The document summarizes recent developments in UK indirect tax law from court rulings and HMRC announcements: 1) The Court of Appeal ruled that a charity's activities of providing water sports in return for fees were "economic activities" subject to VAT, overturning earlier rulings. This means the charity's building did not qualify for VAT exemption. 2) The Upper Tribunal referred the DPAS VAT case on dental payment plans to the EU Court, seeking clarification on whether such plans constitute taxable "debt collection". 3) HMRC extended for another year, until December 2017, its transitional policy allowing UK pension schemes to reclaim 70% of input VAT costs. It is still seeking input on reconciling

1. © 2016 Grant Thornton UK LLP. All rights reserved.
ITU
Summary
So, the courts are now back in
full swing after the summer
recess and the children are back
at school. It's time to catch up
with what has happened in the
world of indirect tax over the last
6 weeks.
The main event is the Court of
Appeal's unanimous judgment in
the case of Longridge on the
Thames. The issue was whether
the charity's activities were
properly to be regarded for VAT
purposes as 'economic' activities.
The Upper Tribunal has also
decided to refer the DPAS case
to the Court of Justice for
guidance on the interpretation of
the VAT Directive in relation to
the correct VAT liability of
services provided to dental
patients.
Finally, HMRC has announced an
extension of a further year (until
December 2017) in relation to
the reclaiming of input VAT by
pension schemes.
14 September 2016
Court of Appeal
In a unanimous judgment, the Court of Appeal has allowed HMRC's appeal against the
Upper Tribunal's judgment that the activities carried on by Longridge on the Thames
(a charity) were not economic activities for VAT purposes. This is a long-running
dispute relating to whether the construction of a building by the charity qualified to be
zero-rated. HMRC contended that the activities carried on by the charity were
'business' activities (the UK's equivalent of 'economic activities) and that, as such, the
construction of the building did not qualify for zero-rating.
The First-tier Tribunal (FTT) allowed the charity's appeal. It considered that, although
the activities were 'business like', they were delivered by a corps of unpaid volunteer
instructors and below cost price. The principal purpose of providing the activities was
to further the charitable objectives and not to make taxable supplies of services by way
of business activities. Not surprisingly, HMRC appealed to the Upper Tribunal
considering that in finding that the activities were 'non-business' activities, the FTT had
erred in law. The Upper Tribunal dismissed HMRC's appeal. It considered that the
FTT had not made any error of law and was, thus, entitled to reach the decision it had.
HMRC appealed to the Court of Appeal. In a unanimous judgment (3-0), the Court
has reversed the decision of the Upper Tribunal. Essentially, the VAT Directive makes
it clear that a 'taxable person' is any person who, independently, carries out economic
activities, whatever the purpose or result of those activities. The Directive also makes it
clear that the expression 'economic activity' means the supply of goods or services in
return for payment. On the evidence before the court, the provision of water-borne
sporting activities, in return for the payment of a fee was, clearly, an economic activity
which, in turn, meant that the charity ought to be regarded as a taxable person. The
Court of Appeal confirmed that both the FTT and Upper Tribunals were wrong. The
fact that the services were delivered by a corps of volunteers and the income from the
activities did not cover the charity's costs was of no consequence. What mattered was
whether the activity was provided on a continuing basis in return for consideration. On
the evidence, this was clearly the case and, consequently, the Court of Appeal allowed
HMRC's appeal.
Comment – the upshot of this judgment is that the building did not qualify for
zero-rating as a relevant charitable building. Charities should take note. Where
activities are undertaken in return for fees, the likelihood is that the Courts will
now consider those activities to be 'economic' in nature and within the scope of
VAT.
Issue26/2016
Court of Appeal sinks Longridge
Indirect Tax Update

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DPAS Ltd
Upper Tribunal
This case stems form a judgment of the Court of Justice in the case of AXA Denplan. In that case,
the Court confirmed that the collection of fees (by AXA) from patient's bank accounts and the
transfer of those fees to a dentist constituted debt collection services that were taxable at the standard
rate of VAT. DPAS Ltd provides a similar arrangement to that carried on by AXA Denplan and, as a
result of the AXA Denplan judgment, it altered its business model. To distinguish itself from AXA
Denplan, DPAS entered into a service contract directly with the patient (rather than with the dentist)
and argued that, as the contract was with the debtor (the patient), rather than the creditor (the
dentist), the service could not be one of 'debt' collection. DPAS maintained that its service was a
'financial' service relating to the transfer of money which should be exempt from VAT.
The Upper Tribunal agreed that there was a supply of services directly to the patients but, on the
question of whether it was an exempt supply of financial services, it decided to stay proceedings until
such time as the Court of Justice had delivered its judgments in the cases of BOOKIT and NEC.
The Court of Justice delivered its judgments in those cases in May 2016 but, unfortunately, the Upper
Tribunal considers that the judgments do not resolve the issue in DPAS. As a consequence, the
Tribunal has now decided to refer the issue to the Court of Justice for guidance on the meaning of
'debt collection' in a situation where services are provided to the debtor rather than to the creditor. It
is likely to be a further 18 months or so before that issue is resolved.
Comment
DPAS provides a
service to the patient of
arranging a direct debit
mandate in favour of
the dentist. Thereafter,
money is transferred
between the patient's
bank account and the
dentist's.
Whilst there is no
doubt that there is a
service supplied to the
patient by DPAS, the
Tribunal is unsure
whether the direct debit
arrangements constitute
a debt collection service
Revenue & Customs Brief 14/2016
Comment
HMRC is clearly having
difficulty with this
issue. It has put
forward a number of
suggestions as to how
the input VAT issue
can be resolved. One
suggestion is for
scheme trustees,
employers and fund
managers to enter into
tripartite contractual
arrangements but this
then leads to problems
in relation to the
employer's ability to
make a deduction for
Corporation Tax
purposes.
Pension schemes and VAT
In 2013 the Court of Justice issued a judgment in the case of PPG Holdings which related to the
recovery of VAT incurred by an employer on the costs of operating a defined benefit pension
scheme. Essentially, the Court confirmed that the input VAT could be reclaimed. HMRC in the UK
then issued a Revenue & Customs Brief (6/2014) setting out the then existing policy and announcing
that, as a result of the PPG judgment, its policy would change.
Further Revenue & Customs Briefs have been issued in the ensuing period and HMRC has revised
its policy on a number of occasions in light of representations made to it. In essence, HMRC
confirmed that the existing policy (of allowing businesses to use a 70% / 30% ratio for recovering
VAT where costs related to both administration of schemes and fund management services), could
continue until 31 December 2016.
Revenue & Customs Brief 14/2016 issued on 5 September 2016 extends the transitional period for a
further 12 months. HMRC states that it is proving difficult to reconcile the judgment of the Court of
Justice in PPG Holdings and that further time is needed to consider representations.
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