Spring Budget 2017

VAT use and enjoyment provisions for business to consumer mobile phone services

From 1 August 2017 UK VAT will be due on mobile phone services used by UK consumers outside the EU. In a measure described as removing inconsistency between EU and non-EU charges, changes will be implemented to the UK use and enjoyment rules for B2C supplies of mobile phone services. At present a UK consumer is not charged UK VAT on the fees for using his mobile phone outside the EU. From 1 August 2017 the UK law will change and these supplies will be subject to UK VAT, even though they are used and enjoyed (consumed) outside the EU.

The use and enjoyment provisions are an option available to the Member States to relieve from domestic VAT supplies that are consumed outside the EU that would normally be subject to VAT in the Member State in question. It is therefore slightly misleading to include this measure under the heading of ‘avoidance’. The UK had previously been considering applying use and enjoyment to advertising services. This would have brought certain advertising services supplied to non EU recipients, but used and enjoyed here, into the scope of UK VAT. Identifying where advertising is used and enjoyed is recognised to be exceptionally difficult.

Goods ordinarily incorporated into new dwellings

Taylor Wimpey Plc

The UT has released an interim decision in this case concerning the UK’s input tax block on certain items incorporated into buildings. This is a long decision and complex case. The Fleming claim submitted by Taylor Wimpey (TW) was for VAT on low spec white goods, such as extractor hoods and ovens, high spec white goods, (fridges, washing machines etc.) and carpets.

Essentially, the taxpayer is looking to achieve VAT recovery on the items on the basis that the block does not apply to the items or that the block was unlawful under EU law. The UT, reaching a different conclusion to the earlier FTTs, has decided that the block and the changes to it post 1978 are lawful under EU law. It has also given guidance as to which items are incorporated in the dwelling. This has been left for the parties to decide.

Once agreement has been reached on the non-incorporated goods to which the block does not apply, the UT must then decide if output tax is due on these items because there is a separate supply of them. If this is the case the UT will then have to consider if the output tax must be set off against the claim reducing it to nil, even though HMRC is out of time to assess


The case is of importance for Taylor Wimpey and other housebuilders given the size of the claim. Taylor Wimpey’s claim for example is over £51m.

Rental and optional insurance – mixed supplies

Wheels Private Hire Ltd

The taxpayer operates a taxi business. For drivers who do not have their own cars, they hire out vehicles and radios to drivers for £120 per week on which they charge VAT. All vehicles are required to be insured by law in order to be driven on the roads. Drivers can arrange their own insurance or can choose to buy the insurance from the taxpayer for £45. The taxpayer has a fleet contract with a third party insurance company.

The UT noted its surprise that the BGZ Leasing (C-224/11) (BGZ) ECJ judgment was not raised at the FTT. The UT noted the similarities between BGZ and this case, which concerns leased cars and the recharging of insurance. The UT decision looks at the ECJ judgment in detail, pointing out one error in the English version and explaining what key paragraphs of the judgment mean.

Scope of the insurance exemption – HMRC considered that the FTT had erred in concluding that the supplies were exempt under the expanded definition in CPP.

Single versus multiple supply – The UT goes through the key European case law and reproduces the 12 principles originally in the UT’s decision in The Honourable Society of Middle Temple. The UT’s starting point was taken from the ECJ’s statement in BGZ that, as a general rule, a leasing service and the supply of insurance for a leased item, cannot be regarded as being so closely linked that they form a single transaction even though the insurance is for the leased item. The UT considered the optional nature and separate charge for the insurance provided by Wheels were significant indicators of a separate supply, but not decisive. Taking all the factors into account however, the UT concluded there was a separate VAT exempt supply of insurance.


This case quite rightly refers heavily to BGZ and provides some useful insights into this ECJ judgment. This appears to be an unusual case for HMRC to pursue, although this may have been influenced by the fact that the most drivers take up the insurance and that the taxpayer makes a profit on the insurance. HMRC raised a number of arguments to limit the exemption but all of these have been rejected. On the single versus multiple supply point this was probably the more straightforward issue and the case is supportive of the fact that genuine contractual freedom to obtain a supply for a separate charge is strongly supportive of a separate supply.