UK: Deloitte Weekly VAT News - Week ended 11 February 2005

The use of a separate company to sell magazines alongside sales of cable television services made by another group company was perfectly proper and legal and did not give rise to a VAT liability, according to the Court of Appeal in Telewest. Customs argued that Telewest should pay VAT on sales of the magazine. The Court of Appeal has confirmed that in a situation where two different tax payers made sales to the same customer, the sales could not be treated as one for VAT purposes, so the magazine was VAT free.

Customs’ latest Business Brief suggests that they have reservations about the effect of the 2003 VAT Tribunal decision in Water Hall Group plc, which found that companies issuing shares should not "look through" nominees and treat them as sold to the beneficial owner. If Customs do revise their views, some companies might be able to claim refunds of VAT previously treated as irrecoverable.

Customs have announced that they now accept that the provision of nursery and crèche facilities by some charities is not a "business" activity for VAT purposes, even when charges are made to users, following the High Court decisions in Yarburgh Children’s Trust and St. Paul’s Community Project Ltd. In both cases, the Court decided that the charities were not using new buildings for "business" activities, even though they made a charge to users of the facilities they offered, and that the new buildings were VAT free. The Business Brief announcing the new policy refers only to the provision of nursery and crèche facilities by charities which operate along the same lines as Yarburgh and St Paul’s. This seems to mean that Customs expect charges made to cover no more than the cost of the facilities. Charities undertaking other types of activities may not be able to benefit from this new ruling.

Jersey has completed its feasibility study on the introduction of GST. Among other things, the report concludes that £40-45 million of revenue should be generated with GST at 3% applied to most sales. £2-7 million of this would come from the finance industry in the island, albeit that there are a number of measures in the proposal to protect Jersey’s international clients. The "fulfilment" business, which has been the subject of recent comment as a result of retailers selling "low value" goods from Jersey and taking advantage of the EU’s de minimis threshold for VAT and duty accounting should not suffer additional tax costs under the proposal. The proposal will be debated in the island later in the year.

UK tour operators organising holidays to Australia may have to register and account for Australian GST following an announcement by the Australian authorities.