50th anniversaries of most major events get considerable coverage in the press. One such anniversary which appears to have passed with little comment occurred on 1 April 2023, being the 50th anniversary of the introduction of VAT.

VAT was meant to be a simple consumption tax calculated on turnover. The last 50 years proving that it is anything other than simple. VAT tax cases have been numerous with sometimes inconsistent results. A member of the judiciary famously described VAT as having “factual and legal realities [which] are suspended or inverted”.

VAT was first introduced on 1 April 1973 at a rate of 10% and that rate has slowly crept up to the current standard rate of 20%. Not all changes have been increases in the VAT rate. There was a reduction to 8% for about 5 years in the late 1970s, a reduction announced on 28 November 2008 which cut the standard rate from 17.5% to 15% for the period 1 December 2008 to 31 December 2009. This was to try and help stimulate the economy during the recession of those times. During the COVID crisis there was a reduction between July 2020 and March 2022 in order to stimulate the hospitality sector.

Whilst the average person would be hard pressed to quote the principles of a direct tax case many of the population know that the Courts decided the extent to which a Jaffa cake was a cake or a biscuit for VAT reasons.

Whilst much of the population would be able to quote standard rate of VAT at 20% not many would appreciate that there are other rates, including 0% and 5% with even less of the population understanding the concepts of exempt supplies and reverse charges. Whilst the principles of reverse charge may have originated with imported services they are now used domestically as a way of preventing tax fraud in the construction industry.

Like many aspects of society the fundamentals of VAT have not necessarily kept pace with the digital economy. The most recent example of this being the News Corp decision about the extent that online newspapers are a zero rated supply of a newspaper or a standard rated supply of something else. Although this matter has been rumbling through the Courts for many years the result has become less relevant since HMRC clarified the legislation in May 2020.

As VAT treatments are clarified then some parties realise that they may have overpaid VAT to HMRC and seek to recover the overpayments. Whilst the claim may be technically valid the Courts do not necessarily permit the refund to be issued, and this is due to the concept of unjust enrichment. Effectively the Courts decide if the party making the claim is the party which incorrectly incurred the VAT cost. For example, if the public buy a product from a shop which (incorrectly) includes VAT then the Courts may deny the shop the right to recover the VAT from HMRC. This is because it was the consumer, and not the shop, who would have suffered the incorrectly charged VAT. Unless the shop has a way of repaying the consumer then the shop may be unjustly enriched by receiving a VAT refund.

One of the most complex areas of VAT is within the property sector. Goodman Jones property and construction team are regularly being asked to advise on complex transactions with chunky VAT liabilities at stake. The stamp duty land tax liability on a property purchase is a percentage of the VAT inclusive price, even if the VAT is subsequently recoverable. For this reason VAT planning by the property and construction team is paramount as it may give the twin savings of the cash flow benefit of not having to pay VAT (and then recover it), as well as the absolute saving of the buyer paying less SDLT.