Week ending 8 August 2014 Weekly VAT News HP company can reclaim VAT on repossession costs and adjust VAT after defaults The First-tier Tribunal has decided that British Credit Trust Limited was entitled to reclaim the VAT on legal and other repossession costs incurred when its customers defaulted on HP agreements. It also agreed that the company was entitled to adjust its VAT accounting and, where appropriate, to claim bad debt relief when its customers failed to pay the full amount due under the HP agreement. HMRC argued that the VAT incurred on repossession costs related to both taxable supplies (of the cars) and VAT exempt finance, and hence that it was only partly recoverable. However, the F-tT decided that the costs were directly and immediately linked to the sales of the cars after they were repossessed and that the VAT on them was recoverable in full. HMRC also argued that past failures in the company’s VAT accounting (it had failed to account for input tax and output tax on the cars that were the subject of the HP contracts when the cars were bought and supplied on HP) which were corrected later meant that it was not entitled make adjustments or to bad debt relief. The F-tT agreed that HMRC was right to reject the initial claim, made before the VAT accounting was corrected, but that the subsequent claim that was made after correcting entries were made on the company’s VAT account was a new and effective claim that should have been met. For more information about the case, or to discuss the implications of it, please contact Peter White on 0113 292 1711. Upper Tribunal permits late costs application by HMRC The Upper Tribunal has granted HMRC an extension of time to serve its costs claim in the case of Leeds City Council. In December 2013, the UT dismissed an appeal by the Council in the case, which is about the application of the three-year cap to VAT repayment claims made by the council. The case is now under appeal to the Court of Appeal. Following the UT decision in its favour, HMRC had until 3 January 2014 (one month after the date of the decision) to make an application for its costs, but it failed to do so until 9 January and then failed to include the required schedule of costs claimed. In the decision, Upper Tribunal Judge Colin Bishopp agreed with counsel for Leeds that the reason for the lateness of the application (a combination of overwork and inexperience on the part of the HMRC solicitor concerned) was "feeble", but he went on to allow HMRC's application. For further information about the case, and to discuss the implications of it, please contact Oliver Jarratt on 0121 695 5722. HMRC were out of time to issue assessment – F-tT decision The F-tT has decided that HMRC had evidence sufficient to justify the raising of an assessment more than 1 year before it was made and, therefore, that the assessment raised against Temple Retail Limited was out of time and invalid. The HMRC officer dealing with the case gathered the information needed to raise the assessment but left HMRC before the assessment was raised. Another officer took up the matter and issued an assessment on 31 January 2013, but it was based on information that HMRC had in a letter sent on 30 November 2011. The F-tT concluded that this meant that the assessment was out of time and upheld that taxpayer’s appeal against it. The case reaffirms the importance of considering technical issues like time limits, for taxpayers and HMRC alike. VAT groups with overseas members – Webinar on 18 September after CJEU judgment On 8 May 2014, A-G Wathelet delivered his opinion in the Swedish case of Skandia America Corporation USA, about the treatment of transactions involving the Swedish branch of the company, which was included in a Swedish VAT group with other related companies. The Opinion, which has not been released in English, suggested that any VAT grouping would be of the company as a whole, and not just the branch and that the VAT group may be liable for reverse charge VAT on services bought in by Skandia America Corporation USA, to the extent that they are consumed in Sweden by the branch and, through it, the VAT group. The CJEU is due to deliver its judgment in the case on 17 September and we will be holding a webinar on 18 September, at 9:30 am, to discuss its VAT implications for the EU Financial Services industry. If you would like to register for the webinar please contact Dawn Neill on 0207 007 6122. For further information about the case, or to discuss the implications of it, please contact Gary Campbell on 0207 303 2862. Deloitte contacts London – Richard Vitou Tel: 0207 007 0578 Email: [email protected] North – Mark Smith Tel: 0161 455 6930 Email: [email protected] South West and Wales, Scotland and N Ireland – Daniel Lyons Tel: 0117 984 2748 Email: [email protected] South East – Simon Prinn Dispute Resolution Group – Anbreen Khan Tel: 0118 322 2825 Midlands – Darren Stephens Email: [email protected] Tel: 0207 007 0688 Tel: 0121 695 5548 Email: [email protected] Email: [email protected] See the Deloitte Indirect Taxes Website for more information about Deloitte’s International and UK Indirect Tax services and the Deloitte Store for information about on-line and classroom VAT training. This Bulletin is prepared by Deloitte LLP, a limited liability partnership. Weekly VAT News is designed to keep readers abreast of current developments, but it is a general guide only and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains, or for any errors or omissions. © Deloitte LLP 2014. All rights reserved.