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Option to tax – does VAT count as rent?

30th Aug 2016
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A High Court decision sought to address the question of VAT charged on agricultural rents for a tenant farmer.

Mr Mason occupied the farm form 1988. In 2001, the landlord decided to Opt to Tax, and wrote to the tenant to notify this decision. VAT was chargeable on 90% of the rent, since 10% of the holding was a dwelling.

Five years later, the tenant failed to pay the rent. Ultimately he was given a Notice to Quit under the Agricultural Holdings Act 1986, for his failure to comply with the notice to pay rent.

The parties agreed that the question to be settled was whether the notice to pay overstated the amount due depends on the meaning to be given to the word "rent" in Case D. If the VAT is part of the rent, then it did not overstate the amount due. If, on the other hand, the VAT is not part of the rent, it did.

The tenant’s argument identified an apparent conflict between the Agricultural Holdings Act 1986 and the VAT Act 1994, since the application of the Option to Tax disrupted the statutory mechanism for a rent review, presumably by changing the value of the rent without a review. Further, having made the Option to Tax, a subsequent change in the rate of VAT would have the same effect. (At the time of the Hearing, there was a projected change in the standard VAT rate.)

The Court did give this conflict some thought, and described it as an inconvenient result, being an example of the law of unintended consequences. The Court did comment that legislation did need to be reviewed in light of the issue. (I do not think there has been a review.)

In summary the outcome of the case ultimately turned on the formal contract. By clause 3 (2) the tenant also agreed to pay the land tax and "all other taxes rates charges assessments and outgoings whatsoever whether parliamentary parochial local or of any other description which are now or may hereafter be assessed charged or imposed upon the Farm or the owner or occupier in respect thereof". That was sufficient to dispose of the case.

http://www.bailii.org/ew/cases/EWHC/Ch/2008/3100.html

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