The document summarizes key indirect tax developments in the UK, including: 1) Prime Minister Theresa May confirmed the UK will leave the EU single market and customs union, meaning UK-EU trade will require customs formalities and tariffs. This will significantly impact businesses that trade with the EU. 2) The Court of Justice ruled that car parts salvaged from scrap vehicles can be considered "second-hand goods" for VAT purposes, allowing their sale under the favorable VAT margin scheme. 3) The First-tier Tribunal allowed several pension schemes to belatedly amend their grounds of appeal in a long-running VAT case regarding fund management fees, considering it fair to admit a new argument related to ongoing

1. © 2017 Grant Thornton UK LLP. All rights reserved.
ITU
Summary
The major talking point this
week is the Prime Minister's
speech on Tuesday in relation to
the UK's exit from the European
Union (the so called Brexit).
The headline from an indirect tax
perspective – that the UK would
leave the Single Market - was well
trailed in advance. This will have
major implications for any
business that trades within the
territory of the EU as the
movement of goods under such
a regime will require a return to
import and export formalities.
In other news the Court of
Justice has issued a judgment of
interest in relation to the supply
of second hand goods under the
margin scheme.
Finally, the First-tier Tribunal has
issued a direction which allows a
number of pension schemes to
belatedly amend their grounds of
appeal in a long-running case
relating to the VAT liability of
fund management fees.
19 January 2017
Prime Minister signals UK will leave single market
In her first major speech on the UK's exit from the EU, Prime Minister Theresa May
has confirmed that, in the circumstances, it will not be possible for the UK to remain
within the EU's Single Market. Moreover, she also cast doubt on whether the UK can
remain as a member of the customs Union.
Leaving the Single Market will have major implications for businesses that trade with
the remaining 26 countries of the EU. In essence, the UK will become just another
'third' country for VAT purposes. Businesses supplying goods from the UK to the EU
will be required to formally export those goods and businesses purchasing goods from
the EU will have to undergo import formalities just as they do now when importing
from outside the EU.
If the UK leaves the Customs Union, it is likely that goods moving between the UK
and the EU will be subject to tariffs. The imposition of Customs duty will almost
certainly mean that the price of the imported goods will increase. Whether the
increased costs can be passed on will depend on the terms of any contract between the
importer and his customers but if the cost remains with the importer, then this will
undoubtedly have an impact on profit margins.
Theresa May has said that Article 50 is likely to be invoked by the end of March 2017
triggering a two year period for intense and difficult negotiations between the UK and
its global trading partners. The message from Grant Thornton UK LLP is clear.
Assuming that the proposed timetable is adhered to, Spring 2019 is only just over two
years away and affected businesses should lose no time understanding how these
changes might affect them, their supply chains and their profitability.
There has been much speculation since the referendum in June 2016 as to exactly what
kind of Brexit would happen. Now that the Prime Minister has made it unequivocally
clear, businesses should begin the process of reviewing how Brexit will affect them and
put plans and budgets in place to deal with the inevitable changes.
Comment – much of the finer detail is still missing. Indeed, the issue of
whether the UK can or will remain a member of the Customs Union has still not
been resolved. However, it is clear that the UK will definitely leave the Single
Market. That alone is sufficient reason for affected businesses to take action
now.
Issue01/2017
Britain - prepare for a 'hard Brexit'!
Indirect Tax Update

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GRT100456
Court of Justice
Supplies of car parts are 'second-hand' goods
In a Danish referral to the Court of Justice, the Court has ruled that parts taken form an 'end of life'
vehicle should be regarded for VAT purposes as 'second-hand' goods.
The business in this case acquired scrap vehicles from either members of the public or insurance
companies. The business then salvaged any usable spare parts and sold them on. The question
referred to the Court of Justice by the Danish courts was whether parts such as those in this case
could be regarded for VAT purposes as second-hand goods and thus eligible to be sold under the
margin scheme. The VAT Directive defines 'second-hand' goods as "movable tangible property that
is suitable for further use as it is or after repair". However, the Danish tax authority considered that,
because the parts were merely components of a larger good (the vehicle), they could not, themselves,
be regarded as movable tangible property.
The Court found that there is no restriction in the Directive as to what constitutes such movable
tangible property. The only condition is that the used property maintains the functionalities it
possessed when new. Accordingly, parts taken from used vehicles which are capable of being used as
is or after repair meet the statutory definition of 'second-hand' goods and the supplier is entitled to
benefit from using the VAT margin scheme.
Comment
The margin scheme is
available to businesses
that sell goods that they
have acquired from
non-taxable persons. It
is designed to provide a
fair mechanism for
accounting for VAT on
the value added. Here,
the dealer acquired
vehicles and salvaged
spare parts. The Court
has ruled that those
parts are eligible for
inclusion in the margin
scheme and VAT is,
therefore, only due on
the margin made.
Wheels Common Investment Fund Trustees Ltd & Ors
Comment
This was a surprise
move by the Wheels
Trustees. Not
surprisingly, HMRC
opposed the
application considering
that, in effect, the
Trustees were seeking
to argue a completely
different case to the
one that had already
been argued and
referred to the Court of
Justice.
Despite that, the
Tribunal considered it
fair and just for the
Trustees to amend its
grounds of appeal.
Appellants entitled to amend Grounds of Appeal
This case is a long running matter. It concerns whether supplies of investment management services
provided to the various pension schemes qualify for exemption from VAT. The issue was settled at
the Court of Justice in March 2013 where it ruled that the defined benefit pension schemes were not
'special investment' funds for the purposes of the VAT exemption of fund management services.
Having returned to the referring court (the UK First-tier Tribunal), the Trustees made an application
to the Tribunal for it to include a new ground of appeal. The Tribunal has discretion to allow such an
application if it considers it fair and just to do so. The Trustees in this case became aware of a
separate strand of litigation being pursued by United Biscuits. The principal ground in that case (a
claim in Restitution at the High Court) is that the different VAT treatment afforded to insurance
based pension schemes which do benefit from VAT exemption of fund management services was
contrary to the EU principle of fiscal neutrality.
Even though the Wheels' Trustees had never previously aired that new ground at earlier hearings
(including at the Court of Justice), the Tribunal was asked to admit it and to stay any further
proceedings until such time as the United Biscuits case has been determined. The Tribunal
considered that, as it had not yet determined the appeal, it was entitled to allow the appellant Trustees
to amend its grounds of appeal and, accordingly, it allowed the Trustees' application.
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
Vinny
McCullagh
London & South East vinny.mccullagh@uk.gt.com (0)20 7383 5100