25 October 2018
The First-tier Tribunal (FTT) has released a decision concerning the application of the reverse charge when in the case of Wellcome Trust Limited (WTL) payments were made to overseas investment managers relating to WTL’s non-business activities, ie the buying and selling of shares. Ironically, WTL had previously been prevented from recovering VAT on these non-business activities by the courts. The total VAT payable by WTL on the reverse charge was £13m.
The issue in this appeal relates to the correct VAT treatment of management fees paid by WTL to investment managers outside the EU. These fees are consideration paid by WTL for a supply of investment management services and the issue is whether the place of supply of the services is the UK.
HMRC considered the place of supply to be the UK, so that WTL was right to account for VAT under the reverse charge provisions whilst WTL asserted the place of supply to be outside the UK such that UK VAT is not due.
The FTT considered that this case turns entirely on the meaning of the words within Article 44 of the VAT Directive: ‘The place of supply of services to a taxable person acting as such shall be the place where that person has established his business’.
Given that it has previously been confirmed that the management of a charitable investment trust is non business WTL asserted that the words ‘acting as such’ take it out of Article 44 and therefore out of the requirement to self account for VAT on investment management services supplied to it from outside the EU.
HMRC considered that Article 43 of the VAT Directive which states ‘a taxable person who also carries out activities or transactions that are not considered to be taxable supplies of goods or services shall be regarded as a taxable person in respect of all services rendered to him’ overrides anything in Article 44. In other words, anyone who is a taxable person is treated as such for all purposes. HMRC therefore required VAT to be payable by WTL even though it was conducting non-business activities.
Allowing the appeal, the FTT considered HMRC's interpretation to be an illogical proposition finding that the words ‘acting as such’ in Article 44 effectively exclude WTL from the provisions to the extent that those services are supplied for the purposes of WTL's non-economic business activity, ie its activities consisting of the purchase and sale of shares. The FTT held that WTL is not therefore required to account for the VAT on the investment management services it receives from outside the EU under the reverse charge procedure.
The amounts involved are significant and the case will almost certainly be appealed but charities who are accounting for VAT under the reverse charge provisions should consider their position further and if necessary make protective claims to HMRC for any VAT overpaid.