Employment taxes

Company liable for employers’ NIC

HMRC has found that a company that subcontracted offshore duties remained liable to pay employers’ national insurance contributions (NIC) for the offshore workers, despite not being their official employer. The host employer provisions applied.

The company took over a contract to supply services for oil and gas drilling platforms. The workers who had carried this out for the company that previously held the contract carried on, and their employment contracts were transferred to the company in this case. Some of the contracts were transferred to other group companies operating in the same jurisdiction as the employees. The UK company continued to manage these transferred employees by providing operational, HR and logistics services. No secondary NICs were paid on the basis that the official employers were non-UK.

HMRC argued that the host employer provisions applied. The foreign companies that were the official employers simply directed the employees to work for the UK company at its direction. The First-tier Tribunal (FTT) agreed with HMRC. The responsibility of running the platforms had been taken on by the UK company, and it fulfilled this through the employees. It handled the roster, and directed their services to an extent that met the framework of day-to-day control, though the overseas companies had some involvement. The company was ordered to pay more than £16m in employers’ NICs.

Odfjell Technology (UK) Ltd v HMRC [2025] UKFTT 28 (TC)

From Tax Update February 2025, published by Evelyn Partners LLP

International taxes

Appeal dismissed on the treatment of oil payments under UK-Canada treaty

The Supreme Court has dismissed HMRC’s appeal in the tax treaty case of Royal Bank of Canada (RBC). The case concerned whether the UK had the right to tax contractual payments received by RBC – a Canadian resident company – pursuant to rights it acquired following the receivership of a Canadian oil and gas corporation (Sulpetro Canada). Sulpetro Canada had obtained those rights, comprising payments linked to subsequent oil production in the UK, as consideration in connection with the disposal of its shares in and agreements with a UK subsidiary (Sulpetro UK) that held the government licence to extract oil from the Buchan field in the UK continental shelf.

The taxpayer argued that, as RBC was not UK resident and did not have a UK permanent establishment, the Canada-UK Double Taxation Convention gave exclusive rights to taxation of the income to Canada. HMRC, however, argued that Article 6 (Income from immovable property) applied, in particular the reference in Article 6(2) to consideration for “the right to work, mineral deposits, sources and other natural resources”. By a majority of four to one, the Supreme Court agreed with the taxpayer. The majority considered that, based on the facts of the case and the wording of the treaty, Sulpetro Canada never had the requisite ‘right to work’ the field. Lord Briggs, dissenting, argued for a broader interpretation of the article. In his view, the commercial arrangements between the licence holder Sulpetro UK and Sulpetro Canada, viewed realistically and in the round, had granted Sulpetro Canada a right to work that was within the scope of Article 6(2).

The Supreme Court also considered whether, if its majority holding on the treaty position were wrong, the payments would have been within the scope of UK corporation tax under domestic law. The Court unanimously agreed that s1313, Corporation Tax Act 2009 was drafted widely enough to mean the payments would have been subject to UK corporation tax had there been no treaty protection.

Royal Bank of Canada v HMRC [2025] UKSC 2

From the Business Tax Briefing dated 14 February 2025, published by Deloitte

VAT

Application of extra-statutory concession

Chelsea Cloisters Management Limited (CCML) is a management company for Chelsea Cloisters, a property of 656 apartments in London. The freehold owner is Realreed Limited, and the apartments are subject to long leases. CCML had not registered for VAT on the basis that it was supplying services to the leaseholders, and that its supplies were exempt under HMRC’s extra-statutory concession 3.18 (the ESC). Under the ESC, mandatory domestic service charges paid by both leaseholder and freeholder occupants of residential property are exempt from VAT. HMRC decided that CCML had been making standard-rated supplies of management services and registered CCML for VAT, on the basis that CCML was fulfilling its obligations to Realreed as the freehold owner, rather than making supplies to the leaseholders.

The First-tier Tribunal (FTT) has held that it did not have jurisdiction in respect of the substantive appeals, as it lacked jurisdiction to apply extra-statutory concessions. Nevertheless, the FTT went on to set out what it would have found if it had had jurisdiction, noting that its comments are obiter. The FTT considered that CCML made direct supplies of management services to the leaseholders, and that the service charges paid by the leaseholders to CCML were within the exemption provided by the ESC. Accordingly, the FTT would have held that HMRC’s decisions were unlawful. In its obiter comments, the FTT also concluded that CCML would have been entitled to rely on general principles of EU law, with the same outcome. 

Chelsea Cloisters Management Limited v HMRC [2025] UKFTT 205 (TC)

From the Business Tax Briefing dated 21 February 2025, published by Deloitte

Whether café was a bar

Anglia Ruskin Students’ Union (the Union) ran a bar or café called 92 at Anglia Ruskin University. The High Court has refused the Union’s application for judicial review of HMRC’s decision that 92 was a ‘bar’ and therefore did not qualify for an extra-statutory concession that would mean that 92’s supplies would be exempt from VAT. Supplies of catering are subject to VAT, as they are excepted from zero-rating. However, supplies of catering to students by eligible bodies, including universities, are exempt from VAT, on the basis that the supplies are ‘closely related’ to exempt supplies of education. Under an extra-statutory concession (section 5.5 of VAT Notice 709/1), HMRC extends the exemption granted to supplies of catering by universities to student unions, but the concession does not cover food and drink sold by, inter alia, bars. 

The Union argued that ‘bar’ means a place that does not supply catering, or, alternatively, predominantly or mainly serves alcohol. However, the High Court accepted HMRC’s argument that a bar is “somewhere where one can buy and drink alcoholic and other drinks, as well as food”, and that 92 met that definition. The High Court also rejected the Union’s second ground of appeal, which was that HMRC’s policy is irrational, based on difference of treatment. 92 was treated the same way as other cafés and bars in the vicinity of the university, and it was rational that 92 did not benefit from the ‘educational context’, as 92’s supplies were not ‘closely related’ to the supply of education by an eligible body. The High Court considered both permission to appeal and the substantive case together, and found in favour of HMRC. 

Anglia Ruskin Students' Union, R (on the application of) v HMRC [2025] EWHC 296 (Admin)

From the Weekly VAT News dated 17 February 2025, published by Deloitte

Whether exempt supply of land

Sarabande is a charity that provides emerging artists with studio and exhibition space and other support. Sarabande claimed input tax on the acquisition and refurbishment of a property, which HMRC disallowed, on the basis that Sarabande was making exempt supplies of land. The First-tier Tribunal (FTT) has upheld Sarabande’s appeal against HMRC’s decision and subsequent assessment. The FTT noted HMRC’s difficulties in establishing the fact pattern so as to determine the VAT treatment, given inconsistencies in the information provided by Sarabande, a lack of clear records, and inconsistencies in the preparation of its accounts and tax returns.

HMRC argued that there was an exempt supply of land by Sarabande to its subsidiary, Suture Inc Limited (SIL), which then made a supply to the artists. Sarabande argued that it was making supplies directly to the artists, which were not supplies of land, but rather a wider programme of support. Given the lack of written documentation (which meant there could be no transfer of a proprietary interest), the issue was whether there was a licence to occupy the land. As SIL was only established after Sarabande had started entering into the leases, the FTT concluded that SIL did not acquire from Sarabande a contractual right to occupy the building. Accordingly, there was no exempt supply made by Sarabande to SIL, and HMRC’s disallowance of Sarabande’s input tax claim on the acquisition and refurbishment of the property was not valid, as this was based on a supply that was not made. 

The FTT went on to conclude that there was a supply by Sarabande to the artists, and that this was not an exempt supply of land, as the supply was of the support programme, of which the studio rental was only one (albeit central) element. 

Sarabande v HMRC [2025] UKFTT 93 (TC)

From the Weekly VAT News dated 10 February 2025, published by Deloitte

Inclusion of VAT invoices at hearing

HMRC issued assessments to FS Commercial Limited on the basis that there was insufficient evidence to support input tax claimed. FS Commercial appealed against the assessments to the First-tier Tribunal (FTT), and in the course of hearing preparations, sought to include VAT invoices that had not been previously provided to HMRC. In a preliminary hearing, the FTT held that it could review the reasonableness of HMRC’s decision not to allow input tax to be claimed in the absence of valid VAT invoices (a supervisory jurisdiction), but it could not make its own decision regarding the deductibility of the input tax (which would be an appellate jurisdiction). The FTT concluded that FS Commercial could not rely on invoices that had not been provided to the HMRC decision-maker. 

The Upper Tribunal (UT) has upheld the FTT decision. First, the UT held that the FTT had made no error of law in relation to the grounds of appeal. FS Commercial argued that, contrary to the findings of the FTT, the grounds of its appeal against HMRC’s assessments included a ground that FS Commercial held VAT invoices at the time of HMRC’s decision. However, the UT considered that the grounds did not make it clear or apparent that FS Commercial was relying on holding valid VAT invoices as an issue in the appeal. Secondly, the UT held that even if its finding on this issue was wrong, there was still no material error in the FTT’s decision. As the FTT’s jurisdiction was supervisory, the FTT could only consider whether HMRC had unreasonably exercised its discretion not to accept the evidence. The UT noted that where a taxpayer does not provide valid VAT invoices, input tax recovery becomes a matter for the discretion of HMRC: “If HMRC exercises that discretion against the taxpayer, the taxpayer cannot then, on appeal to the FTT, produce the invoice, as a surprise or ambush, even if it truly held the invoice all along, and so side-step the exercise of HMRC’s discretion.” 

FS Commercial Ltd v HMRC [2025] UKUT 13 (TCC)

From the Weekly VAT News dated 27 January 2025, published by Deloitte