on that point.
Comment
The United Grand
Lodge decision will be
disappointing for
freemasons as their
subscriptions for
membership will be
subject to VAT at the
standard rate. The
Tribunal concluded
that the aims of 'self
improvement',
'brotherhood',
'fellowship' and 'ritual'
were the predominant
aims of freemasonry
and this was not
sufficient to secure
VAT exemption.
Upper Tribunal
Comment
It seems that for a
building to qualify as a
'village hall' it is
necessary for it to be
used for a range of
community activities
and not just for sport.
The Excise Duty case
serves as a salutary
reminder that if duty
suspended goods
'disappear' en-route, the
Customs authorities
will turn to the
guarantor for any
payment of duty that
becomes due.
New Deer Community Association
In yet another case relating to the construction of a sports pavilion, the Upper Tribunal has dismissed
an appeal by the New Deer Community Association. The FTT had ruled that the building in question
– a sports pavilion containing changing rooms and storage space for sports equipment – was not
used as a 'village hall' or similarly in providing social or recreational facilities for a local community.
The building did have a room which could be used for such purpose but, in essence, the building did
not have the characteristics of a Village Hall which generally, has much wider use in the community.
The Upper Tribunal considered that the FTT's original decision was, therefore, correct and dismissed
the Association's appeal.
HMRC v SDM European Transport Ltd (SDM)
In a case relating to Excise Duty, the Upper Tribunal has allowed HMRC's appeal. The case related
to the transport of a number of shipments of duty suspended goods (quantities of alcohol). The
goods failed to arrive at the planned destinations and HMRC sought payment of the Excise Duty
from SDM. The FTT found for the taxpayer in relation to most of the shipments but the Upper
Tribunal has allowed HMRC's appeal. As guarantor, SDM was, as a result, found to be liable for
Excise Duty in excess of £6 million.
Contact
Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683
Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556