Constable VAT Focus 13 December 2018


Refunds of VAT in the UK for non-EU businesses

This brief explains changes for verifying claims for VAT refunds submitted by non-EU businesses under the Overseas VAT Refund Scheme.

Software suppliers for VAT returns and the EC Sales List

Find recognised suppliers and software for filing your VAT returns online.

VAT when you buy a vehicle to sell on

VAT registered motor dealers can reclaim the VAT charged and shown on the invoice when they buy vehicles to sell on.




1. Restrictions on Bad Debt Relief

This case concerned a Portuguese company, Tratave, which was refused the right to adjust the amount of VAT previously paid in relation to supplies to eight companies which are now insolvent. Following an inspection by the tax authorities, the adjustment was disallowed on the ground that Tratave had failed to notify the insolvent companies of its intention to seek bad debt relief against supplies made to them.

The requirement to notify the insolvent companies is a Portuguese restriction which gave rise to the question before the Court; does the principle of fiscal neutrality and relevant EU law preclude national legislation which denies the adjustment of VAT in the event of non-payment where the supplier has not notified its insolvent customer?

The Court posited that the relevant EU law around bad debt relief gives member states discretion as to the requirements they may impose on businesses seeking bad debt relief for VAT. This discretion is to allow member states to effectively combat tax evasion but any extra requirements must not have a significant impact on the VAT system or make it unnecessarily difficult for businesses to recover VAT.

In coming to a conclusion, the Court considered that the obligations imposed were not excessive and did not distort the system of VAT. Tratave had failed to comply with a reasonable domestic requirement for bad debt relief for VAT and, therefore, the Court held that the principle of neutrality and relevant EU law do not preclude national laws akin to those in the present case.

Constable Comment: This case shows that Member States of the EU are given some discretion, albeit not unfettered, in how they apply VAT law. As each country deals with different issues and cultures it is necessary to afford some leeway so the VAT system can be effectively enforced in each domestic region.


Upper Tribunal


2. Best Judgment Assessments

DCM Optical Holdings Ltd (DCM) appealed against an FTT decision dismissing DCM’s claims that, inter alia, HMRC had acted outside of its authority by retrospectively amending VAT returns which were out of time for assessment. The appeal also concerns assessments made on ‘best judgment’ of underpaid output tax for four VAT periods prior to February 2004.

DCM submitted VAT repayment returns for multiple periods including 07/05 and 12/08 which are the returns in question. HMRC contended that mistakes had been in calculating these returns and amended the returns to reflect the correct calculation of VAT due. It was HMRC’s belief that the method of apportionment used by DCM between taxable/exempt supplies was not appropriate.

DCM asserted at the Tribunal that these returns were out of time for assessment and that HMRC could therefore not refuse the repayments retrospectively. DCM also highlighted that all of the periods prior to February 2004 were out of time for assessment and these should not have been issued.

The Upper Tribunal allowed DCM’s appeal in part, holding that the assessments relating to periods before February 2004 were out of time. However, it upheld the FTT’s decision that there was no time bar preventing HMRC from retrospectively amending a reclaim VAT return. It was stressed that the time limits only apply to the power to assess, not the power to investigate and decide if a repayment claim was correct when submitted. HMRC is allowed, by virtue of section 73(6) VATA 1994, in this case, to raise a VAT assessment one year after evidence of facts

Constable Comment: Opticians supply a mixture of exempt supplies of medical services and taxable supplies of glasses frames. This has given rise to multiple input and output VAT issues for DCM but also for others operating in the same sector. In areas of uncertainty it is essential to seek professional advice when classifying supplies and establishing a method of calculating a businesses’ partial exemption percentage to minimise the risk of any mistakes which could give rise to assessments and penalties.