This document summarizes three indirect tax cases: 1) ING Intermediate Holdings Ltd lost its £6 million input VAT claim after the Upper Tribunal ruled that ING provided banking services to its customers for consideration, making the services exempt from VAT recovery. 2) The Court of Appeal ruled against ELS Group in claiming retrospective use of the staff-hire concession, agreeing with HMRC that the concession requires an election at the time. 3) The First-Tier Tax Tribunal ruled that a fulfillment house could not reclaim over £500,000 in import VAT because the imported goods did not belong to the fulfillment house but to the overseas suppliers.

1. © 2016 Grant Thornton UK LLP. All rights reserved.
ITU
Summary
This week's edition of our
Indirect Tax Update looks at the
Upper Tribunal's judgment in the
case of ING Intermediate
Holdings Ltd. The case relates
to whether ING provided
banking services to its customers
for consideration and whether, as
a consequence, those services
were exempt from VAT
precluding a recovery of input
VAT.
We also look at the case of ELS
Group Ltd – a judicial review
judgment from the Court of
Appeal on whether HMRC's
decision not to allow
retrospective use of the staff-hire
concession was reasonable.
Finally, we discuss a case relating
to the recovery of VAT paid on
the importation of goods into
the UK by a fulfilment house
where the goods were not owned
by the UK taxpayer but by the
overseas supplier.
13 July 2016
ING Intermediate Holdings Ltd
This was an appeal by ING Intermediate Holdings Ltd (ING) from a decision of the
First-tier Tax Tribunal (FTT) to refuse the taxpayer's claim for input VAT incurred on
overheads. ING operated a banking service providing deposit accounts to individual
investors. The FTT concluded that, on the facts, what ING provided to its customers
was a business activity. It supplied retail banking services to its customers that were
exempt from VAT. Accordingly, the VAT incurred on overheads was directly
attributable to that exempt activity and could not be reclaimed. ING appealed to the
Upper Tribunal.
ING argued that it did not supply services to its customers for consideration. It
argued that when customers deposited funds with the bank it merely received the
deposits as loans and that the mere receipt of a loan did not constitute a supply of
services by the borrower. HMRC on the other hand argued that the FTT's conclusion
(that ING did provide services to depositors for consideration) was based on findings
of fact based on the evidence presented to it and that those findings of fact could not
be challenged unless the FTT had made an error of law. According to HMRC no such
error of law had been made.
The Upper Tribunal dismissed ING's assertions that it was simply receiving loans from
the depositors. It concluded that there was a supply of services for consideration
within the meaning of the VAT Directive. On the facts established at the FTT, the
legal relationship between ING and its customers was one which was based on
reciprocal performance of obligations. The facilities provided by ING – including
internet and telephone banking services – were provided in return for the cash
deposited. Whilst, in legal terms, borrowing and lending was involved, the key
characteristic between ING and depositors was the provision of accounts with the
features. Qualitatively, this was something entirely different to mere borrowing and
lending. The provision of information to depositors, together with the facility to make
withdrawals and deposits were not only contractually described as services but, in
reality amounted to services and went well beyond what might be expected in a mere
borrowing transaction. As a matter of contract and, in reality, ING provided banking
services in the form of deposit accounts.
Comment - It was essential for ING to get over this first 'hurdle' if it was to be
entitled to reclaim any of the £6 million input VAT incurred on overheads.
Unfortunately, unless it takes the appeal further, the Upper Tribunal's judgment
seems to bring the arguments to a close.
Issue22/2016
ING loses £6 million input VAT case
at Upper Tribunal
Indirect Tax Update

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GRT100456
Court of Appeal
ELS Group Ltd
This case concerned the operation of the so called 'staff hire concession'. ELS supplied lecturers to
colleges of further education but treated these supplies for VAT purposes as supplies of education
that were exempt from VAT. However, in 2004, HMRC announced through a Business Brief that
employment bureaux could elect to operate the staff hire concession and only account for VAT on
the supplies of staff based on the value of their commission charge rather than on the whole of the
fee charged. ELS decided to take advantage of that concession and established a sister company
(Protocol) which engaged with and supplied lecturers to most of ELS' college customers.
However, some of the college customers did not transfer to Protocol and ELS continued to supply
lecturers under the old basis (as supplies of education). Eventually, ELS argued that, what it was
doing (both contractually and in reality), was exactly the same as Protocol and it approached HMRC
who initially agreed that ELS could use the staff hire concession with retrospective effect. HMRC
then changed its mind and ruled that the concession could only be used prospectively. ELS applied
for Judicial review of that decision.
The Court of Appeal ruled against ELS. It agreed with HMRC that, in order to take advantage of the
staff hire concession, ELS would have to have made an election to do so at the time. ELS could not
apply the concession retrospectively. HMRC's decision not to allow retrospective use was, therefore,
wholly reasonable.
Comment
It does seem somewhat
harsh that, initially,
HMRC agreed that
ELS was entitled to
adopt the staff hire
concession
retrospectively but then
changed its mind.
However, despite that
harshness, the Court of
Appeal considers that
HMRC's ruling was
correct. To take
advantage of the
concession, the
company needed to
elect to do so at the
time.Donsaw Ltd & Ors
Comment
An expensive lesson to
learn here. The import
VAT claimed by the
appellant was in excess
of £500,000.
In order to reclaim
VAT incurred on the
importation of goods
into the UK, the goods
must be imported for
the purposes of the
importers business.
Here, the goods did not
belong to the fulfilment
house but to the
overseas supplier. As
such, the import VAT
could not be reclaimed
by the taxpayer.
First-tier Tax Tribunal
This was a case relating to VAT paid on the importation of goods into the UK. The taxpayer was a
fulfilment house based in the UK. It managed the supply chain process for businesses established
outside the European Union by arranging for the goods to be imported, warehoused and despatched
to UK customers. It instructed the freight forwarders who were responsible for the physical
importation and who paid the import VAT that was due. The freight forwarders invoiced the
taxpayer for the VAT paid at import and the taxpayer reclaimed the VAT through its UK VAT
return.
HMRC contended that the goods that were imported did not belong to the taxpayer and that the
taxpayer was not a freight forwarder but was simply managing the movement of supplies of goods
between the foreign supplier and the suppliers' UK customers (ie it was simply the consignee). As
such, the taxpayer was not entitled to reclaim the VAT paid at import. This import VAT was
properly claimable by the legal owner of the goods (ie the foreign suppliers). The appellant did not
use the goods imported for the purpose of his taxable activity and, consequently, it was not entitled
to reclaim the VAT incurred on their importation. The appellants’ role in the transactions was to
merely arrange the importation of the goods, store the goods, and despatch the goods. The goods
themselves were not supplied by the appellants, so they did not form a “cost component” of the
appellants’ supplies.
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