Client was advised by HMRC that a building was ZERO VAT, now they have changed their minds and want £25K

Client was advised by HMRC that a building was...

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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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Me!
By nigelburge
31st Mar 2014 10:28

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.

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chips_at_mattersey
By Les Howard
31st Mar 2014 11:22

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.

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RLI
By lionofludesch
31st Mar 2014 11:26

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.

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By refs8
31st Mar 2014 12:13

Data Protection Act

Consider making a request under the DPA - they can make interesting reading

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By A E Scott
05th Jun 2014 15:58

Following on from this query, we appealed to VAT and they have upheld the review, so I am now in the process of appealing this via the First-tier Tribunal (Tax), this is basically the reason for then appeal, is there anything else that I can add which may help my client: 

The Charity is a non for profit organisation which cater for eight different sporting areas for the general public.  One of these sports areas is football.  Each of the eight sports areas reply on donations, grants  and fundraising to generate cash in order to upgrade, enhance, repair and renew the centre and its facilities for its users.

For the purpose of this case the word enhancement will include upgrade, enhance, repair and renewals of the centre. 

Each sporting area of the organisation apply for different funding which will enable them to enhance areas required within their sporting activity, Once done the enhancement does not belong to the sporting area, it belongs to the charity as a whole.  If the sporting area decide to use another facility in the town, they cannot takedown or remove the enhancement as it belongs to the charity.  The enhancement is on the balance sheet of the charity and is no-where on the sporting areas accounts.

In many cases enhancements can only be carried out because the application is in the sporting area name otherewise the charity would not be able to gain access to the funding based on the requirements of the funding body.  

The project in question was not soley funded by the Grant Football Foundation, the funding amounts were as follows:

- 50% - Grant Funding Football Foundation

- 15% - Charity Contribution

- 15% - CITA Contribution Grant

- 20% - Football Club Donation

- Goodwill, with regards to free labour from those individuals who use the facilities and did not get paid for the works that they carried out.

Without the 50% funding from the grant football foundation, the project would not have been able to go ahead.

The  Charity has about 17 different buildings/areas that it has access to, the charity uses them as they see fit, they do not belong to each of the sporting areas and none of these areas hold keys or any type of ownership.  All buildings can be used as any one time for any sporting area including the public for social and business events.

 

 

Based on this information, do you (my fellow accounting buddies) believe the build of this project should be zero rated and if so, what else can I add to the tribunal to make them change their minds!

 

Many many thanks in advance.

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By refs8
05th Jun 2014 16:10

Yes Data protection act - this often helps get your point across.

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chips_at_mattersey
By Les Howard
05th Jun 2014 16:46

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.

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By A E Scott
05th Jun 2014 16:54

please can you elaborate with regards to data protection act, also based on the facts above do you believe that this project should be zero rated.

I will get some specific HMRC info tomorrow when I come back into the office, I will delete/blank out charity information for data protection reasons.

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chips_at_mattersey
By Les Howard
06th Jun 2014 16:32

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.)

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