The document summarizes recent developments in UK VAT law from VAT tribunal cases and HMRC decisions. It discusses two main topics: 1) A recruitment agency called Adecco is challenging HMRC's position that VAT is due on wage costs for temporary workers. If Adecco wins, recruitment agencies could face claims from customers for overpaid VAT. Both agencies and businesses need to review historical VAT payments to determine if VAT was overpaid. 2) An Upper Tribunal decision went against HMRC policy by ruling that transactions between VAT group members can be considered in assessing if a business transfer is a transfer of a going concern. This reduces stamp duty and allows partially exempt groups to treat purchases as transfers of going concerns.

1. Recruitment Agencies – Claims in respect
of overcharged VAT
In May 2015 the First Tier Tribunal heard the case of
Adecco, who are challenging HMRC in respect of VAT due
on its charges to customers for temporary workers. Adecco
has argued that output VAT is only due on the introductory
fee for its services, and not on the wage related payments.
The judgment is expected soon and if Adecco is successful,
recruitment businesses could face claims from their
customers, or other intermediary businesses for a repayment
of over paid VAT. We are aware that some recruitment agencies
are being contacted now in readiness for the decision.
This is a complex area and in assessing whether to make
a claim to HMRC a recruitment business will need to consider
the VAT recovery position of their customers, as well as the
contractual and VAT related time limits for making claims
to HMRC.
The decision is expected soon but both recruitment agencies
and businesses that use temporary staff should be reviewing
their position to determine whether VAT may have been
overpaid historically and whether the VAT cost of using
temporary staff can be mitigated in the future.
VAT groups and TOGCs – Upper Tier
Tribunal goes against HMRC policy
The Upper-Tier Tribunal decision in the case of Intelligent
Managed Services Ltd (IMSL) v HMRC [2015] has concluded
that transactions between VAT group members can be taken
into account when considering if a transaction could be a
transfer of a going concern. Previously, HMRC policy has held
that if the transferred assets were only used to make supplies
to other VAT group members the TOGC relief could not apply
as the assets were not being used to carry on a business for
VAT purposes.
Following the CJEU’s judgment in Skandia it was clear that the
acquirer of IMSL’s business for VAT purposes was the single
taxable person, namely the VAT group, rather than any one
entity within that group.
The relevant question was therefore whether the VAT group
could be said to operate the same kind of business as that
undertaken by IMSL prior to the transfer, and the conclusion
in this case was that it did.
This is beneficial for VAT groups, in order to reduce the
stamp duty liability of transactions where applicable, and
for partially exempt VAT groups where purchases of other
business can be treated as a TOGC. There may also be an
opportunity to put in claims to HMRC for incorrectly charged
output VAT on similar transactions. However, this decision
is likely to be appealed by HMRC.
VAT HOT TOPICS
A summary of this month’s important VAT changes and cases
October 2015

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The First-Tier tribunal found in favour of HMRC in the
Danesmoor Limited case in relation to input VAT incurred
on professional fees paid by the company.
The company argued that it was input VAT incurred
on professional fees relating to a corporate restructure
on the grounds that the engagement letters and the invoices
were in the name of company. The company argued that
the Redrow case principles applied and that the advice was
to the company not to the shareholders, and therefore any
benefit to the shareholder was incidental.
It was found that the company had in fact already decided
to go ahead with the restructure before engaging for
professional services. The professional services were in fact
advice to the shareholders in relation to the impact of the
restructure and the removal of minority shareholders.
This decision again highlights the importance of requesting
our VAT advice during corporate restructures and reviewing
the costs involved to ensure the most efficient VAT position
is obtained and to remove any risk of VAT assessments.
www.mazars.co.uk
Please get in touch…
If you have any questions or you would like some further information on the articles above, or VAT in general then please
contact us on the details below, or get in touch with your usual VAT contact at Mazars:
LONDON AND SOUTH
Vincent McCullagh,VAT Partner – T: +44 (0)20 7063 4660 M: +44 (0)7881 283 299 E: vincent.mccullagh@mazars.co.uk
CENTRAL
James Hurst, VAT Partner – T: +44 (0)121 232 9656 M: +44 (0)7976 198 706 E: james.hurst@mazars.co.uk
NORTH
Juliet Bailey, VAT Director – T: +44 (0)113 387 8713 M: +44 (0)7881 284 194 E: juliet.bailey@mazars.co.uk
Partial Exemption – VAT recovery opportunities for Charities and Not for Profit organisations
Input VAT on professional services to shareholders in relation to company restructures –
VAT recovery not allowed by the company
There has been a number of interesting partial exemption
VAT cases which have seen a positive outcome for the tax
payer resulting in VAT recovery opportunities. Partially exempt
organisations should revisit costs currently being treated as
irrecoverable to determine whether the costs could be treated
as recoverable in whole or part.
Sveda (Lithuanian Case)
A decision has now been released in relation to the Sveda
case which has confirmed that EU law allows a taxpayer to
reclaim input VAT on purchases which are directly destined for
free use by the public, but can be used as a means to attract
visitors to a place where the taxpayer intends to make taxable
supplies. In this case, the taxpayer successfully argued that
input VAT recovery is allowable on the cost of paths, car park
etc which is grant funded and open to the public for free
access, claiming that such costs are directly linked to the
onward sale of souvenirs and refreshments.
North England Zoological Society (Chester Zoo)
Admission to Chester Zoo falls within the cultural exemption.
The Zoo is in dispute with HMRC over whether the cost of
maintaining its animals is a cost component of all its supplies
such as the café, the shops, not just the admission to the zoo.
HMRC’s view is that the animal maintenance costs relate only
to the exempt admission.
The Tribunal accepted the taxpayer’s submission that
in determining the recoverability of input tax case it is the
objective purpose of the supplier that it relevant, rather than
the objective purpose of the customer.
University of Cambridge
This case is in relation to investment management costs.
The university has an endowment fund in which it invests
donations to generate more funding. It pays professional
fees for the management of the investment and the income
and capital growth on the investment is used to support
the various activities of the university (taxable and exempt
business and non business activities).
HMRC viewed these costs as overheads relating to a non-
economic activity and should not be regarded as recoverable.
The university successfully argued that the input VAT incurred
was residual as the purpose of the activity was to benefit the
universities economic activities.
We strongly suggest that grant funded expenditure is reviewed
to determine whether there is a link to taxable supplies.