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Rent or no rent!?

13th Jul 2020
VAT Consultant vatadvice.org
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A slightly odd case, where a taxpayer (Mr & Mrs Slaymark) purchased a commercial property for rent to four other companies, three of which shared a common Director with the landlord.

Although leases were prepared in each case, none of the companies paid rent to the Slaymarks.

HMRC disallowed input tax on the purchase of the commercial unit and on related legal fees. The FTT upheld the decision on the basis that, since the company had no expectation that rent would be paid, there was no ‘economic activity.’

Although the taxpayer had prepared voluminous evidence, the FTT was unimpressed with the witness evidence and also the lack of clear evidence to support the input tax claims.

Comment: if a taxpayer’s case relates to the question of input tax, it is essential to produce evidence that is both relevant and robust (assuming it exists!)

 

An interesting point. The taxpayer produced signed leases. But the Tribunal is entitled to look beyond the documentation to the intentions of the parties.

Mr Qureshi (for HMRC) submitted that the lease was not determinative.  He cited HMRC v Newey (Case C-653/11) [2013] STC 11 at [44], where the CJEU said that although contractual terms normally reflect the reality “it may, however, become apparent that, sometimes, certain contractual terms do not wholly reflect the economic and commercial reality of the transactions”.  He said that it was clear from the email exchange of 8 April 2016 that there was no expectation that rent would be paid, and that the oral evidence was contradictory and unreliable. (para 75)

On this basis, the FTT concluded, there was no intention to receive rent, therefore no economic activity, therefore no right to input tax.

http://www.bailii.org/uk/cases/UKFTT/TC/2020/TC07709.html

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