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Sympathy for funeral business in VAT tribunal

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Asked to decide whether repatriation of bodies should be treated as zero rated or exempt from VAT, the tribunal in this case decided that it fell within both.

20th Oct 2023
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The first tier tribunal (FTT) case of UK Funerals On-line Limited (UKFO) considered whether the repatriation services they supplied should be treated as zero rated or exempt from VAT. Group 8 Schedule 9 VATA 1994 provides a VAT exemption for “the disposal of the remains of the dead” and “the making of arrangements for or in connection with the disposal of the remains of the dead”.

Group 8, Schedule 8, VATA1994 allows for zero rating of certain types of transport of goods, including “the transport of goods from a place within to a place outside the United Kingdom or vice versa, to the extent that those services are supplied within the United Kingdom”.

Services supplied

UKFO provided services of repatriation of the deceased. In most cases, the customer of UKFO would be the next of kin of the deceased person. The majority of the services provided related to a situation where a person had died in the UK and their family wished to transfer their body to another country. UKFO also provided repatriation services transporting bodies of those who had died overseas back to the UK.

The case report includes a detailed summary of the process followed but as well as dealing with all relevant paperwork, UKFO did the following.

  • Transported the body from the coroner to its own unit.
  • Prepared the body for transport, including embalming and dressing.
  • Moved the body to a coffin or casket, which must be zinc lined.
  • Arranged the flight via a shipping agent.
  • Delivered the body to the airport.

The arguments for zero rating

Steven Mears of UKFO contended that they were providing specialist transport services, which would fall within the zero-rating provisions. They simply transport the bodies and have no involvement in the funeral arrangements that eventually take place.

The embalming that is carried out by UKFO is a specific type required for international transport and is not the same as the embalming that would be carried out ahead of a domestic funeral.

An airway bill was produced to evidence that airlines treat human remains as cargo, rather than passengers, thus they are “goods”.

The arguments for exemption

HMRC argued that the services provided by UKFO were those that were usually included in a funeral supply, including coffins and embalming, and were therefore made “in connection with” the disposal of the remains of the deceased.

The customer had a choice of casket, ranging from £500 to £21,000, and so they were more than just a crate for transportation.

HMRC agreed that the service provided by the airline to UKFO would be zero-rated transportation services but argued that UKFO was providing an over-arching supply of repatriation services, only part of which was transportation.

Not the end

The tribunal said: “The services provided by UKFO clearly involve the remains of the dead. The activities undertaken all related to the processing, treatment and transporting of a body. The question, therefore, is whether those activities are sufficiently closely connected to the disposal of those remains as to fall within the exemption or whether the fact that UKFO is not involved in the actual disposal of the remains and is only involved in transportation is sufficient to conclude that the services are not connected with arrangements for the disposal of the remains of the dead.”

The court concluded that there was a sufficient connection and so the services do fall within the exemption.

The case report then goes on to say “However, that is not the end of the appeal”.

The tribunal found that “the predominant element of the supplies being made by UKFO are those of transport. When a customer approaches UKFO, it is because they want UKFO to arrange for their deceased relative to be transported to the country of choice, so that the customer can go on to arrange a funeral.”

While the customer could choose different types and values of casket, that did not change the fact that the typical consumer was seeking an organisation to transport their recently deceased relative from one country to another.

As such, the supplies fell within the zero rating for transport of goods.

Zero rating over exemption

The tribunal had concluded that the services provided by UKFO fell within both the exemption for funeral services and the zero rating for transport of goods.

S30(1) of VATA1994 says: “Where a taxable person supplies goods or services and the supply is zero rated, then, whether or not VAT would be chargeable on the supply apart from this section…” it is treated as zero rated.

That means that zero rating takes precedence over exemption.

The service supplied by UKFO could therefore be treated as zero rated.

Change of mind

There were also complaints from the taxpayer that they had had at least two previous VAT compliance visits where the zero rating of their services was not challenged by HMRC.

Mears felt that it was unfair for HMRC to change its mind when there had been no change in the law and no change in the services he had supplied.

While the tribunal could not address this point, they did express sympathy for the taxpayer.

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