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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