VAT Update – July 2022

28 Jul 2022

VAT Update

In this month’s VAT Update we comment on a recent case regarding exempt licence to occupy arrangements; we highlight another case concerning VAT recovery on Google advertising costs; and finally we comment on matters concerning the Customs Declaration Service.

The Upper Tax Tribunal (UTT) has found in favour of the taxpayer and upheld the First Tier Tribunal’s (FTT’s) decision and in doing so dismissed HMRC’s appeal in the Netbusters case ([2022] UKUT 175 (TCC)).

The case centres on how certain supplies made by Netbusters are classified – this is a critical consideration when deciding on the appropriate VAT treatment.

Netbusters organises various competitive football and netball leagues and supplies the pitches on which league matches are played. HM Revenue & Customs (HMRC) took the view that the supply should be classified as a competitive league sports management service, which would be taxable and subject to VAT, whereas Netbusters took the view its supply was an exempt grant of a licence to occupy.

The FTT had originally concluded that Netbusters was making a single composite supply of a grant of any interest in or right over land or a licence to occupy land, which is exempt from VAT.

HMRC sought to argue that the FTT had erred in law on a number of points, including not applying appropriate case law, not considering the lack of passivity in the role taken by Netbusters with respect to the supplies being made, not considering the commercial reality of the arrangements, and overlooking that Netbusters could not grant exclusivity over the pitches to the teams, because itself was not granted exclusivity by the owners. The UTT rejected all of the arguments put forward by HMRC, and upheld the decision that Netbusters’ supplies were exempt from VAT.

Comment: This is a potentially significant case and it remains to be seen whether HMRC takes the matter further. It is HMRC’s general position that where additional services are being provided together with the use of a space, a room or rooms, or in this case sports pitches, the supply is a taxable one and not an exempt supply of an interest in or licence over land. HMRC has previously been successful in arguing such a position in the courts, but not on this occasion.

Much of HMRC’s argument in this particular case highlighted that for a supply to have the objective character of the grant of an interest in land or a licence to occupy, it needed to be a passive activity linked simply to the passage of time and not generating any significant added value. In HMRC’s view, the league management activities clearly suggested a less than passive position. The UTT remarked that the passivity point, whilst an important one to consider, did not automatically determine the nature of the supply for VAT purposes and other factors needed to be taken into account.

The original FTT case may have had a different outcome had HMRC, at an earlier stage, introduced its argument that the supply was actually the provision of sporting facilities and that the conditions for applying VAT exemption to block bookings had not been met. HMRC only raised this point at the eleventh hour and the FTT refused to consider it, under the circumstances. HMRC was unable to appeal this point to the UTT.

Please contact Sean McGinness, VAT Partner, or Nick Hart, VAT Director, if you would like to discuss this case further and the potential wider implications.

HMRC v Netbusters

This FTT case was brought by Sofology and DFS, furniture retailers, and is related to the recovery of VAT on costs relating to pay-per-click (PPC) advertising supplied by Google.

In addition to selling furniture, both retailers also received VAT exempt income from insurance commission, arranging for purchasers of their furniture to buy protection insurance.

The retailers had reclaimed VAT in full on the advertising costs, but HMRC considered that recovery should have been restricted to the extent that the VAT could be attributed to the exempt income received in the form of insurance commissions.

The FTT reviewed the sales processes and contractual position of both retailers in detail and considered the VAT case law which relates to the attribution of input VAT to taxable and exempt supplies. The case law requires a “direct and immediate” link between the input VAT and the related supply and the FTT considered in this case that, although there was an indirect economic link between the online advertising and the insurance commission, it was not sufficiently direct to mean that the input VAT needed to be attributed to it.

The retailers were therefore entitled to reclaim VAT in full on advertising costs.

Comment: This is a helpful case for businesses considering VAT recovery in similar circumstances, but it is important to remember that these rules can also have the opposite effect, where the more immediate link is to an exempt rather than a taxable income.

Attribution of input tax is a key element of the VAT recovery process when a business has both taxable and exempt income and is the regular topic of tribunal cases. Care should be taken when considering whether costs incurred have a direct and immediate link to taxable or exempt supplies being made.

HMRC is in the process of changing the systems used for import and export declarations. From 30 September 2022, the current CHIEF system will be closed and all import declarations will need to be made using the new Customs Declaration Service (CDS). New importers from 5 July 2022 will have to register with CDS rather than CHIEF, and current CHIEF users will need to register for CDS by 30 September.

Comment: HMRC has been writing to importers regularly over the past few months, making them aware of the forthcoming changes and encouraging them to prepare. In practice, most importers engage agents and freight forwarders to prepare and submit import declarations on their behalf and it is those third parties who particularly need to ensure they are ready. Importers are therefore encouraged to liaise with their appointed agents to ensure there will be no issues once CHIEF is switched off and CDS replaces it.

More information can be found at

HMRC has updated its guidance on postponed import VAT statements to reflect some specific issues with statements relating to June 2022. These statements are issued where VAT-registered businesses have elected to postpone VAT due on imports into the UK and account for it on their VAT returns instead. This is done on the basis of a ‘monthly statement of import VAT postponed’, which is available through the Customs Declaration Service (CDS). At present it is possible to register with CDS for postponed import VAT reports only but, as set out above, CDS must be used for all import declarations from 1 October 2022.

HMRC has announced that there is an issue with reports of import VAT postponed in June 2022 on reports which were issued between 4 and 8 July (inclusive). Corrected statements will appear on CDS after 13 July 2022, so businesses may need to access and download a new report if they had accessed a report during those dates.

Comment: Issues with PIVA statements not being available do crop up from time to time, which can lead to confusion and frustration when taxpayers are preparing their VAT returns and expect to see the relevant statements for their imports in the previous month. If PIVA statements are not showing when they should, then it is advisable to simply wait a few days to see if the position has been corrected.

For further information or advice regarding the CDS, PIVA or imports and exports generally, please contact Nick Hart, VAT Director.

Complete your VAT Return to account for import VAT – GOV.UK (