Cracking Cheese?

Cracking Cheese?

The First-tier Tribunal recently looked at the issue in dispute between Lunar Missions Limited and HMRC. Lunar Missions Limited is proposing to carry out exploration of part of the moon where none has so far been carried out – the South Pole region. To fund the initial work on the this project the company set out to raise money through crowdfunding. The aim was to raise £600,000. At the close of the crowdfunding project £672,447 had been pledged. This was paid to the company by the crowdfunding platform, less its charges.

The exploration of the moon would result in a rock sample being bored from the moon, and analysed. A time capsule containing digital information, or single strands of hair, provided by people funding the project is to be placed in the resulting borehole. A person pledging £60, the most popular pledge, is entitled to a voucher that will, on redemption, allow them to have space in the time capsule.

HMRC said that the amount received meant that the company had to register for VAT as the time of supply was when the money was received. Lunar Missions Limited initially argued that it was not intending to make taxable supplies. The company subsequently accepted that it would be making taxable supplies, but argued that the money pledged was neither a prepayment nor a payment for a single-purpose voucher. It suggested the money was payment for a multi-purpose voucher.

The First-tier Tribunal had first to determine whether the money received were a prepayment for a taxable supply or payment for a voucher. If the First-tier Tribunal decided that the payment was for a voucher, it had to decide whether the voucher was a single- or multi-purpose voucher. The importance of this is the time of supply, i.e. when VAT has to be accounted for. For a single-purpose voucher the time of supply is when payment is received, whereas for a multi-purpose voucher it is when the voucher is redeemed. The latter answer would benefit Lunar Missions Limited, as it would only account for VAT when the vouchers were redeemed.

The First-tier Tribunal concluded that the payment was for a voucher. It went on to review the rules for vouchers to determine the type of voucher. It appears to have based its decision on papers published by the European Commission on a proposed Directive that would harmonise the rules for vouchers across the European Union. The new rules come into effect on 1 January 2019.

The decision was that the voucher was a single-purpose voucher, so VAT was due when the money was received.

A victory for HMRC? Possibly. It may turn out to be a pyrrhic victory as the company can now recover input tax it incurs on costs of developing the project. There is also the question that was not addressed in the First-tier Tribunal about the place of supply. Could the supplies of services being made be treated as supplied where the recipient belongs? Where are the recipients? Alternatively, could Lunar Missions Limited be seen as being involved in making arrangement for the export of goods – the strands of hair – to a place outside the European Union? We will only find out if there is a further dispute between HMRC and Lunar Missions Limited about how much of the payment received is for taxable supplies.

There were no such difficulties for Wallace and Grommit in A Grand Day Out, although they found the moon to consist mostly of Wensleydale cheese!

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