The business of UK Funerals On-line Ltd is a niche one. It repatriates from the UK the bodies of people who pass away here and (to a much smaller extent) to the UK those of people who pass away overseas. The company’s recent dispute with HMRC ([2023] UKFTT 784 (TC)) contains helpful reminders of some of the basic principles of VAT.
HMRC argued that the services in question were VAT-exempt as being the disposal of the remains of the dead or the making of arrangements for or in connection with the disposal of the remains of the dead.
The company argued that the services were zero-rated as being the supply of a service of transporting goods from the UK to a place outside the UK or making arrangements for the supply of such a service.
Although in neither case is VAT chargeable, the key difference is, of course, that a zero-rated supply allows recovery of input tax, and an exempt supply doesn’t.
The First-tier Tribunal (‘FTT’) held that HMRC were right in the sense that the services fell within the exemption in question: ‘in connection with’ is a phrase of very wide import.
However, that was not the end of the matter. Where supplies fall within both an exempt category and a zero-rated one, the law provides that zero-rating trumps exemption.
In Bourne v Norwich Crematorium Ltd (a case on Industrial Buildings Allowance) the judge was famously horrified by the taxpayer’s contentions: ‘I would say at once that my mind recoils as much from the description of the bodies of the dead as “goods or materials” as it does from the idea that what is done in that crematorium can be described as “the subjection of” the human corpse to a “process”. Nevertheless. the Company so contends, and I must examine that contention.’
There was no such squeamishness in the present case: HMRC accepted that the company was transporting ‘goods’. However, HMRC contended that it was doing much more than that: providing coffins or caskets; embalming; preparation of documentation and liaison with authorities; supervising the repatriation process.
The FTT, in accordance with case law, considered that in the case of a single complex supply such as this, it had to determine what was the predominant nature of the supply. For the typical customer that was transport: ‘In our view, the typical consumer was looking primarily for a business that could arrange the transport of their recently deceased relative. It is true that, in some cases, the value of the supply of the casket could exceed the value of other elements of the supply,: this considers only the quantitative importance, not the qualitative importance of the elements.’
Accordingly the single complex supply took on the character of its predominant element and was zero-rated.
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