Purchases by undisclosed agents includes employees– employment status does not matter – failure to disclose agency / employment status at point of purchase means a supply to and a supply by the “agent” – section 47(2)A VAT Act 1994. No direct supply to employer
Introduction
The decisions in Gold Standard Telecom Ltd v Revenue & Customs [2014] UKFTT 577 (TC) (“GS”) and Scandico Ltd v Revenue & Customs [2015] UKFTT 0036 (TC) (26 January 2015) (“Scandico”) have concerning implications for all businesses whose employees buy goods and services on behalf of their employers. In the past there have been many instances where HMRC have queried input tax recovery on invoices made out to cash or in the name of an employee. Supplies have included hotel costs and purchases of petrol where input tax recovery has been disallowed.
The law
Section 47(2A) states that where goods are supplied through an agent who acts in his own name, the supply shall be treated both as a supply to the agent and as a supply by the agent. Under section 47 (3), where services are supplied through an agent who acts in his own name the Commissioners may, if they think fit, treat the supply both as a supply to the agent and as a supply by the agent.
Life after Gold Standard
Despite HMRC’s own guidance indicating that claims for goods and services purchased in the name of an employee (including company directors) would be allowed so long as the supplies are for the purpose of the business and some alternative evidence of purchase is held, the above cases mean that even employees
who fail to notify a supplier that they are buying goods or services on behalf of their employer, are treated no differently to undisclosed agents i.e. section 47(2A) of the VAT Act 1994 mean that it is they who are the actual recipient of the supply who then make a “deemed” onward supply to their employer.
What should a business do now?
The application of section 47(2A) VAT Act to the activity of the employees as above must mean that when any employee of a taxpayer business makes purchases on behalf of its employer any VAT input tax incurred may be denied if the employee does not declare that they are purchasing on behalf of a business, as an agent or employee thereof.
The obvious difficulty is proving that this has, in fact, happened. The safest way is to ensure that when employees make relevant purchases, they should declare that they are making the purchase on behalf of the employer and seek to obtain the appropriate documentary record to record this fact. Otherwise input tax recovery is at risk.
Scandico Ltd. have successfully applied for permission to appeal to the Upper Tribunal and, whilst no date for the hearing has yet been listed, it is to be hoped that on appeal the narrow and highly prescriptive interpretation of the law adopted by the Tribunals thus far will be overturned.
To discuss the issues contained in this bulletin please contact George Kelly or Keith Hobson at iTax UK.
