Category Archives: Value Added Tax

Retrospective planning consent too late for DIY Builder VAT refund

Section 35 of the Value Added Tax Act 1994 (“VATA”) says a person constructing a building designed as a dwelling can claim a refund of VAT from HMRC provided that the work undertaken is “lawful and otherwise than in the course or furtherance of any business”. To be “lawful” the work must have been carried out in accordance with “statutory planning consent” that has been granted in respect of that dwelling (note (2)(d) Group 5 schedule 8 VATA).

The refund claim must conform to regulation 201 of the Value Added Tax Regulations 1995 (“VAT Regulations”) which, insofar as relevant to the case that follows, provides:

“A claimant shall make his claim in respect of a relevant building by—

(a) furnishing to the Commissioners no later than 3 months after the completion of the building [the relevant form for the purposes of the claim] containing the full particulars required therein, and

(b) at the same time furnishing to them—


(iv) documentary evidence that planning permission for the building had been granted”.

In the First-tier Tribunal (Tax) case of Reynolds v Revenue and Customs [2016] a proposed dwelling with only planning permission for an extension and extra storey was in fact required by the building inspectors to be demolished and restarted from scratch because the foundations would not be adequate.

The tribunal said the legislation had to be construed strictly and:

– the demolition and rebuilding of the property was not in accordance with the planning permission then in force and

– the retrospective planning permission for the more extensive works which actually occurred, was not provided to HMRC within three months of completion of the property as specified by regulation 201 of the VAT Regulations.

“…..the legislative requirements for claiming a VAT refund are strict and HMRC are allowed no discretion to accept something less than the prescribed documentation, neither can they extend the time limit. Equally it is not open to us to waive or modify these requirements, even if they lead to what appears to be an unfair result. As a Tribunal created by statute the FTT, unlike the High Court does not have an inherent jurisdiction, rather its jurisdiction is defined and limited by legislation and it does not extend to the power to override a statute (or supervise the conduct of HMRC).”

This blog has been posted out of general interest and does not replace the need to get bespoke legal advice in individual cases.

VAT: DIY Housebuilders – relaxation of residency restriction too late for refund

For DIY house builders to be able to recover input VAT from HMRC under Section 35 of the Value Added Tax Act 1994 several conditions must be fulfilled. For one thing statutory planning consent must have been granted and the building must have been constructed in accordance with that consent.

In the First-tier Tribunal (Tax Chamber) case of Akester v Revenue and Customs [2016] the property had been constructed in accordance with the planning permission. However it was being used by the developer in contravention of a residency restriction in that consent at the time HMRC rejected the claim.

The developer had supplied two different dates as to when he occupied the property: the former, 25 March 2015 was in breach of the then planning condition while the latter, 8 October 2015 was after the removal of the condition that prohibited that occupation.

When HMRC refused the developer’s claim for repayment of VAT the requirements of Note 2(c) and (d) of Group 5 of Schedule 8 of the Value Added Tax Act 1994 had not been satisfied.

The legislative requirements were framed in mandatory terms: HMRC were allowed no discretion to accept anything less than a planning permission free of non qualifying residency restrictions, nor could HMRC extend the time limit.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

VAT: Construction work to residential personal care home zero rated

A hospital is an institution within (a) building(s) providing medical treatment and associated care, usually on a short term basis for the treatment, cure or betterment of a medical condition. Work in the construction of such a building is disqualified from VAT zero rating under Section 30(2) and Item 2 and Note 4 of Group 5 to Schedule 8 of the Value Added Tax Act 1994.

The disqualification applies to “use as a hospital, a prison or similar institution or an hotel, inn or similar establishment”.

But the recent First-tier Tribunal (Tax) case of Pennine Care NHS Trust v Revenue and Customs [2016] said you need to distinguish from this a home or institution providing residential accommodation with “personal care” for those needing it – usually by way of long-term residence. They said much turns on the facts but the hospital etc disqualification does not necessarily apply to this. In that case the construction work was zero rated and the NHS Trust could not be required to pay VAT on it.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Occupancy planning restriction barred VAT refund

Where VAT is incurred “on the construction of a building designed as a dwelling” Section 35 of the Value Added Tax Act 1994 (“the 1994 Act ”) provides for a refund of VAT in certain circumstances. The notes to Group 5 of Schedule 8 to the 1994 Act apply to the interpretation of that section (subsection 35(4)).

Note (2)(c) to Group 5 provides:

“A building is designed as a dwelling ……where in relation to each dwelling the following conditions are satisfied – …………
(c) the separate use or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision;…..”

In the United Kingdom Upper Tribunal (Tax and Chancery Chamber) case of Revenue & Customs v Burton [2016] a planning consent contained a condition (“Condition 4”) that:

“the occupation of the dwelling shall be limited to a person solely or mainly employed or last employed in Park Hall Lake Fishery or a widow or widower of such a person, or any resident dependants.”

Did that condition prohibit the “separate use or disposal” of that house?

The Tribunal said it clearly did. What was prohibited was the use of the house separate from the fishery at Park Hall. The aim of Condition 4 was to ensure, by means of an occupancy restriction, that the accommodation was retained for the purposes of the Park Hall fishery business. Indeed, the planning consent explained in detail how certain important requirements of the Park Hall fishery business were to be met through the occupation of the Building.

Nor was the condition any the less a prohibition on separate use merely because the class of occupants had been expanded beyond the Park Hall fishery’s workers or retired workers, to include their widows, widowers and resident dependants. Each of those occupants still had to have a specific link to the fishery at Park Hall. It was that link to specific land or premises that was the critical factor.

So there could be no refund of VAT under subsection 35(1).

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

VAT: residential and non-residential building not zero rated when sold as houses

Section 35, Value Added Tax Act 1994 (“VATA”) confers a right on a DIY builder to claim a refund of VAT on goods used and the services of certain contractors used in carrying out a ‘residential conversion’.

A ‘residential conversion’ is defined for the purposes of section 35 in section 35(1D) VATA. ‘Works constitute a residential conversion to the extent that they consist in the conversion of a non-residential building or a non-residential part of a building into a building designed as a dwelling or number of dwellings’.

There the words ‘to the extent that’ introduce the concept of works qualifying as a residential conversion even if what is converted includes a residential part of a building. In such a case Note (10) to Group 5, Schedule 8 (as applied by section 35(4) VATA) provides for an apportionment of the total VAT incurred to ascertain the amount which can be claimed under section 35.

The amount which can be reclaimed will be the amount of VAT attributable to the works carried out in converting the non-residential part of the original building (Note (10)(b) and (iii)).

In the First-tier Tribunal (Tax) case of DM & DD MacPherson v Revenue & Customs [2015], the building had comprised ground floor village shop, office and ancillary storage accommodation with ground and first floor living areas. The appellant property developers had hoped their disposal of the two semi detached houses, which resulted from the conversion, would be zero-rated under item 1(b), Group 5, Schedule 8, of VATA as ‘the first grant by a person converting a non-residential building or a non-residential part of a building into a building designed as a dwelling or number of dwellings thereby facilitating a total input tax recovery as opposed to a partial refund of VAT incurred on the building works.

However item 1(b), Group 5, Schedule 8, VATA does not apply when the subject of the conversion is a building which contains one or more residential parts as well as one or more non-residential parts.

When interpreting item 1(b), to see whether a person is converting (or has converted) ‘a non-residential building or a non-residential part of a building into a building designed as a dwelling or number of dwellings’, one has to examine the conversion actually carried out. In MacPherson the building (taken as a whole) was not a non-residential building within the definition in Note (7) because it was designed for use as a dwelling by virtue of the living accommodation contained within it.

It may be that if one divided up the building it would be found to contain a residential part and a non-residential part, all the same it would be incorrect to describe the conversion works here as the conversion of the non-residential part of the building – the entire property was being converted. So the property developer had not converted a non-residential building or non-residential part of a building and the conversion did not qualify to be zero-rated, because it fell outside item 1(b), as not being ‘the simple conversion of a non-residential part of a building but the conversion of that part plus a residential part’.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Input tax on goods sold Pre VAT registration: was input tax recoverable?

To what extent can a business make a claim to offset input VAT incurred on supplies which it received for the purpose of its business prior to being registered for VAT?

UK law, which restricts a non-registered trader from claiming input tax incurred prior to registration, is based on the EU Principal Directive (2006/112 EC).

The Schemepanel Trading Limited v Customs & Excise Commissioners [1996] case concerned supplies made to a building contractor, in the form of staged supplies during which time the taxpayer became VAT registered.

The taxpayer claimed input tax on supplies made and used by it before VAT registration, based on it being unnecessary to be VAT registered at the time when supplies were used in order to reclaim input tax.

It was held, by reference to higher decisions including Customs & Excise Commissioners v Apple & Pear Development Council [1985] and BLP Group plc v Customs & Excise Commissioners [1995] that it is a basic principle of VAT that input tax can only be deducted in respect of supplies which are subject to output tax: they have to be “the cost components” of the supply on which output tax is charged.

This is based on the fundamental principle of VAT that input tax should only be claimed to the extent that it can be attributed to the making of taxable supplies, so supporting the principle of fiscal neutrality.

Regulation 111 of VAT Regulation SI 1995/2518, (the “VAT Regulations”) also reflect this principle but within certain limits allow that there can be a time lapse between the receipt of supplies and the making of supplies by a taxable person. But that regulation can have no application where goods have been bought and sold before registration.

In Earl Redway (t/a Loktonic) v Revenue & Customs (VAT – SUPPLY : Pre-registration) [2015] Mr Redway’s on-line business was registered for VAT on 4 January 2014. Mr Redway claimed input VAT relating to goods bought before 4 January 2014. HMRC allowed a percentage of that claim on the basis that some of those goods had been bought but not sold prior to 4 January 2014 and so could be treated as “stock in hand” at the time of registration. Input tax for such “stock in hand” could be re-claimed under Regulation 111 of the VAT Regulations. However they refused any input tax re-claim for goods which had been bought and sold before registration.

The supplies for which he was claiming input tax had not been used to make taxable supplies, they had been used to make supplies while Mr Redway was treated as exempt from VAT prior to registration.

The goods to which the disputed input VAT related had been both bought and sold before Mr Redway’s VAT registration for VAT. None of them could be treated as “stock in hand” at the date of the VAT registration.

Those supplies did not form part of any kind of taxable supply made by Mr Redway so the exceptional time limits in Regulation 111 did not apply.

So the input tax could not be re-claimed. For these reasons HMRC’s refusal to repay input VAT was confirmed.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

VAT: Piecemeal asset transfer amounted to TOGC

A transfer of a going concern for VAT purposes is not defined. Widgery J gave some guidance in Kenmir v Frizzell and Others [1968]:

“In deciding whether a transaction amounted to the transfer of a business regard must be had to its substance rather than its form, and consideration must be given to the whole of the circumstances, weighing the factors which point in one direction against those which point in another. In the end the vital consideration is whether the effect of the transaction was to put the transferee in the possession of a going concern the activities of which he could carry on without interruption. Many factors may be relevant to this decision though few will be conclusive in themselves.”

The level of identity between the transferor and the transferee’s workforce is “a strong indicator towards there having been a transfer of a business irrespective of whether there had been any formal agreement to transfer them” (Judge Raghavan in HQ Graphics Limited v The Commissioners for Her Majesty’s Revenue & Customs [2013]).

In the First-tier Tribunal (Tax) Chamber case of Amor Interiors Ltd v Revenue & Customs [2015], Old Mill Furniture Limited operated an upholstery and interior design business. It made a series of 16 sales/transfers of assets to Amor Interiors Limited, which operated a very similar business, between 15 March 2011 and 30 May 2011. Each transfer was covered by a separate consecutive invoice.

Amor Interiors Limited were able to use the same premises and staff available as Old Mill Furniture Limited had used. They had experience of Old Mill Furniture Limited’s identical business.

Old Mill Furniture Limited had financial difficulties at the time of the transactions. It was claimed that they were made to provide Old Mill Furniture Limited with cash flow so that it could continue trading.

A liquidator was appointed to Old Mill Furniture Limited in October 2011.

It was claimed that Old Mill Furniture Limited had continued to trade after the 16 transfers to Amor Interiors Limited but no further evidence was produced of Old Mill Furniture Limited’s continued business or of how it could have traded without the assets it had transferred to Amor Interiors Limited.

HM Revenue and Customs (“HMRC”) disallowed Amor Interiors Limited’s claim for £13,676.32 input tax on its VAT return. HMRC said the input tax related to a series of transactions that HMRC regarded as the transfer of a going concern (“TOGC”).

Amor Interiors Limited contended that the assets were sold in the normal course of Old Mill Furniture Limited’s business and that it did not acquire the whole or any part of Old Mill Furniture Limited’s business as a going concern.

Amor Interiors Limited claimed there had not been a TOGC because Old Mill Furniture Limited intended to continue to trade until it was put into liquidation. But if Old Mill Furniture Limited had continued its business why apparently had no further VAT invoices been raised?

Taking a broad view the Tribunal could not find a credible explanation of how Old Mill Furniture Limited’s upholstery and interior design business could have continued after the transfers, given both the loss of the five employees and the transfer of “all” stock, fixtures and fittings, electrical tools, machines and desks listed on the invoices.

Even if Old Mill Furniture Limited had intended to continue to trade, sufficient assets and staff had been acquired by Amor Interiors Limited to enable it to use them to carry on the same kind of business following the transfers so there had been the transfer of part of its business rather than of the entire business.

Whether you regarded the transfers as a transfer of the whole business or a transfer of part of it, and whatever Old Mill Furniture Limited’s then intention to continue to trade, the conditions in Article 5(1) (b) of the Value Added Tax (Special Provisions) Order 1995 had been met, so that, taken as a whole, the transfers were not supplies of goods or services, and were outside the scope of VAT.

HMRC’s decision to disallow the input tax claim was upheld.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Stallholders’ pitch fees at comprehensively organised trade fair subject to VAT

In the First-tier Tribunal (Tax) case of International Antiques and Collectors Fairs Ltd v Revenue & Customs (VAT – EXEMPT SUPPLIES : Land) [2015] various site owners up and down the country normally granted the Company five year licences to use their properties to hold antiques fairs on agreed dates, on an exclusive basis.

The antiques fairs were large scale events which the Company’s marketing materials described as some of the biggest and best attended of their kind in Europe – which clearly required extensive and expert organisation. It took almost 90 staff at Newark and over 40 at Ardingly. Each Exhibitor paid for the benefit of a fully organised fair provided by the Company.

The Company performed all organisation of the fair, including stewards, first-aiders, cleaners, security, parking marshals, electricity, some police attendance, and some availability of banking facilities.

The Company also undertook prior advertising in both trade publications and the local press. This involved one full-time employee, one PR consultant, two other consultants, a graphic designer and two bloggers.

The Tribunal said that the Company’s supply to an Exhibitor was not “a relatively passive activity linked simply to the passage of time and not generating any significant added value”.

In fact, the Company’s activities in organising and running the fair did generate significant added value and were “other activities which are … commercial in nature, … or have as their subject matter something which is best understood as the provision of a service rather than simply the making available of property”.

The test was “whether the contracts, as performed, have as their essential object the making available, in a passive manner, of premises or parts of buildings in exchange for a payment linked to the passage of time, or whether they give rise to the provision of a service capable of being categorised in a different way”.

The economic and social reality was that the over-arching single supply by the Company was not to be treated as a supply of a licence to occupy land, but rather a supply of the opportunity to participate as a seller at an expertly organised and expertly run antiques and collectors fair, one element of which was the provision of the pitch. Accordingly, the correct VAT treatment of the booking fees was a standard rated supply.

The VAT treatment of the supply was self-evidently standard rated once it was established that the other service elements were not ancillary to the provision of the licence.

That was sufficient to decide the appeal against the Company.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Business transfer a TOGC despite Group’s exclusive call on transferee

In order to be a transfer of a business as a going concern (“TOGC”) so as to be relieved from VAT the assets transferred must together constitute an undertaking capable of carrying on an independent economic activity. This is quite different from a mere transfer of assets.

In the Upper Tribunal Tax and Chancery Chamber case of Intelligent Managed Services Limited – v- HMRC [2015], HMRC claimed that the transfer of Intelligent Managed Services Limited (“IMSL”)’s banking support services business, comprising business assets and staff, to Virgin Money Management Services Limited (“VMMSL”), was not a “transfer of a going concern”, so that the transfer constituted supplies of goods and services that VAT should be charged on.

VMMSL were a member of the Virgin Money Group (“VMG”) VAT group.

At the time of transfer to VMMSL IMSL’s business was the business of owning, maintaining,
operating, using, developing and supporting an information technology infrastructure and know how for use by others in banking support. IMSL had developed a banking platform (“banking engine”) for banking processing services for banks.

Following the transfer of the business, VMMSL carried on the same type of business providing banking processing services to another member of the VMG VAT group, Virgin Money Bank Limited (“VMBL”), which provided retail banking services to retail customers. The processing services provided by VMMSL were added into the retail banking services offered by VMBL, which comprised retail banking products, accounts and payment processing services, for which the banking engine was essential. VMMSL only provided services to group companies.

The question was whether the fiction created by the VAT group rules, i.e. that of the single taxable person carrying on that business, in combination with the other businesses of the group, meant that the VMG VAT group was not to be treated as using the assets transferred in carrying on the same kind of business as required of any business successor by the TOGC rules.

The tribunal said that the mere fact that the business transferred was to be carried on, not as a stand-alone business, but as part of the existing business of the group could not make a difference. That was clear from the terms of Article 5(1)(a)(i) of the Value Added Tax (Special Provisions) Order 1995 (“SPO”) itself.

By virtue of the single taxable person fiction, as applied by Section 43(1) Value Added Tax Act 1994 (“VATA”), the group was to be treated as carrying on all the businesses carried on by group companies.

But that fiction did not change the nature of those businesses. They remained separate businesses as a matter of fact.

The fiction did not extend to treating the group as carrying on a different, amalgamated, business in which the separate businesses of the group lost their individual identity.

This was the case whether or not those individual businesses themselves made supplies outside the group. The treatment of such supplies was dealt with separately by Section 43(1)(b) of VATA.

Nor could the position be affected by the fact that Section 43(1) of VATA caused VMMSL’s supplies within the group to be disregarded. Although the VAT effects of those supplies were to be disregarded, the activities of VMMSL and the intra-group transactions it made were not.

The effect of VMMSL being within the VMG VAT group was that it was the group, as the single taxable person, that was treated as the transferee, and it was the group that was treated as carrying on each of the businesses of the group members, but none of the statutory disregards could alter the fact that the group, in combination with its other businesses, continued to use the assets transferred in the same kind of business as that formerly carried on by IMSL.

Accordingly, the transfer by IMSL of the assets of its business to VMMSL satisfied the conditions of Article 5(1) of the SPO, and those supplies were therefore to be treated as neither a supply of goods nor a supply of services and relieved from VAT under the VAT TOGC rules.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

VAT Election notified too late to get TOGC Relief

The condition in Article 5(2A)(a) of the VAT (Special Provisions) Order 1995 requires not only that an option to tax has been exercised by the transferee on or before the relevant date but also that notification of that option has been given to HMRC on or before the relevant date. There is no provision to extend the time for that notification.

Where notification is given within the appropriate time limit the option may take effect from the date on which it was exercised. To that extent, and only to that extent, can the notification operate retrospectively.

In the First-tier Tribunal (Tax Chamber) case of Nora Harris v HMRC (2015) Mrs Harris was the Landlady of a Hairdressing Salon. She had opted to charge VAT on the rent. On 1 August 2011 she sold the building to her daughter.

Her daughter had got herself VAT registered in time so had her daughter opted to charge VAT on the property and notified the election to HMRC by 1 August 2011 the sale would have been treated as VAT neutral under the Transfer as a Going Concern VAT relief rules.

Unfortunately she had done neither and her efforts to notify a late election to HMRC were totally undermined because the tribunal ruled that the requirement to notify her VAT election to HMRC before the completion of her purchase was mandatory and that her failure to do so was fatal to the validity of her VAT election and would have been so even if her actual election had been made before completion of the purchase from her Mother.

In fact Mrs Harris’ daughter knew nothing about the relevant VAT rules and even her election to charge VAT was merely inferred from the fact that she charged VAT to the tenant after buying ownership of the freehold from her Mother.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.