The VAT landscape is complex and no more so when it comes to the repatriation of bodies. The question of what is zero-rated and what is exempt has recently been put to the test in a court case.
Funerals in the UK are exempt from VAT, meaning the families of deceased loved ones do not pay VAT on the services funeral homes and undertakers provide. However, where a body is repatriated into or out of the UK, VAT is charged but zero rated with no VAT paid by family members.
Given that the customers of funeral homes do not pay VAT in either instance why does this matter, and why would HMRC look to challenge a funeral home over VAT?
Where a supply of goods or services are exempt VAT is not charged. For funeral homes, that means VAT on the costs associated with providing that supply cannot then be reclaimed. However, where the supply of goods or services are zero-rated, VAT is charged but at zero per cent (effectively no charge) but, importantly, the VAT on the cost of providing that supply can be reclaimed providing a useful cashflow boost.
Whilst funerals are exempt from VAT, some of the services provided by funeral homes will attract VAT. Those services that are considered directly attributable to a funeral when supplied by undertakers and funeral directors will be exempt from VAT, but some may bear VAT when purchased e.g. coffins and caskets, urns etc., the hire of a hearse or other vehicle without a driver, purchase of vehicles used in funerals, shrouds or robes etc. This VAT would not be recoverable.
Other supplies such as flowers, a headstone, the transportation of a body from one end of the UK to the other without a funeral and in some instances a casket would be subject too VAT when provided to a consumer, but the VAT would be recoverable.
Where a funeral home is asked to repatriate a body out of the UK for burial in another country or returning a body to the UK for burial, it is considered the import or export of goods with VAT charged albeit at zero per cent. It means funeral homes can reclaim some of the VAT on the costs of delivering that service, for example, the VAT on the purchase of a private ambulance and other transportation costs where these are used wholly or partially for the transport of a body into or outside the UK. These can be sizeable and the ability to reclaim VAT from HMRC can provide a welcomed cashflow boost.
And it is here that perhaps triggered HMRC’s interest.
In late 2022, HMRC challenged UK Funerals Online Ltd over its VAT treatment of the repatriation of the deceased to other countries in line with the wishes of family members.
To repatriate a body, the Tribunal heard, it needs a certain type of embalming to comply with international travel regulations, limited dressing (no shoes, for example, are allowed) and a sealed zinc-lined casket. The transportation of human remains is considered, at least for tax purposes, as ‘goods’ rather than ‘passengers’ and are zero-rated for VAT purposes.
HMRC argued that some of the services provided – including the embalming of the body, the provision of a casket and its chapel of rest – are specialist services more normally provided by undertakers. It pointed to the cost of caskets that range from £500 to £22,000, arguing they should be exempt rather than zero-rated services.
The Tax Tribunal judge disagreed, finding in favour of UK Funerals Online Ltd, pointing to previous UK and European tax cases saying “We must look at it through the eyes of the typical customer”. Are they, in the circumstances of this case, looking for funeral services or the transportation of a deceased relative? The judge agreed with UK Funerals Online argument that they were looking for the repatriation of their loved ones’ bodies and not funeral services.
The case provides important clarification on the differing tax positions of funeral services and the repatriation of deceased family members. UK Funeral Online say they are one of just a very small handful of specialist companies that provide repatriation services, and they may well be right. There are, however, likely to be undertakers that perhaps infrequently repatriate bodies into and out of the UK and they should re-examine the VAT treatment of those services.
It should be noted that this is a First Tier Tribunal decision and HMRC may well appeal. If they do, the VAT on repatriation services will remain in question and funeral homes should plan accordingly. It is also important that funeral homes take specialist advice in relation to VAT to ensure they too do not end up under HMRC’s scrutiny.
