Country Specific - UK

Updated guidance on end-customer claim refunds of VAT wrongly charged

The UK tax authority has published Revenue and Customs Brief 4/2022 which explains how end-customer claims for wrongly paying VAT to a supplier are affected by the UK’s withdrawal from the EU. The Brief replaces guidance published in 2017.

Generally, only the person who accounted for the VAT to the tax authority is entitled to recover overpaid VAT from the tax authority.

Where a party believes that it has overpaid VAT to its supplier, it has to make a claim against the supplier which may then in turn make a claim to the tax authority and reimburse its customer.

In Investment Trust Companies [2017] UKSC 29, the UK Supreme Court acknowledged however that under general principles of EU law, where it was impossible or excessively difficult for a party to obtain reimbursement from the supplier, then that party may have been able to bring a claim against HMRC.

The most recent guidance from the UK tax authority published this month confirms that, with effect from 1 January 2021 when the UK left the EU, all rights of action based on a failure to comply with any of the general principles of EU law have ended, including the right to bring a claim in the exceptional circumstances identified by the Supreme Court in Investment Trust Companies [2017] UKSC 29. The guidance confirms however that claims brought in court before 1 January 2021 remain unaffected.

Revised guidance on dealing with VAT grouping registration

The UK tax authority has published Revenue and Customs Brief 5/2022 which explains how businesses should file their VAT returns while waiting for a decision on their VAT grouping application.

Whilst waiting for a response to a VAT grouping application, businesses should:

• treat the application as provisionally accepted on the date it was submitted online or the date it should be received by the UK tax authority if submitted by post; and
• account for VAT accordingly.

While businesses are waiting to receive their VAT grouping registration number, they may receive:

• an automated assessment letter;
• letters asking for payment of any automated assessments; or
• notification of a default surcharge for not having filed the tax return.

Businesses will not need to take any action in response to any of these notices. The UK tax authority will automatically cancel them once the relevant group application is fully processed.

UK Court of Appeal decision in First Alternative Medical Staffing Limited [2022] EWCA Civ 249 

In this case, the appellants were employment bureaux which provided nurses, as well as other medical staff on a temporary basis, to care homes and hospitals. The appellants charged their clients (care homes and hospitals) an amount per hour which represented a wage element payable to the nurse and a commission element by way of agency fee.

At the time of the relevant supplies, the various employment bureaux had treated themselves as agents and had therefore accounted for VAT solely on their commission. The UK tax authority raised VAT assessments on the appellants on the grounds that the various employment bureaux were in fact acting as principals, with the effect that VAT was due on the entire charge made to the clients. The appellants subsequently agreed that they were indeed acting as principals in respect of these supplies.

When acting as principal in relation to the supply of staff, the various employment bureaux should have accounted for VAT at the standard rate. A concession was however available in the UK – the nursing agencies’ concession – under which the UK tax authority permitted employment agencies supplying health professionals to treat the supply of staff as principal as VAT exempt, provided certain conditions were met.

The key issue in the appeal was whether the appellants were able, retrospectively, to rely on the nursing agencies’ concession. The Court of Appeal held, agreeing with the judgment in the UK High Court, that they could not. The Court of Appeal clarified that there was no ‘legitimate expectation’ under UK law inherent within the wording of the concession. There was nothing that an ‘ordinarily sophisticated taxpayer’ would understand to mean the concession could be applied retrospectively. There was additionally no legitimate expectation under EU law.

DLA Piper comment: Whilst specific to the nursing agencies’ concession, this judgment is of interest to taxpayers wishing to retrospectively rely on VAT concessions granted by the UK tax authority. If a concessionary treatment would have been more favourable from a VAT perspective, it seems unlikely a taxpayer will be able to go back and retrospectively select the more favourable treatment. The judgment highlights the importance of analysing whether a concessionary treatment applies at the time of the transaction.