The Queen's speech outlined the UK government's legislative agenda, including three key bills related to Brexit - the Repeal Bill, Trade Bill, and Customs Bill. The Repeal Bill will repeal the European Communities Act and convert EU law into domestic UK law. The Trade Bill will enable the UK to independently negotiate trade deals after leaving the EU. And the Customs Bill will establish a new UK customs regime and duties once outside the EU customs union. Two recent tax cases were also summarized. HMRC lost an appeal regarding VAT exemption on financial services provided by Coinstar coin-counting kiosks. And HMRC won an appeal where construction works were ruled to be alterations to an existing building, not eligible for zero

1. © 2017 Grant Thornton UK LLP. All rights reserved.
ITU
Summary
This week, the Queen opened
Parliament and gave her speech
outlining the Government’s
business for the next couple of
years.
Included in the legislative
programme are three important
Bills dealing with the repeal of
the 1972 European Communities
Act, a Trade Bill which will
provide the UK with the
necessary laws to begin
negotiating independent trade
deals and a Customs Bill which
will establish a UK customs
regime post Brexit.
The Upper Tribunal has issued
two judgments. HMRC v
Coinstar concerns the VAT
exemption for financial services.
HMRC v J3 Building Solutions
Ltd concerns whether works of
alteration to an existing building
qualified for zero-rating.
HMRC won the latter case but
lost the former.
28 June 2017
State Opening of Parliament – Queen’s Speech
This week we saw Her Majesty the Queen deliver her speech on the State opening of
Parliament. The speech contained announcements for the Government’s legislative
programme for 2017 to 2019. Of the 22 announced Bills, the three of most interest to
businesses and advisors alike are the Repeal Bill, the Trade Bill and the Customs Bill.
The Repeal Bill
This Bill will be introduced to repeal the 1972 European Communities Act which took
the UK into the European Union. It will ensure that, from Brexit day, EU law will be
converted into UK domestic law. This will end almost 50 years of EU law supremacy
over UK law and will return power to the UK to make its own laws. The jurisdiction
of the Court of Justice will also be curtailed.
The Trade Bill
Leaving the EU means that the UK will no longer be able to rely on approximately 40
trade deals negotiated with third countries. Accordingly, it will be necessary for the UK
to negotiate trade deals and trading relationships in its own right. The Trade Bill will
help to implement this independent trade policy and will be passed in time to enable
the UK to strike trade deals from Brexit day in 2019.
The Customs Bill
It seems fairly clear that leaving the EU means that the UK will no longer be a member
of the Single Market nor the Customs Union. Despite the wishes of many, it seems
that a ‘hard’ Brexit is inevitable. Of course, it is possible that negotiations may change
the outcome but the Customs Bill is necessary to provide new laws to replace the
existing EU Customs legislation if the inevitable comes to fruition. The Customs Bill
will ensure that the UK can set its own duties for imported goods and set the
appropriate duty rates. The Bill will also introduce new laws in relation to customs
controls on import and export. Presently, movements of goods between Member
States of the EU are not subject to customs duty or controls. From Brexit day, all
movements into and out of the UK will require customs clearance.
Comment – Whilst there is clearly a long way to go and the Brexit landscape
may change as negotiations take place, these three Bills will put in place the
necessary UK laws to implement the UK’s post Brexit trade and customs
strategy. It seems clear that businesses need to prepare for an exit from both the
Single Market and the Customs Union and those preparations need to start
sooner rather than later.
Issue14/2017
Brexit: - Repeal, Trade & Customs
Bills announced
Indirect Tax Update

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HMRC v J3 Building Solutions Ltd
Upper Tribunal
This case concerned the VAT liability of construction services. The works related to the creation of a
new dwelling which incorporated three walls of an existing structure. HMRC considered that the
First-tier Tribunal (FTT) was wrong to allow the taxpayer’s appeal as it was clear from the facts that
the works related to the alteration of an existing building. VAT law was changed in 1989 such that
there now exists a statutory definition of the term ‘existing building’. A building ceases to be an
existing building when it is completely demolished to ground level. However, there is an exception to
that rule if, for planning reasons, a single façade (or on a corner plot a double façade) is retained.
Here, three walls were retained so HMRC appealed the FTT’s decision that the works qualified for
zero-rating. The Upper Tribunal considered that the FTT had misdirected itself and failed to take
account of the statutory definition of ‘existing building’. In the circumstances, as there was clearly an
existing building, the works of alteration were to that existing building and the works did not qualify
for zero-rating. HMRC’s appeal was allowed.
The taxpayer cited the case of Astral Construction Ltd. In that case the Upper Tribunal found that
the incorporation of an existing, albeit derelict, church into a much larger construction was the
construction of a new building and not the alteration of an existing building. The Upper Tribunal
confirmed that, in its judgment the facts in the two cases were entirely different and, as such, Astral
Construction Ltd could be distinguished.
Comment
To lose its status as an
existing building, the
law states that a
building must be
demolished to ground
level. The only
exceptions being if one
(or occasionally two)
walls are retained as a
condition of planning
or similar permission.
Applying that law, it
was clear in this case
that the construction
works were in relation
to an existing building
as, in fact, three walls
were retained.
Coinstar Ltd
Comment
This was a heavy defeat
for HMRC. The
Tribunal dismissed
each and every one of
its grounds of appeal
and, on that basis, it is
difficult to see on what
grounds it could appeal
the matter further.
Again, the Tribunal has
looked at the
contractual position
between the taxpayer
and the customer and
has also taken account
of the economic reality.
On the facts, the Upper
Tribunal’s judgment
seems entirely
reasonable.
Upper Tribunal
This was HMRC’s appeal from a decision of the FTT. Coinstar operates ‘kiosks’ in supermarkets in
the UK. Customers can deposit quantities of coins into a kiosk machine and the machine will count
the coins and display the total value of the coins inserted. Before inserting the coins into the machine,
the customer has a choice. He can either donate the value of the coins to charity or he can choose to
convert the coins into a voucher which he can either encash in the supermarket or he can choose to
use the voucher as a payment towards his shopping bill. If he chooses the voucher option, he agrees
to pay Coinstar a fee of 9.9%. HMRC argued that this fee was consideration for Coinstar’s service of
simply counting the coins and that VAT was due on the fee. Coinstar on the other hand argued that
the supply that it made was a financial service – the exchange of coins into a voucher which could
then either be encashed or used by the customer. Coinstar argued that this service should be exempt
from VAT. The FTT found in favour of Coinstar and HMRC appealed to the Upper Tribunal.
The Upper Tribunal dismissed HMRC’s appeal on all grounds. The Tribunal concluded that when
the transaction is viewed from the customer’s perspective, he was not contracting with Coinstar for
the taxpayer to simply count his coins. The economic reality was that a customer choosing the
voucher option was contracting with Coinstar to obtain the voucher and, whilst the supply of the
voucher clearly involved counting the coins, that was not the main purpose.
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