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VAT property horrors: HMRC wins three big cases

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Three taxpayers have recently lost big tribunal cases involving land and property. Neil Warren pulls out the lessons they provide.

16th Jul 2021
Independent VAT Consultant
Columnist
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Case 1: William Newman (TC08147)

The deal

The taxpayer purchased The Royal Oak pub for £1.3m plus VAT and sold it in the same quarter for £1.8m plus VAT. The input tax on the purchase price was £234,000, presumably because 10% of the price was exempt from VAT as residential accommodation. The output tax was £360,000. 

All that should have happened was for Newman to notify HMRC of an option to tax election on the property before the deal took place (form VAT1614A). Then his VAT charge would have been correct and he could claim input tax on the purchase price. The net payment of tax to HMRC would have been £126,000 on his July 2014 VAT return.

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Replies (8)

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By kestrepo
16th Jul 2021 13:13

These cases clearly show that proper professional advice should be sought before undertaking property transactions........ my hope is that one day someone will actually take note!!

Thanks (2)
Replying to kestrepo:
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By More unearned luck
16th Jul 2021 16:10

Indeed. But wouldn't it be nice if we lived in a country where the tax code didn't contain bear traps for the unwary to fall in to.

Thanks (5)
Replying to kestrepo:
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By More unearned luck
16th Jul 2021 16:11

Indeed. But wouldn't it be nice if we lived in a country where the tax code didn't contain bear traps for the unwary to fall in to.

Thanks (0)
Replying to More unearned luck:
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By VATs-enough
17th Jul 2021 08:21

Making sure you have an OTT in place, and ensuring correct planning permission prior to build could hardly be described as 'bear traps'. Could HMRC have taken a more pragmatic stance, clearly yes, but that is a different point altogether.

All comes down to knowing and understanding the rules....don't DIY it. Put your hand in pocket and pay for advice.

Would have worked out a lot cheaper for the first two above !

Thanks (2)
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By Hardev
19th Jul 2021 10:37

Regarding the Newman case would it not simply been the following scenario?

1) The £360,000 VAT was incorrectly charged. As there was no OTT surely it would need to be repaid to the buyer who was incorrectly charged (not HMRC) and he would not claim it as input tax. It could have been done amicably because the second buyer would not suffer a financial loss.

2) The initial £234,000 was not claimed as there was no OTT so it is lost by Newman.

Sorry, if I'm missing something obvious but it's the heat.

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By Ian McTernan CTA
19th Jul 2021 11:57

The CMJ case is particularly harsh and shows just how pedantic HMRC can be. Clearly a new building was constructed and clearly building consent had been given- but HMRC decided to attack it anyway as not all the boxes had been ticked in the right order.

And HMRC wonder why people have such a dim view of them....

A very clear illustration of two points: 1. always get professional VAT advice on property, it's a complete minefield and 2., VAT is way too complicated and HMRC will seek to exploit it at every turn.

Thanks (1)
Replying to Ian McTernan CTA:
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By paul.benny
20th Jul 2021 09:12

Ian McTernan CTA wrote:
VAT is way too complicated and HMRC will seek to exploit it at every turn.

As do tax payers.

The well-known Jaffa cake case could take place because some food is zero-rated and some standard-rated. Both HMRC and McVities were trying to exploit that difference to their own advantage.

A single rate on all food would have eliminated such challenges but it would be seen as unfair to some.

Ditto for almost every complexity, including real estate

(Agree, though, that professional advice is a must with real estate)

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By Philosophic1
01st Aug 2021 15:59

This kind of stuff is so depressing to read - in the context of what we, in our "wisdom" have reduced life to. Our time alive here, which should incorporate fun, wonder, and love, lost over whether the correct boxes were ticked; with power over a win or loss handed over to third parties.

When the inevitable stage of life comes for everyone, it's too late to realise that none of this stupidity matters.

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