This document summarizes three separate cases related to VAT (Value Added Tax) law in the UK: 1) The Upper Tribunal ruled in the case of HMRC v Associated Newspapers that a newspaper publisher could claim VAT paid on vouchers purchased from intermediaries as input tax, but not those from retailers. There was no output tax due as the vouchers were provided for business purposes as part of a promotion scheme. 2) HMRC issued new guidance following the Credit Lyonnais case, excluding supplies made by overseas branches from partial exemption calculations starting January 2016. This may require some businesses to amend their partial exemption methods. 3) The Court of Justice ruled that investment funds investing in real estate can qualify as

1. © 2015 Grant Thornton UK LLP. All rights reserved.
ITU
Summary
This ITU edition looks at the
Upper Tribunal's judgment in the
case of HMRC v Associated
Newspapers. The questions to
resolve were in connection with a
business promotion scheme- a
notoriously difficult are of VAT
law.
HMRC has issued a Revenue &
Customs Brief setting out its
new policy in connection with
partial exemption following the
Court of Justice judgment in the
Credit Lyonnais case. Businesses
with overseas establishments may
need to amend their partial
exemption methods as a result.
Finally, the Court of Justice has
issued its judgment in the Fiscale
Eenheid X case relating to
whether property investment
funds should be regarded for
VAT purposes as 'special
investment funds' such that
management of the funds is
exempt from VAT.
16 December 2015
HMRC v Associated Newspapers
The Upper Tribunal has released its judgment in the case of HMRC v Associated
Newspapers (AN) in connection with the latter's issue of vouchers in respect of a
business promotion scheme. The taxpayer purchased face-value vouchers from a
number of high street retailers and from intermediary suppliers and, under the terms of
the promotion scheme, it gave those vouchers away to customers. The questions to
resolve were whether AN was entitled to reclaim VAT charged to it on the purchase of
the vouchers and whether, as HMRC contended, Output VAT was due on a deemed
supply of services. The First-tier Tribunal (FTT) resolved both issues in favour of AN
and HMRC appealed.
As far as input tax was concerned, the Upper Tribunal found that the FTT's decision
in connection with the purchase of vouchers from intermediary suppliers was correct.
AN was entitled to reclaim any VAT charged. However, under UK VAT law, where
AN purchases vouchers from retailers, no VAT is actually chargeable and, as a result,
no input VAT can be reclaimed. The Upper Tribunal thus allowed HMRC's appeal in
relation to the retailer vouchers.
On the Output tax issue, under UK VAT law, where services are acquired by a
business (and the VAT incurred on the purchase is reclaimed by the business), Output
VAT is due (on a deemed supply) if the services in question are used for non-business
or private purposes. HMRC contended that, as the vouchers were given away free of
charge to customers, this was a use for non-business purposes. The Upper Tribunal
found that the FTT's decision - that the vouchers were, in fact, used for business
purposes – was correct. The provision of the vouchers by AN to its customers free of
charge as part of the business promotion scheme was for strictly business-related
purposes and, accordingly there was no deemed supply of services by AN and no
Output VAT arose.
Comment – Business promotion schemes often create difficulties from a VAT
perspective. Similarly, VAT in connection with vouchers is equally complex. This case
involved a combination of both issues. The case confirms that, where a service is
purchased (here the vouchers), and is given away under a promotion scheme free of
charge, the service is not 'used for non-business purposes'. As such, there can be no
deemed supply.
Issue34/2015
VAT & Business Promotion Schemes
Indirect Tax Update

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HMRC Revenue & Customs Brief 22/2015
Credit Lyonnais – Partial Exemption
HMRC has issued a new Revenue & Customs Brief this week setting out the new rules in connection
with partial exemption. The Court of Justice recently ruled in the Credit Lyonnais case that turnover
derived from supplies made by overseas branches cannot be included in the main establishment's
partial exemption method.
To reflect that decision, the March 2015 Budget announced plans to exclude supplies made by
overseas branches from partial exemption methods. As a result of feedback on the subsequent
consultation, HMRC has narrowed the scope of the changes.
From 1 January 2016 VAT regulations will be amended to reflect the judgment in UK law and to
make it clear that the value of supplies made from establishments outside the UK cannot be taken
into account by businesses using the standard method. Similarly, any 'special' method will need to be
changed if it includes income from overseas establishments as part of the formula.
Comment – the new rules come into effect for VAT accounting periods beginning on or after 1
January 2016. VAT accounting systems may need to be changed to reflect the new rules.
Comment
Partly-exempt
businesses with
establishments both
within and outside the
UK will need to be
aware of these changes.
Financial institutions,
such as banks and
insurers, are most likely
to be affected.
HMRC considers that
the changes will, in
practice, affect very few
businesses in the UK as
most partial exemption
methods are already
compliant with the new
law.Court of Justice
Comment
The judgment in this
case demonstrates how
wide the exemption is
drawn in relation to
what constitutes a
special investment
fund. The judgment
follows earlier rulings
in JP Morgan
Claverhouse
Investment Trust,
Wheels Common
Investment Fund and
ATP Pension Service.
Funds investing in real
estate may now benefit
from exemption if the
relevant conditions are
met.
Fiscale Eenheid X – Case C-595/13
The Court of Justice has issued its judgment in the case of Fiscale Eenheid X in connection with
whether an investment fund which invests in real estate can be regarded for VAT purposes as a
'special' investment fund such that the management of the fund qualifies for exemption from VAT.
The Court of Justice considers that there is no bar in EU VAT law which prevents an investment
fund which invests in real estate from being regarded as a special investment fund. This is on
condition that the capital of such a fund is pooled by several investors who bear the investment risk
connected with the management of the assets and, like investment funds investing in transferrable
securities, are subject to comparable supervision by the Member State.
As far as management is concerned. the Court has found that the management of the investment
itself can qualify for VAT exemption. However, this does not apply to the actual day-to-day
management of the property itself. Management in this context refers to such things as selection and
disposal of the assets under management and administrative and accounting tasks such as those set
out in Annex II to the UCITS Directive. Services provided in connection with the actual
management of the property (such as the letting of the property, the management of existing
tenancies and the management of the maintenance of the property) are not regarded as relating to the
investment and do not qualify for VAT exemption.
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