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Navigating the VAT Fairway: MHA's Recent Appeal Sheds Light on the Future of Golf Holidays and EU Law in the UK

Glyn Edwards · September 7th 2023 · read

Golf course

MHA recently represented Golf Holidays Worldwide Limited (“GHW”) in an appeal to the First-tier Tax Tribunal. The appeal was unsuccessful, but the case raises interesting questions about the role of EU law and the future application in the UK of the Tour Operators’ Margin Scheme (TOMS).


The appeal concerned the treatment of wholesale supplies – GHW specialises in providing packages for inbound tourists with a focus on golf tours in Scotland. Many of the packages are sold to non-UK tour operators, particularly in the USA, for onward sale. GHW accounted for VAT using TOMS but became aware that competitors had successfully claimed VAT refunds from HMRC for overdeclared output tax and underclaimed input tax on the grounds that they were entitled to exclude wholesale supplies from TOMS. Once excluded, packages sold to overseas tour operators were outside the scope of UK VAT altogether.

GHW therefore had good reason to make a claim, and to appeal when that claim was unexpectedly rejected by HMRC. The source of the confusion over the treatment of wholesale supplies was an HMRC Brief (RCB 05/14) which was issued by HMRC in response to a judgement of the Court of Justice in the case of Commission v Kingdom of Spain (Case C-189/11), which decided that wholesale supplies are within TOMS under European Law. In that Brief, HMRC stated:

30. “after careful consideration, we have decided that there will be no changes to the operation of TOMS in the UK at this stage, and that businesses should continue to follow existing guidance…… in the UK…. [wholesale supplies] are subject to normal VAT rules”

It is open for any business to apply direct effect and operate TOMS in accordance with the Court’s decisions. For example, it is possible that some tour operators may gain a benefit from including wholesale supplies within TOMS, in which case they may choose to do so if they wish.”

Businesses therefore had a choice when making wholesale supplies – apply TOMS in accordance with the direct effect of EU law or apply ordinary VAT rules, which HMRC say was the correct reading of UK law. GHW didn’t know that it had this choice when submitting VAT returns, but when making a claim, it sought to apply UK law because that gave it a more favourable outcome.

The Tribunal’s decision

The Tribunal decided to reject GHW’s appeal on the grounds that GHW could not make an error correction because it had not made an error of law - it used a lawful option in applying TOMS and the fact that it could have chosen a more favourable option does not make that original choice an error. If that’s right, then it creates an anomaly: a UK taxpayer can correct a return made in compliance with UK law, if the direct effect of EU law produces a better result, but not vice versa.

There are plenty of examples of those ‘direct effect’ claims being successful including in Investment Trust Companies (in liquidation) v Revenue and Customs Commissioners [2017] STC 985 (ITC) which the Tribunal considers in its judgement. It therefore appears that a taxpayer can rely on EU law to make a claim for tax overpaid where EU law differs from the UK’s version but can’t rely on UK law for a claim when that produces a more beneficial outcome. Put another way, a taxpayer has only one chance to use ‘bad’ UK law and that is when filing a VAT return, but has multiple chances to use ‘good’ EU law - up to 4 years after the return is submitted.

It's a strange outcome, especially 7 years after the Brexit vote but demonstrates that the application of UK VAT is still tied to EU legislation and interpretation…for now.

Future Implications of the decision

Notwithstanding their success in this appeal, HMRC’s policy on wholesale supplies is a mess. During the hearing HMRC argued that the right to exclude wholesale supplies from TOMS in the UK was a concession and was not actually UK law at all. That isn’t how RCB 05/14 represents the position and the Tribunal declined the opportunity to comment on that submission or on the related question of the extent to which UK domestic law complies with EU law in this area.

HMRC certainly need to direct their attention to this unanswered question. At the end of this year the Retained EU Law (Revocation and Reform) Act 2023 will take effect which includes provisions for the ‘abolition of supremacy of EU law’ and the ‘abolition of general principles of EU law’. HMRC need to be clear about what UK law really means and the implications for taxpayers once that part of the UK-EU divorce is passed. There are several possible scenarios:

  • RCB 05/14 correctly sets out the position which is that UK law excludes wholesale supplies from TOMS. Taxpayers will therefore cease to be entitled to rely on the direct effect of EU law and must exclude those supplies from TOMS from 1/1/24.
  • UK law should always have been interpreted in accordance with the judgement in the Kingdom of Spain and all wholesale supplies are within TOMS. In which case, HMRC must make it clear that the option to exclude those supplies from TOMS is a concession.

A taxpayer such as Golf Holidays Worldwide making an identical claim in respect of supplies made after 1/1/24 would succeed in the first scenario, because including wholesale supplies within TOMS would be an error in law. But any claim would fail if the second scenario prevails because a concession cannot be claimed retrospectively.

Wider Uncertainty

This is one small example of how the Retained EU Law (Revocation and Reform) Act 2023 will create fresh doubt including in areas where there has been very recent UK litigation. It will also create significant opportunities on both sides of the tax relationship. HMRC will seek to collect more VAT when they were previously constrained by EU rights such as direct effect and fiscal neutrality, but equally taxpayers may have a fresh look at UK law and assert their right to be taxed according to it – a right which was denied to GHW.

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