Provision of driving lessons off the highway for under 17 year olds

VAT case driven by the application of the reduced rate

Cast your minds back to the post-lockdown period where eat out to help out and the reduced rate VAT was in full swing for catering and hospitality sectors.

HMRC had issued some guidance and there was some uncertainty at the time around the scope of the reduced rate, was ten pin bowling eligible or was it the right to partake in an activity, was the sort of queries that arose on AccountingWeb at the time, and whilst there was some logic through the maze, the guidance was left wanting at the fringes of definitions.

The Highway Code (of VAT)

The temporary reduced rate was driven by Groups 14-16 of the Value Added Tax (Reduced Rate) (Hospitality and Tourism) (Coronavirus) Order 2020.  Originally temporary until 12th January 2021, then extended 31st March 2021 and then extended again until 30th September 2022 and finally coming to an end 31st March 2022 (but at a 12.5% rate).

The reduced rate covered right of admission to shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas and exhibitions and similar cultural events.

The government announced the temporary reduced rate on the 8th July 2020 and HMRC published guidance on the 9th July 2020.

The taxpayer

In the case, The Young Driver Training Limited, the taxpayer was assessed for £125k covering a period of 09/20 to 12/20 and the period 03/21.

The tax agent for the taxpayer contacted HMRC helpline on 9th July 2020 asking about the reduced rate and whether it was applicable to the taxpayer.  It is noted that the taxpayers original VAT registration was under the sector of “Other Personal Services not elsewhere classified- Provision of driving lessons off the highway for under 17 year olds.”

HMRC were unable to give any more details than in the guidance and suggested a written enquiry to answer the question.  On the same day, the tax agent submitted a VAT484 change of business details form, changing the trade sector of the business to “Driving experiences for under 17 year olds”.  The main change being from driving lessons to driving experience.

Whilst the reduced rate was a sudden change, the legislation itself hadn’t, so if a supply was deemed to be a cultural event before the VAT rate changed, then it was still a cultural event, etc.

Written clarification was requested January 2021 stating the business charged an admission fee for a driving experience and submitted a refund claim for £11,877 for period 05/21.  HMRC confirmed the supplies did not qualify for the reduced rate and explained that driving lessons, sports car/racing  experiences, driving fire engines or tanks are not a right to admission or attraction.

HMRC requested the taxpayer provide earlier VAT records and further assessed for the period 09/20 (£56,968) and for period 12/20 (£68,315).

The Tribunal conclusion

The taxpayer argued the experience is similar to events contained in Group 16 (similar to a circus/funfair as it takes place on fenced off land which is only accessible to those with a ticket, there are other activities and refreshments available and a fair includes many rides such as dodgems.  Dodgems are no different to the experience offered by the Appellant: you get in the dodgem, pay the person for a go, person tells you which direction to drive to avoid head-on collisions, tells you how to operate the dodgem car and off you go.

A circus/fair offers a range of attractions/amusements and a customer who has purchased an entrance ticket is able to freely wander around to view all the available attractions. This can be contrasted with what the taxpayer which offers a specific pre-booked experience in a fenced off area. Unlike a circus or fair, there are no other available amenities or attractions within the fenced off area to enjoy.

The Tribunal also rejected the dodgem example. Any instruction on how to drive a dodgem will, by the very nature of the vehicle, be rudimentary (you press the accelerator to move and steer). Colliding with and avoiding collision is the aim of the attraction and bad driving is part of the enjoyment. This contrasts with the taxpayer where the child is being instructed and supervised on a one-to-one basis to drive in a safe and controlled manner, avoiding collisions, following a marked course that replicates a highway and in a vehicle that is a car or a vehicle that replicates the handling capabilities of a car.

Why Rayner Essex

This Tribunal case highlights the complexities (and risks) of VAT legislation and how HMRC are not always able to give advice, equally, changing the business model to accommodate a VAT rate change is not without risk either.  This particular case cost the taxpayer over £125k simply because the Tribunal did not accept that a driving experience was akin to a dodgem/funfair ride.

Here at Rayner Essex we tend to take the view that a business should not automatically accept an assessment from HMRC and should seek an opinion before accepting the outcome or taking a route to challenging the assessment. Our VAT experts have a deep understanding of VAT and have first-hand experience in dealing with HMRC on many VAT matters, knowing their stance on various issues, and are well placed to advise you as to whether your dispute has any chance of success, and whether it is viable. We have extensive tribunal experience and can represent you for a positive outcome.

Get in touch

If you feel that you are misrepresented or not in agreement with a decision taken by HMRC regarding your business or if your business has complex VAT matters, it is worthwhile you seeking advice from a VAT expert.

Whatever your HMRC query or concern is, our VAT team is always on hand to advise and assist you.

Image provided by Kampus Production

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