Where a property sale is liable to VAT the contract should contain a provision identifying the value of the supply and imposing upon the buyer an obligation to pay the VAT to the seller.
In CLP Holding Company Ltd v Singh & Anor  the claimant exchanged contracts to sell 72 Rolfe Street, Smethwick (“the property”). Completion took place on the same day. Were the defendants liable to pay the claimant the VAT charge on that transaction?
The claimant was registered for VAT and, in 1989, it gave notice to HM Customs & Excise (“HMRC”) that it had opted to waive the exemption from VAT for the property. The claimant having exercised its option to waive the exemption, was liable to pay VAT upon the transaction, and in late 2007 HMRC raised a notice of assessment. In 2008, the claimant informed the defendants of the notice it had received and claimed that, under clause 1.4 of the general conditions, the defendants were liable to pay the claimant the sum it had to pay to HMRC in respect of VAT. They offered a VAT invoice. The defendants refused to pay VAT.
Clauses 1 and 2 of the special conditions covered the inter-relationship of the special and general conditions:
“1. The Seller [the claimant] will sell and the Buyer [the defendants] will buy the Property for the Purchase Price.
2. This Agreement incorporates the Standard Conditions of Sale (4th edition) (“the general conditions”). Where there is a conflict between the general conditions and this Agreement or the general conditions are not consistent with the express terms of this Agreement, this Agreement shall prevail…..”
Turning to the general conditions, clause 1.1.4 of the general conditions made it clear that they applied except as varied or excluded by the special conditions.
General condition clause 1.4 dealt with VAT as follows:
“1.4.1 An obligation to pay money includes an obligation to pay any value added tax chargeable in respect of that payment.
1.4.2 All sums made payable by the contract are exclusive of value added tax.”
General condition clause 7.4 provided:
“Completion does not cancel liability to perform any outstanding obligation under this contract.”
The Court of Appeal said the following points were material:
1. It had never been suggested that the claimant ever told the defendants that it had exercised the option to tax.
2. The defendants were individuals. Whilst the property comprised commercial premises, there had never been any suggestion that the defendants were aware, or had any reason to suppose, that the transaction might be subject to a VAT charge.
3. The purchase price for the property was agreed in principle a considerable time before completion. Moreover, the whole purchase price of £130,000 had been paid over by the defendants to the claimant by, at the latest, 2005. There was never any suggestion that VAT might be payable, still less that the defendants would be liable for it. Quite the opposite. In advance of the sale, the claimant’s solicitor’s letter expressly acknowledged that the claimant had received “all of the sale monies of £130,000 on this matter, subject to contract”. Apparently they were repaid to the defendants and then paid again to the claimant at exchange and completion.
4. The standard requisitions requested details of the exact amount payable on completion. The reply was: “Balance of purchase monies”, that is to say £130,000. No hint was given that VAT was or might be payable.
5. The special conditions specified that the “Purchase Price” was £130,000. They contained no indication that that price was exclusive of VAT. Additionally, the special conditions provided, in clause 2, and, implicitly, the general conditions in clause 1.1.4, that where there was any conflict with the general conditions (e.g. general condition clause 1.4 above), the special conditions were to prevail.
Taking all these factors into account and considering, the position from the standpoint of the reasonable person who had all the background knowledge which would reasonably have been available to the parties, placed as they were at the time of the contract, the Court of Appeal thought that person would almost certainly have inferred the parties to have intended that the defendants should not have had to pay the claimant anything over and above the specified purchase price of £130,000.
Here it was impossible to interpret “purchase price” as the price exclusive of VAT.
Or, putting it slightly differently, the reasonable person would think that the special conditions could not be reconciled with clause 1.4 of the general conditions and that the parties had, therefore, intended special condition clause 2 and general condition clause 1.1.4 to apply. So the special conditions would prevail i.e. without reference to VAT being paid additionally to the purchase price.
Therefore the court unanimously dismissed the appeal and left the claimant having to pay the VAT assessment.
This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.