VAT. Public Notice

VAT. Public Notice

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I would like some views on this.

No all public notices issued by HMRC are Law, correct? If so, why do they insist so much on the Public Notice which are not Law and tell the taxpayer 'that is the law'?

Public Notice 708 deals with VAT on Building and Construction. One of my clients had a visit regarding a conversion of a barn into a dwelling. The VAT officer sent a copy of the aforementioned public notice and highlighted section 7, which is conversion of a dwelling. She took records out of the premises and sent a letter back saying that there were omissions regarding invoices on the summary of the VAT Return.

The issue here is that she carried on and insisted on the conversion, however, this time she is referring to section 5, which is right.

If you read s. 35 VATA 1994 along with VATA 1994, Sch8, Group 5, Note 2 and the case of Dr RW Nicholson, LON/04/1033 (VTD 19412), you will find an answer. In that case Customs agreed to repay the tax relating to the conversion of the barn into the main house. What is it different now, apart from the VAT officer, who does not even look at your face when talking?

This is the first time I have been really annoyed with HMRC, but I should say with the person.

I am amazed that a VAT officer is trained on Public Notices and extract lines from them and copy on their letters and send them to the taxpayer. Those people should look for advice from supervisors and more qualified people within Customs, as they waste taxpayers time and money. Have they forgotten the Law?

To clarify: the taxpayer converted a barn into a house and holds planning permission and certificate.

Your views are very much appreciated in case I am missing something.

Regards,

Juan Carlos
JUAN CARLOS VENEGAS

Replies (3)

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By neileg
11th Sep 2008 11:21

Some thoughts
For clarity I assume that the barn belonged to your client and it was sold by your client who did this as a business venture.

The first time sale of a domestic dwelling is zero rated. It can't ever be reduced rate because that applies to the supply of goods and services. Providing the converted house has not been let prior to sale, it can't be exempt. This does trip people up in a slow market where a short period of rental can scupper the VAT reclaim.

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By jvenegas16
10th Sep 2008 23:36

explanation
Thank you David for your reply.

I am sorry for not making clear.

The client is a contractor, builder. He converted a barn into a house and sold it.

The VAT officer started off by saying that it should be reduced rate. Now, but I do not know yet, as the letter is not clear at all. She is looking into more documents from the client, in terms of ownership before planning permission and after completion.

The output tax has been zero rated and the input tax has been claimed.

The issue here is the output tax: zero rated, reduced rate or exempt?

I thought it was a clear issue, as it was never questioned before. However, the VAT officer is twisting everything as she never got it right from the start. If any point is brought to her attention she needs to check; if she feels strong, she does not listen.

I hope I made it clear this time: the issue is the rate on a barn conversion. Is there any case law relevant to the case?

Thanks,

Juan Carlos

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By spidersong
10th Sep 2008 16:41

What is the actual issue here?
I may be missing something here!, you refer to Sec. 35 which deals with reclaims by DIY builders, but you appear to be complaining about something being disallowed on a VAT return. The two are different things as a DIY calim cannot be done on a VAT return.

It's difficult to give any advice since you haven't actually told us what the problem appears to be though.

You don't say whether the taxpayer is a contractor or the owner? If the owner then are they planning to live in or dispose of the building?

You quote Nicholson which deals with the recovey on cowsheds converted in the grounds of a barn also being converted at the same time, but you only mention one barn conversion. If this is in the grounds of another building then that may affect recovery, if there's any restriction on the disposal of the new building. Is this case really on 'all fours' with Nicholson as that's a very specific situation?

I'm afraid with out some further information I wont be able to give much useful advice, and I'd have thought it the same for others on the forum.

I'd want to know what the clients situation is (contractor/owner)? Is this a single building or in the grounds of another? Is there any restriction on use/disposal? What are HMRC proposing are they suggesting no recovery, or that works should be standard rated, or reduced rate, when zero rating has been used? (I will say that from the limited information there's no zero rating involved here, unless the client is the owner and intends to make a first disposal of the converted property, as any conversion works will fall under Schedule 7A, the reduced rate.)

To address the point re publc notices, a lot of officers use them as they are opinion already formulated and tested by HMRC over many years which give a (vaguely) english interpretation of the law. Most tax payers are not overly legally minded and quoting large swathes of law at them doesn't necessarily help the situation.

I would however say that it was always my policy when with HMRC that my letters would be split in two, one part would address the technical aspects of the law and then the other part would put this all into as plain english as possible. (I will admit I didn't tend to quote notices very much though as they often weren't very clear, or concise)

I would agree that there can be too much reliance on notices, which can make for a game of chineese whispers, as interpreting a notice is just taking a view on someone else taking a view of the law. I would say that in my old office myself and my ex-colleagues were always encouraged to do the proper thing and take the law as the starting point in any discussion, but the manager there was a very knowledgeable and technical one, who was comfortable with reviewing and understanding legislation, which is sadly not always the case throughout HMRC.

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