VAT Update – May 2023

26 May 2023

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Our latest issue of VAT Update looks at the requirement of Northern Ireland based businesses to check their Economic Operators Registration and Identification (EORI) number. We also examine a case on the VAT treatment of a football player transfer, a case concerning VAT exemption for fund raising events, and a VAT zero rate/standard rate decision on a consumer health shot drink.

HM Revenue & Customs (HMRC) are telling affected taxpayers that they are checking the eligibility of GB businesses to have an EORI number starting with ‘XI’. Most GB businesses will have an EORI starting with ‘GB’ which is used for most international trade, but in some cases a ‘XI’ EORI is required for goods transactions involving Northern Ireland as a result of its special status within the EU single market and customs union due to the Northern Ireland Protocol and the subsequent Windsor Framework.

Only businesses with a business establishment in Northern Ireland, or who carry out certain customs activities, are permitted a XI EORI, and HMRC are now asking businesses for evidence on their operations in Northern Ireland in order to obtain a XI EORI.

HMRC are planning to publish more detail guidance on the operation of the Windsor Framework in due course.

Please contact Nick Hart for further details.

The Great Yorkshire Show is run by the Yorkshire Agricultural Society, a charity, and takes place over three days in July each year. VAT had been accounted for on entry fees up to 2016, and from then on treated as exempt from VAT. HMRC had refused a claim for overpaid VAT on entry fees in 2016 and issued an assessment to collect VAT on entry fees which had been treated as exempt in 2017.

The appellant argued that the entry fees for the show fell within the exemption for charitable fundraising events, but HMRC did not consider that the conditions for exemption were met.

The tribunal also considered that the HMRC assessments were out of time, but went on to consider the substantive issue.

The conditions for the VAT exemption for fundraising events (set out in VAT Act 1994 sch 9 group 12 item 1) are as follows:

  • The event is organised by a charity.
  • Its primary purpose is the raising of money.
  • It is promoted as being primarily for the raising of money.

The EU Principal VAT directive (in force during the period to which the decision relates) defines the exemption as follows:
“The supply of services and goods, by organisations whose activities are exempt pursuant to points (b), (g), (h), (i), (l), (m) and (n), in connection with fund-raising events organised exclusively for their own benefit, provided that exemption is not likely to cause distortion of competition”.

The Tribunal considered the correct approach was to apply a fair interpretation of the exemption and cited existing case law of Expert Witness Institute v Customs and Excise Commissioners [2001] EWCA Civ 1882 to support this position.

It was not in dispute that the event had been organised by a charity.

The tribunal’s view was that the condition that the primary purpose needed to be for the raising of money could be construed (following the Loughborough Students’ Union case Loughborough Students Union and others v HMRC [2018] UKFTT 357 (TC)) as ‘a’ primary purpose rather than ‘the’ primary purpose.

Fundraising was not the only purpose of the show (which was also educational), but there was no evidence regarding the ranking of the two purposes, and so both could be considered to be ‘main’ purpose of the show.

The third condition is that the event must be promoted as being primarily for the raising of money, and the appellant accepted that it did not promote the event in this way. However, the Principal VAT Directive does not contain a condition that the event should be promoted primarily for raising money, only that it should not be likely to distort competition.

The parties agreed that EU law was in force at the time when the relevant supplies were made, and that UK law at the time needed to be interpreted so as to comply with EU law. On that basis, the tribunal concluded that the conditions for the application of the fundraising exemption could be considered to be met.

Please contact Wendy Andrews for further details.

This was described as a ‘who supplied what to whom’ case, regarding the VAT treatment of a payment of 4 million Euros, received by Sports Invest UK from Inter Milan, in the relation of a transfer of Joao Mario, a Portuguese footballer, from Sporting Lisbon to Inter Milan.

HMRC’s position was that the appellant provided services to both Inter Milan and the player. The appellant was entitled to 10% of the player’s gross salary as part of the contract. HMRC argued that output VAT of £438,954 is due as this amount was a third-party consideration by Inter Milan for a supply made by the appellant, to the player which was made in the UK.

Sports Invest UK’s position was that the payment from Inter Milan was consideration for services supplied by it to Inter Milan, and therefore the place of supply was Italy, meaning no VAT is due.

There were three contracts entered into, as follows:

  • Player representation agreement between Sports Invest UK and the player;
  • Waiver letter between Sports Invest UK and Joao Mario, waiving the player’s obligation to pay; and
  • Agreement between Sports Invest UK and Inter Milan ‘the Inter Agreement’.

HMRC suggested that the Inter Agreement did not correctly describe the services provided, because the majority of the services provided pre-dated the agreement, and consequently as only the player representation agreement existed at that time, the services must have been supplied to the player. The First Tier Tribunal (FTT) did not accept this and found that often services are supplied before there is a written contract in place.

Furthermore, the FTT found that services were supplied by Sports Invest UK to the player, but they were not supplied for any consideration. There was commercial sense for agents such as Sports Invest UK not to seek payment from the player and it was a case of the appellant flexing its ‘considerable financial muscle’ in a competitive market. As a consequence of the waiver letter, the contracts were consistent that the payment was made by Inter Milan for services which Sports Invest UK supplied to Inter Milan.

Therefore, the place of supply was Italy and there was no liability for Sports Invest UK to account for UK VAT.

Please contact Callum Richards for further details.

This case is an appeal in the FTT against the decision of HMRC to deny Innate-Essence Limited’s claim of £80,730.52 VAT overpaid on the basis that their supplies of turmeric shots were subject to the zero rate of VAT as food products.

Group 1 of Sch 8 VATA sets out that “food of a kind used for human consumption”, is subject to the zero rate of VAT (‘food’ includes drinks), however, “other beverages (including fruit juices and bottled waters) and syrups, concentrates, essences, powders, crystals, or other products for the preparation of beverages” are exceptions to the zero rating and are standard rated.

The tribunal considered the following grounds:

  • Being a drinkable liquid commonly consumed: The tribunal agreed with HMRC that the shots were a drinkable liquid commonly consumed.
  • Increase bodily liquid levels: The tribunal found that the shots were not characteristically taken to increase bodily fluid levels as they are not marketed for this purpose, and a consumer would choose an alternative liquid with greater volume and lower unit cost for this purpose.
  • Taken to slake thirst: The tribunal did not accept HMRC’s submissions and determined that a consumer would choose a more pleasant tasting liquid with greater volume and lower unit cost if their purpose was to slake thirst.
  • Consumed to fortify: The tribunal held that the definition of “to fortify” implies a short-term boost rather than any long-term benefits. They found that the shot does not provide an immediate or short-term physical or mental boost to the consumer. Both the marketing and reviews of the shots on the website support the notion that they provide benefits after long term consumption.
  • Consumed to give pleasure: HMRC argued that the unique selling point of the shots was their taste, described as refreshing and not synthetic by one of the developers. The effort to make them palatable in texture and taste therefore satisfies the “giving pleasure” element of the test. The appellant argued that “pleasurable taste” was subjective, and the test is to determine whether the shots are specifically consumed for pleasure and enjoyment. The tribunal agreed that the shots are not consumed to give pleasure. The marketing and reviews of the shots confirm that the shots were manufactured to reflect the freshness of the ingredients, rather than to make them taste pleasant.
  • Unexpected guest test: The tribunal found that the shots would not be offered to an unexpected guest. The size and strong taste made them unsuitable to be offered as a general drink, and even if a guest were to be health-conscious, due to the commitment required to see benefits from consumption, there is no reason to offer them as a one-off drink.


The tribunal found that the shots were not marketed as beverages for the following reasons:

  • They are marketed based on the nutritional content of the ingredients that are stated to support health and wellbeing, and contain ingredients not commonly found in beverages. They require regular consumption over a long period of time to see any benefits, so a one-off purchase would not achieve the stated benefits.
  • The most popular method of purchase is the subscription service available through the website, unlike with most other beverages, which is in line with the marketing which emphasises the requirement for regular, long-term consumption. They are also expensive compared to common beverages sold in supermarkets.
  • They are marketed as unpasteurised and must be refrigerated. They have a shelf life of six weeks if refrigerated or three days if left at ambient temperatures. They must be refrigerated when displayed in retailers which reduces distribution in supermarkets and other retail outlets.

Reason for consumption

HMRC argued that the main reason for consumption is to fortify and give pleasure either through taste and/or via a mental boost. The tribunal agreed with the appellant’s assertion that the shots are specifically consumed for the long-term health benefits, akin to a ‘medicinal liquid’.

Use to which it was put

HMRC argued that regardless of the contents or nutritional value, the shots are drunk, and are designed to be a liquid rather than a solid. They are consistent with many beverage hallmarks and should be treated as such. The tribunal agreed with the appellant that the shots would not be consumed in place of any beverage with a lunch. They concluded that the marketing and customer reviews demonstrate consistency in the use of the shots; the purpose of the shots is entirely functional – to maximise the consumers daily ingestion of curcumin.

Considering the above factors, the tribunal decided that the shots should be zero-rated for VAT purposes as being a food but not a beverage. The appeal was allowed.

Please contact Callum Richards for further details.

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Sean McGinness
Partner, Edinburgh

Key experience

Sean is Head of the Edinburgh office.