Independent VAT Consultant
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How one word can change the VAT treatment

Payroll services for disabled people, advertising by charities, and catering connected to students’ education can have all have disputed VAT treatment. Neil Warren explains why.    

29th Jan 2021
Independent VAT Consultant
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A fact that makes VAT such a unique tax is that the liability of a supply can often depend on how a single word is interpreted in the legislation. I share three examples in this article.

Payrolls for the disabled 

In 2019, I was surprised when Cheshire Centre for Independent Living (TC7182) put forward the argument at the FTT that the payroll services it provided to disabled people qualified for exemption from VAT as a welfare service supplied by a charity. How can payroll work be classed as welfare? But all credit to the taxpayer’s advisory team, they won their appeal at the FTT. 

The arguments

The FTT allowed the appeal on the basis that the welfare exemption was intended to assist disabled people and allow them to live independently, being able to employ a personal assistant was a key part of this outcome.  Personal assistants can only be employed if tax is properly deducted under PAYE, along with all the other burdens employers must meet such as holiday pay. That payroll service was provided by Cheshire, which is treated as exempt from VAT and the FTT agreed.

Upper tribunal

Needless to say, HMRC appealed to the upper tribunal (UT). It is fair to say that when the department goes to the UT, it always brings out its best players – the “A-team” so to speak. 

However, the UT hearing did not take place because Cheshire withdrew its appeal. HMRC has therefore confirmed its existing policy by issuing Revenue and Customs Brief 16/2020,  which explains that the payroll services are standard rated. 

Catering supplies as education

Here’s another odd VAT situation: students at a college have paid for a catering course, which is VAT exempt. However, part of their course activity is to prepare a three-course meal for third party diners, which are sold to the diners for a fee, that is retained by the college. 

You may reason that this is a supply of catering to the punters, but that’s not the case. The verdict in a case involving Brockenhurst College was that the payments for the meals were linked to the college course and therefore exempt from VAT. 

HMRC also lost its argument in the CJEU (case C-699/15) and subsequently amended its guidance, see VAT Education Manual VATEDU53400. The fees for the student prepared meals met the condition of the legislation that they related to goods or services “closely related” to supplies of education by an eligible body (VATA 1994, Sch 9, Group 6, Item 4)

Advertising tale

I recently dealt with a VAT query from a charity, which suggested that electrical works carried out by a builder on its premises should qualify for zero-rating as an advertising expense. This was because the aim of the work was to make the boards advertising the charity’s name outside its premises much brighter. Supplies of advertising to charities have always been zero-rated.

I was impressed with this idea but it is a non-starter because the wording in the legislation requires a supply to be linked to a “medium of communication with the public” eg a radio or newspaper advert. But definitely a creative suggestion. 


HMRC has instructed other charities who have exempted their payroll services for disabled people to account for VAT under the usual four-year error correction rules. Alternatively, a charity will have to proceed with its own appeal to the tax tribunal, which would probably be a waste of time and energy. 

As a final thought, it would help many appeal situations if HMRC always put forward their best arguments at FTT hearings, rather than save the trump cards for the higher courts when they have lost the first round.

In footballing terms, start the game with the best players and tactics – don’t wait until half time.

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