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Cases held over pending BPP case should consider if they should be new test case, says expert

Out-Law News | 17 Jul 2014 | 9:36 am | 3 min. read

HM Revenue and Customs (HMRC) has been barred by the Tax Tribunal from taking any further part in the proceedings in a UK case involving BPP, the professional course provider, on the VAT treatment of printed matter supplied in conjunction with standard rated education services. 

Jason Collins, a tax disputes expert at Pinsent Masons, said that any other taxpayers whose cases have been held over pending a decision in the BPP case should consider whether their case should become the new test case.

Collins said that the fact that HMRC cannot take part in the proceedings means that the case will no longer be suitable as a test case and HMRC is likely to want to withdraw the assessment and find another case to bring as a test case.

He said that the advantage for another taxpayer in becoming the test case is that the taxpayer in question would essentially gain control over the proceedings and would be able to ensure that the strongest arguments were presented.

HMRC was barred from taking further part in the BPP proceedings after a Tribunal judge found that it had failed to comply with a direction issued by another Tribunal judge stating that if HMRC failed to provide replies to each of BPP's questions it could be barred from taking further part in the proceedings.  

BPP wanted to know the facts on which HMRC was relying but these were only supplied once skeleton arguments were exchanged, shortly before the hearing. The Tribunal judge said that HMRC should be barred from taking further part in the proceedings as "there is very clear prejudice to the appellant in not knowing HMRC's case".

One of the grounds on which HMRC argued that it should not be barred was because the case was effectively a test case as it will be the first case in which the Tribunal will consider the amendment of Group 3 of Schedule 8 of the Value Added Tax Act 1994 and other cases would be affected by the outcome of the appeal. However, Judge Mosedale said that this was not a reason for HMRC to be barred. She said "if HMRC are barred, they will simply have to find another test case".

BPP was in dispute with HMRC over the VAT treatment of what it argued was a separate zero rated supply of printed matter, in respect of books supplied to students in conjunction with a standard rated supply of education made by another group company.

Before 2006 a company within the BPP group supplied standard rated education to students and included within that single supply was printed matter.  A reorganisation of the business took place in 2006 which resulted in a separate company, which was not within the same VAT group making a supply of books to the students while a company in the VAT group continued to supply the education.

As the separate supply of books is zero rated under Group 3 of Schedule 8 to the Value Added Tax Act 1984, the representative member of the VAT group did not account for VAT on the supply. 

With effect from 19 July 2011 the law was amended by section 75 of the Finance Act 2011 to introduce Notes (2) and (3) into Group 3.  Note (2) provides that zero rating does not apply where "the supply of the goods is connected with a supply of services" and "those connected supplies are made by different suppliers". Note (3) states that a supply of goods is connected with a supply of services if, "had those two supplies been made by a single supplier they would have been treated as a single supply of services", and "that single supply would have been a taxable supply (other than a zero-rated supply) or an exempt supply.”

HMRC assessed BPP to VAT for the period up to 18 July 2011 on the grounds that VAT should have been charged on the supply of the books on the basis either that there was a single composite supply or there was an abuse of law under the Halifax principle.

HMRC had also issued a decision to BPP that as from 19 July 2011 the supplies of printed material were standard rated as a result of the introduction of notes (2) and (3) into Group 3. BPP appealed the two assessments and the decision but HMRC subsequently withdrew the two assessments in relation to the period before 19 July 2011. This means that the only issue that now remains outstanding in the case is HMRC's direction in relation to the period since 19 July 2011 which concerns the interpretation of notes (2) and (3) of Group 3 of Schedule 8.