VAT Update – May 2022

26 May 2022

VAT Update

In this month’s VAT Update we highlight that time is running out to return goods to Great Britain free of VAT and duty; we provide some further details on the new penalty regime that starts on 1 January 2023; we look at tribunal cases with connections to the insurance sector, but which also have wider interest; and we report that the Zipvit VAT appeal has finally been put to bed following approximately 10 years of litigation.

Time is running out to bring goods back to Great Britain (GB) from the EU under extended terms to apply Returned Goods Relief (RGR). When goods are exported and then re-imported, RGR could apply, subject to a three-year period between export and re-import. The effect of the relief is duties and import VAT do not apply when the goods are returned.

In light of Brexit, HM Revenue & Customs (HMRC) waived the three-year period for goods that had been removed from GB to the EU and were still in the EU on 1 January 2021. In these circumstances RGR could still apply, but the goods would need to be returned to GB by 30 June 2022, and this deadline is now fast approaching. Owners of such goods should therefore consider the opportunity of bringing them back to the GB now in order to avoid a duty and import VAT cost. Goods in this context would include assets such as yachts, art and aircraft.

Comment: Owners of assets located in the EU previously located in GB as described above should act quickly if they want to take advantage of the duty and VAT relief. This is of particular interest to owners of yachts that were once in the UK but have been in the EU since before Brexit. Now is the time to consider bringing those vessels back to GB waters in order to minimise costs of duty and VAT.

Please contact Nick Hart, VAT Director if you intend to bring any items back to the UK, but would like advice on the potential tax costs.

Whilst the new penalty regime for late submission of VAT returns and late payment of reported VAT liabilities will not come into effect until 1 January 2023, it is worth recapping the basics of the new regime in readiness for the implementation date.

HMRC guidance on the new regime is rather limited at present and it has indicated further information will be provided in December, before the new system goes live.

Here is what we know:

  • For VAT periods starting on or after 1 January 2023 the new penalties will apply.
  • The new system is based on points allocated for instances of late filing.
  • The new late submission penalty will apply even for nil or repayment VAT returns.
  • Penalties starting from £200 will be levied when a penalty points threshold has been reached (four points for those filing returns on a quarterly basis).
  • The late payment penalty rate is based on the number of days that have elapsed since the payment was due.
  • Payments up to 15 days late will not trigger a penalty. Although it remains to be confirmed how this will apply, in particular to payment on account businesses.
  • Penalty rates for late payment will be 2%, 4%, or 8%, depending on the number of days late.
  • The first late payment penalty will not apply in the first year following introduction of the new rules, provided the VAT payment is received in full within 30 days of the due date.
  • As well as penalties, late payment interest of the Bank of England base rate plus 2.5% will be levied. There is no grace period for interest.
  • A new repayment interest will be paid by HMRC on VAT amounts owed. The rate will be the Bank of England base rate less 1%, with a minimum of 0.5%. When this will apply will depend on the circumstances and further guidance is awaited.

Further information will be provided as and when HMRC updates its own guidance ahead of 1 January 2023.

Comment: There are several interesting aspects to the new penalty regime, not least that it addresses late filings and late payments separately and therefore two different penalties could be incurred. The fact that penalties will be levied for late filing, regardless of what the VAT return reports, is one that could catch many out and so now is a good time to revisit legacy VAT registrations that may have been left to wither on the vine, to get those deregistered where applicable, or to ensure the filings are brought and kept up-to-date.

The interest payable to taxpayers owed VAT refunds is also significant. It remains to be seen exactly how HMRC will implement this and whether it will indeed apply to those taxpayers who are always in a VAT repayment position.

Please get in touch with your regular contacts at Saffery for further information.
HMRC’s latest guidance is here: Prepare for upcoming changes to VAT penalties and VAT interest charges – GOV.UK (

Zipvit supplies vitamins and minerals by mail order and used the services of Royal Mail. Between 2006 and 2010 it had individually negotiated contracts with Royal Mail specifying that the amounts paid were exclusive of VAT. However, at that time, Royal Mail (with the agreement of HMRC) considered that these supplies were VAT exempt. No VAT was therefore charged by Royal Mail and no VAT invoices were issued.

However, in the 2009 case of R(TNT Post UK Ltd) v Revenue and Customs Comrs (Case C-357/07), the Court of Justice of the European Union (CJEU) ruled that the postal exemption for VAT applied only to public postal services and not to supplies where individual terms had been negotiated. According to this judgment, Royal Mail should have charged VAT on the postal services supplied to Zipvit.

Following this judgment, Zipvit made two claims to HMRC for deduction of input VAT, calculated on the basis that prices they had paid for supplies must be treated as including VAT. HMRC rejected their claims, which then proceeded through the UK Courts, with the Supreme Court making it the subject of the final reference to the CJEU before the UK left the EU. The Supreme Court was provided with evidence that other similar cases meant that total claims for overpaid VAT between £500 million and £1 billion were linked to this case.

The CJEU ruled that a taxable person cannot deduct VAT that it has not been charged and that VAT cannot be treated as being “due” when no request for payment of that VAT has been made. Further arguments about whether Zipvit had the right to claim VAT in the absence of a VAT invoice or whether HMRC had the discretion to allow VAT recovery in these circumstances were not therefore considered by the Court. The judgment of the Supreme Court agreed with the CJEU and dismissed Zipvit’s appeal.

Comment: This judgement applies to all other cases with the same facts and means that future claims based on reclaiming VAT on supplies incorrectly treated as not being subject to VAT will not succeed.
This matter has rumbled on for 10 years and the most recent Supreme Court judgement draws the matter to a close. Claiming VAT considered to be embedded in amounts paid, where VAT had not been charged, was always going to be a long shot and the various courts have reached the correct decision in our view.

Please contact Sean McGinness, Head of VAT, if you would like to discuss the implications of this case on your business.

Whether an entity was carrying out exempt insurance activities or providing taxable marketing and advertising services was a key issue in the First Tier Tax Tribunal (FTT) case of Ltd (UKFTT 134).

The appellant is an insurance intermediary based in the UK specialising in providing travel insurance for people aged 50 or over. It receives supplies from Intervest Limited, a related company in Gibraltar.

The appeal raised a number of issues but here we only intend to consider the issue of whether Intervest’s supplies to Staysure were exempt or standard rated. If they were standard rated then Staysure was required to register and account for VAT at the standard rate on the value of the services received under the reverse charge – VAT it could not reclaim. It would also be subject to a penalty for late VAT registration.

HMRC took the view that Intervest was providing standard rated marketing and advertising services with the simple purpose of attracting potential customers to Staysure’s call centre or website. The appellant argued that Intervest did satisfy the requirements for exemption. Advertising services fall outside the exemption and Intervest’s costs were largely marketing and advertising (70% of expenditure in 2014).

Under the agreement, Intervest was contractually obliged to provide insurance leads to Staysure and was paid only when a lead resulted in a concluded sale. It fulfilled that obligation in the following ways:

  • It placed targeted advertising in the press, on television and online;
  • It owned and operated the domain and the related website. After potential Staysure customers were attracted to the website by advertising, they were encouraged to ask for an online insurance quotation;
  • It had designed, maintained and operated a bespoke quote engine which employed complex algorithms to produce a personalised price for each customer.

By providing a quote engine to filter leads, it actively collaborates with Staysure to match prospective customers and it was paid a commission based on successful take-ups of insurance. The appellant and the FTT agreed these services were clearly linked to the essential aspects of the work of an insurance broker or agent – namely finding prospective clients and introducing them to the insurer with a view to the conclusion of an insurance contract.

HMRC also tried to argue that, originally, customers did not know they were dealing with Intervest and that customers would “expect visibility” for the exemption to apply. However, the FTT dismissed the point and the appellant pointed to HMRC’s own guidance (VATINS5510) that claims handlers fall within the insurance exemption, irrespective of whether they are acting as disclosed or undisclosed agent.

In this case, the FTT concluded that Intervest’s services were within the insurance exemption, because they were linked to essential aspects of the work carried out by Staysure, namely the finding of prospective clients and their introduction to the insurer with a view to the conclusion of insurance contracts.

Comment: This case was a good win for the taxpayer, demonstrating the importance of ensuring that contracts set out exactly what services are being provided. The case also showed that, when pushed, HMRC will even ignore their own guidance to try win an argument. The FTT also confirmed that, had it decided that the services provided to Staysure were standard rated, all but one period of HMRC’s assessment was out of time!

For further guidance and advice please contact Sean McGinness, Head of VAT.

Staysure.Co.UK Ltd v Revenue and Customs (VAT – insurance intermediary exemption – whether services supplied by associated company were within that exemption) [2022] UKFTT 134 (TC) (21 April 2022) (

In the case of WTGIL Limited (UKFTT 00131), the FTT held that an insurance intermediary made neither a supply for consideration nor a deemed supply to policyholders in relation to ‘black box’ devices fitted in their cars to analyse their driving. Consequently, input tax was not recoverable in respect of the provision and fitting of the devices.

WTGIL made a claim for over £2 million of input tax incurred between 2014 and 2018, on the basis that the VAT was directly attributable to taxable supplies of the black box devices made to the policyholders (whether or not for consideration).

HMRC rejected the claim and took the view that there was no contract under which WTGIL or WTGISL (a member of the same VAT group) supplied the device to the policyholders for consideration. HMRC took the view that the only consideration for the supplies of providing and fitting the device and any subsequent data analysis, was the commission paid to the appellant by the insurer. HMRC deemed this to be consideration for an exempt supply of insurance intermediary services, leaving any input tax as non-deductible.

Comment: WTGIL’s argument that it had made taxable supplies of the black boxes ultimately failed at tribunal. The appellant undertook to the insurer that it would install or procure the installation of a device in each new policyholder’s car and undertook to meet the costs of replacing and re-installing defective devices. The FTT considered that the commission received was consideration for the appellant for this. The FTT held that the appellant did not thereby make a supply of goods, but rather a supply of insurance intermediary services, with the provision and installation of the devices and their use to provide information being part of those services

The conclusion that there was no deemed supply of the devices, either because they were acquired and provided to the policyholders by the appellant for the purposes of its own business (ie to meet its contractual obligations) is an interesting one. This decision highlights the complexities that can arise when goods or assets are provided for no consideration. Whether the provider is entitled to input tax recovery on the costs can, in turn, determine whether VAT is due.

Please contact Nick Hart, VAT Director, if within your business you provide goods or assets for no payment, as this case may be of interest and relevance.

WTGIL LIMITED v Revenue & Customs (VAT – whether insurance intermediary made supplies of goods to insureds for consideration) [2022] UKFTT 131 (TC) (12 April 2022) (

The FTT has decided in the case of Intelligent Money Limited (IML) (UKFTT 148 (TC)) that fees paid by members of the SIPP to IML as the scheme administrator were not consideration for an exempt supply of insurance and were therefore subject to VAT.

Until 2014, IML had accounted for VAT on its services to members of the SIPP. In 2016, IML undertook a review of its VAT position and considered that the service it was supplying was one of long-term insurance and therefore exempt from VAT. IML subsequently submitted three claims to HMRC to recover the VAT it considered had been overpaid.

There is no legal definition of ‘insurance’, but the key features of an insurance contract have been described in domestic and EU cases, both in VAT and non-VAT matters. Generally, the essential features are that an insurer provides the insured parties indemnity against a risk in return for payment of a premium. According to domestic insurance regulatory (non-VAT) case law, whether the insurer bears risk is seemingly not important to determine whether the supply is an insurance. In this case, the FTT concluded, the insurer would need to assume some financial risks in order to qualify for insurance exemption for VAT purposes. Here it is the members of IML’s SIPP who bear all the risk and, as such, IML’s services did not qualify for VAT exemption as a supply of insurance and the appeal was dismissed.

Comment: This case illustrates the difficulties and complexities of identifying the underlying supply to determine whether a VAT exemption applies. Interestingly, in this case it has highlighted that a supply could qualify as one of insurance in accordance with insurance regulations. For VAT purposes, however, in order for the insurance VAT exemption to apply the supplier must bear some level of risk. The FTT also noted that by reference to HMRC’s guidance and manuals, IML’s supplies would have appear to meet the conditions to be considered as an insurance transaction for VAT purposes. HMRC’s guidance is not the law (unless it is given the force of law under specific provisions) but rather its interpretation of it. Such interpretation is not always shared by the courts and businesses should be careful when relying on HMRC’s guidance and should seek professional advice where appropriate.

Please contact Sean McGinness, Head of VAT, for further details.

INTELLIGENT MONEY LIMITED v Revenue & Customs (VAT – whether fees paid to the scheme administrator of SIPP pension consideration for an exempt supply of insurance) [2022] UKFTT 148 (TC) (05 May 2022) (