Employment taxes

TV presenter loses appeal on contractor working

The Upper Tribunal (UT) has upheld a First-tier Tribunal (FTT) decision that the off-payroll working (IR35) rules apply to the case of a football presenter who worked for Sky TV using a personal service company (PSC), as the relationship was characteristic of employment.

The appellant is the PSC of a TV presenter. It was set up in 2009, after he retired from professional football, and it entered into contracts with a broadcaster to provide his services. The FTT considered the wording of the contracts, and how he performed his duties in practice. Overall, the appeal against determinations to tax him as though he were a direct employee of the broadcaster was dismissed, as the relationship was closer to employment than contract work.

Specific points drawn out by the FTT included that the presenter was not at financial risk, as his annual fee was paid in unvarying monthly instalments regardless of the distribution of work across the year. He worked solely for the broadcaster in the first three years after setting up a PSC, so the PSC was dependent on this work.

Before the UT, the taxpayer argued that the FTT had erred in law on the mutuality of obligation issue, in not taking into account that other parts of the contract were inconsistent with employment, and that the three-stage test from another case had been applied incorrectly.

The findings of the FTT, which could not be challenged, were enough to dismiss the first two points. The UT considered the application of the test, but concluded that the hypothetical contract had been correctly constructed, and met the requirements to be one of employment. The appeal was dismissed.

McCann Media Ltd v HMRC [2024] UKUT 94 (TCC)

From Tax Update April 2024, published by Evelyn Partners LLP

VAT

Mega Marshmallows are not confectionery 

The Upper Tribunal (UT) has once again been asked to rule on the VAT liability of a food product, in particular whether a product is ‘confectionery’ and therefore excluded from zero-rating. 

Innovative Bites Ltd contended that its product Mega Marshmallows were intended to be roasted over a campfire or barbeque or used as an ingredient in a s’more, and that they were not usually consumed as a snack without roasting. Innovative Bites therefore disputed HMRC’s contention that Mega Marshmallows were confectionery and standard rated for VAT purposes. The First-tier Tribunal (FTT) agreed with Innovative Bites, concluding that, considering the viewpoint of a typical customer and giving the term ‘confectionery’ its ordinary meaning, Mega Marshmallows were not confectionery and were therefore zero rated. The UT has dismissed HMRC’s appeal against the FTT decision. 

As a preliminary issue, the UT considered the relationship between Excepted Item 2 (confectionery) and Note 5 of Group 1, Schedule 8, Value Added Tax Act 1994. One of HMRC’s arguments was that Note 5 (which provides that ‘confectionery’ includes certain products) is a deeming provision, which would mean that if a product fell within Note 5, there can be no further findings of fact and hence no multifactorial assessment. However, the UT considered that there were inconsistencies in HMRC’s arguments on this issue, as HMRC also indicated that in some circumstances a multifactorial assessment may be required. 

The UT concluded that Note 5 is not a deeming provision, but is rather an inclusive definition, to clarify potential doubt. A multifactorial assessment may therefore still be necessary to determine whether a product is confectionery. The UT then concluded that there was no material error of law in the FTT’s analysis and weighing of the relevant factors and evidence. Accordingly, the UT upheld the FTT decision. 

HMRC v Innovative Bites Limited [2024] UKUT 95 (TCC)

From the Weekly VAT News dated 15 April 2024, published by Deloitte

Inward processing relief and bills of discharge 

Thyssenkrupp Materials (UK) Ltd (TK) claimed inward processing relief (IPR) on components used to manufacture aircraft. In accordance with its IPR obligations, TK submitted a bill of discharge (BoD) to HMRC each quarter, consisting of a spreadsheet with around 100,000 to 200,000 data points. HMRC issued a demand to TK for customs duties and import VAT on the basis that TK’s BoDs included errors that breached the IPR authorisation requirements, and which meant that TK was not entitled to claim IPR for that period. TK acknowledged that there were errors, and that some data was inconsistent with information in HMRC’s Management Support System (MSS), but argued that the errors were immaterial or de minimis, and appealed HMRC’s demand. 

The First-tier Tribunal found in favour of HMRC, holding that any error, including a minor or immaterial error, or any mismatch between the BoD and MSS can give rise to a customs debt, and that any single error in a line on a BoD meant that customs duty and import VAT were due on all the goods covered by that BoD. 

The Upper Tribunal (UT) has overturned this decision. The UT considered that an error in a row of a BoD did not invalidate the entirety of the BoD, and did not give rise to a liability to a customs debt for all the goods covered by the BoD. The UT went on to consider whether an error in relation to a specific entry could give rise to a customs debt for the goods covered by that entry. The UT held that inconsistencies between the BoD and MSS data did not result in a breach of the requisite IPR obligations and conditions, as the errors had no effect on the correct operation of the customs procedure, and so did not give rise to a customs debt. Immaterial or de minimis errors in a BoD, including most of the errors identified by HMRC in TK’s BoDs, also did not give rise to a customs debt. TK’s appeal was allowed. 

Thyssenkrupp Materials (UK) Limited v HMRC [2024] UKUT 79 (TCC)

From the Weekly VAT News dated 8 April 2024, published by Deloitte

VAT groups and continuous supplies 

In November 2007, Silverfleet Capital Ltd completed a management buy-out and left the Prudential VAT group. Since 2002 it had been providing fund management services to one of Prudential’s with-profits funds, and was entitled to an additional performance-related fee in the event that the fund exceeded certain benchmarks. Those benchmarks were eventually met in 2014 and 2015, triggering performance payments of £9.3m. Given that Silverfleet carried out its fund management services before it left the VAT group, but received the performance-related payment several years afterwards, should it charge VAT? 

Silverfleet’s management qualified as a continuous supply of services, and HMRC therefore considered that VAT had to be charged by reference to when the performance fee was invoiced and paid. The Court of Appeal (CA), by a majority, agreed with HMRC. VAT rules on time of supply may have (based on the CA’s 1996 judgment in BJ Rice) been seen as determining “when, but not whether” VAT was due. However, that approach had been qualified by subsequent judgments of the House of Lords (in Thorn, Svenska, and RSA), to the point where BJ Rice should not be treated as binding precedent in Silverfleet’s appeal. 

The correct approach was to consider whether Silverfleet was still a member of Prudential’s VAT group when the rules on time of supply treated its services as supplied. By 2014 it was no longer a VAT group member, and must therefore charge VAT. Silverfleet’s appeal was dismissed. 

The Prudential Assurance Company Limited v HMRC [2024] EWCA Civ 300

From the Weekly VAT News dated 2 April 2024, published by Deloitte

VAT on black box insurance 

WTGIL Ltd (formerly Ingenie Ltd) was set up in 2010 to provide black box insurance to young drivers. It entered into agreements with a panel of insurers, marketed insurance through its own website and through price comparison websites, and engaged Ageas to administer the policies. Drivers were required to have Ingenie’s telematics devices fitted to their cars, and the information from them would be used to review premiums several times a year (reducing the insurance cost for young drivers who demonstrated the quality of their driving). 

Ingenie made a claim to HMRC to recover VAT incurred on purchasing the devices, which HMRC rejected. The Upper Tribunal (UT) has dismissed Ingenie’s appeal. The UT ruled that Ingenie was not supplying goods (the devices) to the drivers at the start of the policy, and then considered whether Ingenie was supplying services to the drivers. It identified that there was a supply of services which could not be classified as an exempt insurance intermediation service. However, there was no direct link between those services and any consideration provided by the driver. 

Based on the terms of the policy booklet, and as a matter of commercial and economic reality, the driver was agreeing to pay a premium to the insurer, and not to do something for Ingenie that might constitute non-monetary consideration. The UT also agreed with the First-tier Tribunal that there was no monetary consideration paid to Ingenie for its services, and that there was no deemed supply of the devices under the business gift rules (as Ingenie had never recovered VAT on its purchase). Consequently, there was no taxable supply of services for consideration that entitled Ingenie to recover input tax, and its appeal was dismissed. 

WTGIL Limited v HMRC [2024] UKUT 77 (TCC)

From the Weekly VAT News dated 2 April 2024, published by Deloitte