Clients purchased a disused factory site and were charged VAT by the vendor. They had some work done surveying and clearing the site and then sold the propery and charged VAT on the sale. They did not file the waiver exemption because they believed that the decision to tax the land taken by the previous owner carried over them, and they had always intended that its use be taxable. Following a VAT inspection they have been told that they cannot reclaim the VAT charged on their purchase, must refund the VAT charged to their buyer and cannot reclaim VAT on work done on the land because it was exempt. Does the failure to file the election to waive exemption fatally flaw their treatment of the VAT on inputs and outputs.
Damian Tracey
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..and three confirmations for good measure
Yes, HMRC are right in what they have done and they are highly unlikely to exercise their discretion on the basis that to do so would mean instead of keeping VAT for themselves, they'd have to pay it back out. Now why would they do that when they don;t have to?.
The Option to Tax is one of the most crucial and vital aspects of land & property VAT and is usually over-looked or ignored....with huge concsequences for the parties involved.
The client upon selling the land/property charged VAT but as there was no option to tax in place on or before that date, then the real status of that supply was exempt. Exempt meaning no input tax can be reclaimed in relation to that transaction, hence why client has had to pay back input tax and uncharge the VAT charged to the buyer.
As VAT is a transactional tax, there is nothing that can be done to correct this situation I'm afraid other than to be aware for next time.
Yes & No
The option to tax is basically a decision by the company which must be notified in writing (preferably on form VAT1614) to HMRC within 30 days. HMRC may refuse permission if not all the relevant information has been supplied, but that is unlikely to have been a problem in this case.
HMRC has no right to grant retrospective permission, but it has discretion to accept late notification. Board minutes of any intention to charge VAT on the sale is probably too much to hope for, but the client could submit a late notification now, asserting that this was always the intention and that input tax has been claimed and output tax charged on that assumption.
Good luck!