Hi,
My recently new client built a 2 storey changing rooms with clubhouse for a charity, however on applying for the application, they had to put it in the name of a local football club as they were providing funding for 50% of the project. The building is used for various sporting activities as well as private functions by the people in the village. On this basis they received a zero rated certificate for the build. A few years later VAT have came back and advised that it should have been VAT rated at 20% and they want this paid immediately. The charity received most of the labour for free, didn't claim any VAT back and dont have the receipts for it, the company who managed the project have basically broke even but dont have records. My client must have written a letter to the VAT people (which i don't have ) as the VAT office have made comments on the following areas: Group 5 to Schedule 8 of VATA 1994, Note 6, Note 12, section 62 (1) of the VAT Act 1994.
Any advice of this situation would be greatly appreciated.
Replies (9)
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Get the letter.
My client must have written a letter to the VAT people (which i don't have )
The very first thing that you must do is to get hold of a copy of the letter asap. Ask HMRC for this.
Without it, you can only rely on what your client says he did and this could be very misleading.
Charity Building
The reference to Note 12 of zero rate Group 5 is of concern, as it deals with sub-contractors,, who are unable to zero rate, rather than the main contractor, who can. There seems to be some issue with the practical arrangements, ie: who was doing work for whom? This will need to be clarified, and may need to be re-visited.
The s62 penalty is also a concern. There is a reasonable excuse defence to it, but you may need to fight it. You should note that the penalty can be made against an individual who issued the certificate, or the charity on whose behalf it was issued.
Do PM if I can be of any help.
Collecting Evidence
Vitally important that you collect as much evidence of the decision as possible.
If you're going to defend this successfully, you can't hope to rely on oral evidence from the client. They would have to be very good indeed at the Tribunal.
Data Protection Act
Consider making a request under the DPA - they can make interesting reading
Appeal
It is difficult to offer specific further assistance without sight of the HMRC correspondence. If you are seeking to argue that the building was a 'Relevant Charitable Purpose' building then you may have to present an argument as to the non-business activity, and apply the tests in http://www.hmrc.gov.uk/manuals/vbnbmanual/VBNB22000.htm
The project funding is only part of the picture. The use of the building is perhaps more significant, hence the link above.
As per previous comments, you will need documentary evidence as well as oral evidence, especially to the Tribunal.
Do I think it should be zero rated?
Based on the information you have provided, it may or may not be zero rated. There may be an issue regarding the actual supplier and/or recipient; or perhaps simply because the paperwork is wrong.
If you do proceed to Tribunal, you will have to convince the Tribunal that you are right. HMRC do not have to prove that they are right. You have to prove that they are wrong. So the onus is entirely on you. (I sit on the Tribunals from time to time; and have seen many taxpayers go with a reasonable case, but lose simply because they do not understand this principle.)