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Tax points & pre-payments

7th Jun 2019
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Readers will be aware of the tax point rules. Where a payment is made by a customer before delivery of goods or services, the tax point will be accelerated to the date of the payment.

Whilst this arrangement is not necessarily abusive, the Tax Tribunal and the ECJ found that it may be in certain circumstances. (This is not new news, but a reminder of an old decision.)

With effect from 1 January 1998, zero-rate Group 12 (Drugs, Medicines and aids for the disabled) was amended to remove supplies made by private health providers. BUPA entered into a massive pre-payment arrangement, amounting to around £200m worth of prostheses. This amounted to several years’ worth of purchases for group companies!

Whilst each element of the arrangement was documented, and the taxpayer argued that legislation relating to tax points was clear, HMRC took the view that the arrangement was abusive, and disallowed the input tax in the recipient company.

Not all prepayments will be considered abusive. But do ask the question!

There were other technical issues (the Hearing took several days in November 2001), but the Tribunal concluded that arrangements of this type were abusive and input tax must be disallowed. The European Court agreed with this decision. See http://www.bailii.org/eu/cases/EUECJ/2006/C41902.html

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