In Multimedia Computing Limited & Deed Poll Services Limited v HMRC [2016] UKFTT 0779 the First Tier Tribunal (FTT) found that services made by a Jersey company with a UK establishment had a UK place of supply and should be standard rated.
- Multimedia Computing Limited (MCL), a UK company, provided deed poll services to UK customers.
- MCL was sold to a Jersey Trust and a new company, Deed Poll Services Limited (DPSL) was incorporated in Jersey to carry out the services .
- The MCL director became an employee of DPSL and worked in Jersey during the week.
- MCL entered into an outsourcing agreement with DPSL for the UK based MCL staff to provide services to DPSL. This was to avoid making all the staff redundant.
- DPSL continued to provide deed poll services to UK customers.
The taxpayer’s view was:
- DPSL are making business-to-consumer (B2C) supplies to UK customers.
- Under the place of supply rules, this is treated as a supply made where the supplier belongs, i.e. Jersey.
- The supply is outside the scope of UK VAT.
- The services supplied by MCL to DPSL are business-to-business (B2B).
- The B2B place of supply rule is that the supplies take place where the customer belongs (where it is established), i.e. Jersey.
- The services by MCL to DPSL are outside the scope of UK VAT.
HMRC contended that:
- DPSL had an operational base in the UK, at the Director’s home.
- DPSL could not have made any supplies to its customers without the support of MCL and its UK director.
- DPSL therefore have a UK fixed establishment for VAT purposes.
- As the UK establishment is more closely linked to the supplies to UK customers the place of supply must be the UK.
- Both DPSL and MCL were making UK supplies and VAT should be assessed on their services.
The FTT agreed with HMRC. As all of the resources, technical and human, were available in the UK, DPSL had a UK fixed establishment. There was no dispute that the company was also established in Jersey.
When a business is established in more than one jurisdiction, the place of supply depends on which of those jurisdictions is more closely linked to that supply. In this case, the customers were UK based and the bulk of the work was carried out in the UK. The UK was therefore more closely linked to the supplies. The place of supply of services by DPSL to its UK consumers was therefore the UK.
Furthermore, the B2B supplies by MCL to DPSL were also deemed to take place in the UK for the same reasons.
Both DPSL and MCL were assessed for nearly £500,000 of VAT plus penalties.
This case highlights the importance of understanding the place of supply rules and how it interacts with businesses that operate in more than one jurisdiction, to the extent that it creates a new establishment for VAT (which is different to the permanent establishments seen in Corporation Tax or Double Tax Treaties).
Links
Case reference: Multimedia Computing Limited & Deed Poll Services Limited v HMRC [2016] UKFTT 0779
