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Zero rating for modified mobile telephone

22nd Jun 2016
VAT Consultant
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Some First Tier Tribunal decisions seem certain to be appealed! In Iansyst Ltd, the Tribunal accepted that a mobile telephone, adapted by means of an APP designed to enable persons with visual impairment and dyslexia to use them, was correctly zero rated. Since the decision did not restrict its consideration to the physical characteristics of the item, this seems an invitation to HMRC to Appeal it further!

Group 12 of Sch 8 provides for supplies of certain items to be zero rated where made to a handicapped person for domestic or personal use. It also zero rates the same supplies made to a charity for onward supply to a handicapped person. After the list of specific items (Item 2(a) to (f)), Item 2(g) is a ‘catch-all’ provision that zero rates ‘equipment and appliances not included … above.”

The company installed ‘Capturatalk’ on mobile telephones and tablet computers. This ingenious piece of software provided the following:

  • Reads text aloud, e.g: it can read out the text on web-pages navigated to on the mobile device;
  • Can convert text in a picture taken by the camera on the mobile device and then read it aloud;
  • Can write text from speech, ie: when dictated to;
  • Contains a link to a dictionary;
  • Assists the user to distinguish between homophones, e.g: there, their, they’re.

HMRC’s argument was that the device remained a mobile device, albeit with certain software installed. The device itself remained unchanged. It is therefore not designed solely for use by a handicapped person. Further, some of the features of the software, such as voice recognition, text-to-speech, are capable of use by a non-handicapped person.

The Tribunal referred to the Upper Tier decision in British Disabled Flying Association [2013] UKFTT, which addressed the issue of aircraft adapted for use by handicapped persons. That case examined the physical characteristics of the adapted aircraft. The FTT interpreted that decision to make it appropriate to consider any characteristics of the equipment that make it suitable for use by a handicapped person, not just physical characteristics.

The Tribunal also commented on the argument that the adapted device was still capable of use by a non-handicapped person. The Tribunal held that this did not prevent the equipment being ‘designed solely for use by handicapped persons.' This followed the Kirton Designs Ltd (VTD 2374) case in relation to specially designed bath equipment used by handicapped children.

The Tribunal insisted that zero rating applied to the device with the software installed. The software changed the operation of the device specifically for use by a handicapped person. The software itself was not zero rated, and the company had not argued that it was.

But I do fear that HMRC will Appeal this case, arguing that the product is still a mobile device. And I hope they lose!

The decision is here:


Replies (1)

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By Rebecca Cave
28th Jun 2016 12:15

Marie Stein says:
Just because there two ways of applying a piece of legislation, it doesn't mean that you have to apply the strict interpretation. In this case, the Tribunal decided that "looking at the package as a whole....the supply of a mobile device with Capturatalk pre-installed would meet the requirements of a piece of equipment designed solely for use by a handicapped person....".
She also adds:
This is a very interesting decision and it could apply much more broadly than just to devices containing specialized software - it could apply to ANY product that can be USED by non-handicapped even if it was designed SOLELY for use by the handicapped.

Businesses who've received rulings from HMRC on the basis of VAT Act 1994, Group 12, Sch 8 Item 2(g) should be considering whether they could appeal on the basis of this decision and submit claims for overpaid VAT under the 4 year error correction procedure.

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