UK: Deloitte Weekly VAT News - Week ended 13 May 2005

Insurance companies and outsourcing

Insurance companies and outsourcers are facing increased costs when HMRC implement changes to bring the UK into line with the ECJ’s decision in the Arthur Andersen (Accenture) case. We understand that there is to be a consultation exercise during the summer with a view to an announcement in the pre-budget report in November and implementation of changes from 1 January (or, perhaps, 1 April) 2006. We hear that an announcement from HMRC is imminent.

Businesses in the finance sector may be facing increased VAT costs on mailshots following the Tribunal’s decision in the case of Charterhall Marketing Limited. HMRC argued the leaflets included in the mailshots (which would have been VAT-free if sold separately) were a subsidiary component and should be treated as effectively part of the letter so the entire mailshot was subject to VAT. The Tribunal rejected HMRC’s contention and decided that many of the "packages" sold by the company comprised a letter that was subject to VAT and leaflets that were not. This case may put at risk the extra-statutory "package" test that has allowed mailshots consisting mainly of items that were VAT free to be treated as wholly VAT-free.

The ECJ has followed part of the opinion of its Advocate General in the case of RAL (Channel Islands) Limited and has decided that slot machines are "entertainment" and subject to VAT where they are located. RAL had implemented a VAT avoidance structure based around a previous ECJ case and argued that its takings were not subject to VAT because the company was based in Guernsey. It seems probable that the fact that the case was about a deliberate attempt to avoid VAT may have been a factor in the final conclusion here. However, as the decision made no reference to avoidance, it applies generally and may cause some "innocent" offshore businesses to have to register for and collect UK VAT.

Nurseries and similar organisations (including workplace childcare) should see a reduction in their VAT costs as a result of the Tribunal’s decision in the case of K&L Childcare Services Limited, a company providing staff to various childcare institutions. HMRC contended that the company’s charges were subject to VAT (which was a cost to most of the institutions concerned), but the Tribunal decided that they were VAT free.

In an intriguing case from Norway, the Oslo Regional Court has accepted the argument advanced by the Blue Angel Club that "striptease" acts performed in the club were a "cultural service" and not subject to VAT under Norwegian law. There seems little likelihood of this being applied in the EU, unless "Public Bodies" supply such services!

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