Gabelle Tax Analysis: Joint Ventures and VAT
VAT relating to joint ventures is often a complex area requiring detailed analysis of the joint venture parties’ intent, the provision of services, if any, and the VAT liability of those services.
HMRC often consider that joint ventures do not exist unless detailed agreements between the parties are retained and that one party is, more often than not, providing services to the other joint venture party which are taxable at the standard rate often leading to irrecoverable VAT being incurred. In the VAT Tribunal case of Maritsan Developments Limited TC01971 published on 22 May 2012, a joint venture formed between two individuals had the intention of acquiring a property and selling it for a profit. The case provides some useful pointers as to when a joint venture exists and whether VAT is chargeable between the joint venture parties. The Tribunal made the following points:
- The agreement between the individuals was in the nature of a joint venture. The fact that the joint venture arrangement was expressed with commendable brevity did not mean that it cannot exist as suggested by HMRC. The sharing of profits points towards the existence of a joint venture as do the pooling of resources, sharing of information and other acts towards a common goal. The agreement to share the net profit was prima facie evidence of the existence of a joint venture. The equal sharing of losses would be implied (Partnership Act 1890 s 24(1)). They expected to share expenses equally. The fact that they described their arrangement as a joint venture was of some significance, and seemed to the Tribunal to reflect the substance and reality of the situation as they had found it to be.
- Each party contributed his particular skills, talents, abilities and business connections in pursuit of the common goal of acquiring the property and selling it at profit with the benefit of planning permission for residential development on a conditional back-to-back missives basis. That was each party’s capital contribution to the joint venture. None of this constituted supplies of services to either party. Neither party provided their services to the other for remuneration.
- The activities of each party constituted their contribution to the capital of the joint venture. As such, that was not a supply of services for a consideration and was therefore outside the scope of VAT.
- The substance and reality of the arrangements were that they were bound together as individuals in a joint venture.
There was a joint venture; no VAT was therefore required to be charged between the parties.
This case may be appealed, but it does offer some guidance as to how the Tribunals will review the VAT implications of a joint venture.
Claims to HMRC for refunds of VAT in cases where HMRC have not accepted the existence of a joint venture and VAT has been charged and is irrecoverable by the recipient should be considered.