UK: Deloitte Weekly VAT News - Week Ended 20 January 2006

The Tribunal has largely rejected an appeal by MBNA Europe Bank Ltd, in another case about a complex securitisation structure and the effect of it on the bank’s recovery of VAT on its costs. The Tribunal decided that the method of calculating VAT recovery agreed between HMRC and the bank did not produce a "fair and reasonable" outcome and that HMRC had been entitled to withdraw it. Following the earlier Tribunal decision in Capital One Bank (Europe) plc, the Tribunal took the view that the sales of credit card receivables under the securitisation process amounted to security for loans and not supplies for VAT purposes. In what might be seen as some comfort to the bank, the Tribunal did decide that the assessments made by HMRC were too high and reduced them by about 10%.

According to the Tribunal that decided the National Galleries of Scotland case, "… unless and until the legislation is amended or modified by the only appropriate body to do so the capping provision … cannot be relied on." This was one of several reasons given by the Tribunal in its decision to allow a refund of VAT to the National Galleries of Scotland. The stance of the Tribunal in Scotland in this and some other cases contrasts with cases heard in England, where the Courts have thus far adopted a rather different view in Fleming (T/A Bodycraft), Condé Nast and Local Authorities Mutual Investment Trust. The Court of Appeal is expected to deliver its decision in the Fleming case in the near future and this may bring some clarity to the matter.

HMRC has confirmed that it now accepts that the supply of conference rooms, meals and overnight accommodation (which used to be viewed as a single supply that was subject to VAT) comprises a number of separate elements - even where made for a single inclusive charge - and the supply of the conference room may not be subject to VAT in some cases. Many hotels will have "opted to tax" already and where this is the case, the new HMRC policy will make no difference, and the hotel/conference centre will have to carry on paying VAT on its room hires. If the supplier has not opted, a fair and reasonable apportionment must be used to determine how much of the overall price is attributable to the VAT free room hire - and the supplier will also have to deal with the issues this may raise in relation to the recovery of VAT on related costs.

HMRC has settled a claim by Hoverspeed for damages arising from HMRC’ carrying out random stop and search checks at UK ports. Hoverspeed claimed that these checks made the cross-channel journey so uncomfortable for innocent travellers that its business was damaged. The case was settled out of court without an admission of liability by HMRC, but with a payment of £1.8 million to Hoverspeed.

With effect from 1 January 2006:-

• VAT at 17.5% was introduced in Bosnia Herzegovina;

• The Hungarian standard VAT rate was reduced from 25% to 20%; and

• The Zimbabwean standard VAT rate was reduced from 17.5% to 15%.

For information about VAT rates in about 100 locations around the world, please see our Global Indirect Tax Rates table.

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