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Supply of labour or not? TUPE & VAT

18th Nov 2019
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The FTT decision of In Tandem Resources Ltd makes for interesting reading. The company, run by an ex-HMCE employee, was a substantial provider of labour. Clients frequently transferred their entire workforce to the company and the company sub-contracted them back. This provided cost benefits including pensions, well-being platforms, and shopping discount vouchers.

First, the Tribunal was clear that, where staff were transferred to the company by a transfer of undertakings (TUPE), that must constitute an onward supply of labour. The Tribunal commented that the company’s denial of this was “a bit of a foot-shooting exercise”!

Second, the company was unsuccessful in arguing that the value of the employees’ wages had to be deducted from the value of the supply of labour. This seems an obvious application of PVD, art 73 and VAT Act 1994, s19.

Third, and it was not explained why, the HMRC assessment excluded the value of employee’s National Insurance, so the assessment was under-stated. The Tribunal does not have power in this instance to increase the assessment.

Finally, HMRC had raised penalty assessments on the basis that the output tax and input tax assessments were ‘deliberate’ behaviour. The company, as you would expect, appealed this. Oddly, HMRC had not included a fall-back position (of careless behaviour) in its Statement of Case. (This is a ‘school-boy error.’) The Tribunal heard representation based on the recent Ritchie decision ([2019] UKUT 0071). As a result, the FTT allowed the penalty in relation to output tax and input tax assessments to be based on one of careless behaviour. It commented that the decision was quite fine on the facts. I estimate the difference to be £2.5m! (Further, a careless behaviour penalty cannot be enforced on a company Director in the way that a deliberate penalty can.)

You can read the entire decision here:  http://www.bailii.org/uk/cases/UKFTT/TC/2019/TC07399.html

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