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Copy of online option to tax form evidenced the decision to opt

This case concerned HMRC’s refusal to accept a belated notification of option to tax on the grounds that the Appellant could not provide board minutes or proof of postage to evidence that it had decided to opt to tax a building in June or July 2016. The Appellant demonstrated that the online HMRC option to tax form would not accept a backdated date of completion, and as the date on the copy provided to HMRC was 1 July 2016, that proved that the Appellant must have decided to opt by that date. Consequently, HMRC’s refusal to accept that a decision to opt was made at that time must could not be reasonable.

HMRC restates its policy on domestic service charges

In Revenue and Customs Brief 6 (2018): VAT exemption for all domestic service charges, HMRC announces that it considers that some supplies of property-related services by property management and similar businesses may not have been taxed correctly under the terms of Extra Statutory Concession 3.18. HMRC will expect all suppliers of such services to ensure that they apply the correct VAT treatment with effect from 1 November 2018. HMRC has also issued the guidance ‘Applying the correct VAT liability on residential domestic service charges (VAT information sheet 07/18)’ which explains how to apply the correct liability to domestic service charges going forward.

VAT due on a property despite the ‘disapplication’ rules

This case concerns the UK’s VAT option to tax and anti-avoidance ‘disapplication’ provisions. A vendor’s option is disapplied in certain cases where it is expected that a property will be sold and become a capital item of the purchaser (e.g. the purchaser will pay £250k or more plus VAT for the property) and the occupier will then use it mainly for exempt purposes. But where the option is thus disapplied, no VAT is chargeable to the purchaser, so the property does not in fact become a capital item following the sale. The First Tier Tribunal (FTT) has held that, in these circumstances, the vendor’s option is not disapplied and VAT must be charged on the sale. But the FTT also commented that the “circularity is to be deplored” in the legislation.

Nominal rent was not a taxable supply

The Taxpayer incurred significant amounts of VAT on a major refurbishment project. Once the works had been completed, it opted to tax and leased part of the premises to the students’ union for £5k per annum plus VAT. It claimed full recovery of an element of the input VAT incurred on the works carried out on the leased part of the premises. The First Tier Tribunal (FTT) has disallowed its claim on the basis primarily that the lease is for nominal consideration only and does not constitute a business activity for VAT purposes. The FTT also considered that there had been a single construction project in respect of a single building, so that the Appellant should recover residual VAT according to its usual recovery method.

HMRC consultation on construction industry VAT reverse charge

HMRC has issued the consultation document ‘Draft legislation: VAT reverse charge for construction services’. HMRC proposes that, as an anti-fraud measure, supplies of standard or reduced rated construction services (‘specified supplies’) between construction or building businesses will be subject to a domestic VAT reverse charge, with the recipient business liable to account for VAT instead of the supplier. The reverse charge would not apply to specified supplies made to customers who are final consumers of the supplies. Responses are required by 20 July 2018.

TOGC requires an option to tax before a deposit is paid

This case concerned whether sales of four properties which the Appellant had opted to tax qualified as transfers of going concerns (TOGCs). To qualify, the purchaser must, by the ‘relevant date’, have notified its own option to tax the property to HMRC. The FTT held that, where a deposit was paid, the ‘relevant date’ was not the date of completion of the sale but the date on which the deposit was paid to the Appellant’s solicitors. In three of the four cases, the ‘relevant date’ preceded the purchasers’ options, but in the fourth, the deposit was held by an auctioneer and not released to the Appellant’s solicitors until after the purchaser had notified its option to HMRC, so that sale qualified as a TOGC.

'Builder's Block' white goods were "incorporated" and input tax recovery denied

Having refined its test for “incorporation” and ruled that white goods and kitchen appliances were not “ordinarily installed” in new-build homes, the Upper Tribunal (UT) has held that the Appellant's Claim Items – with the exception of cooker hoods installed between 1982 and 1984 – fall within the Builder’s Block. The Appellant is therefore unable to recover input tax...

Belated notification of option to tax was valid

The VAT liability of property transactions can be a complex area. This case concerns a property held on trust, a belated notification of an option to tax, and exempt use by trust beneficiaries. The Appellants who acquired the property were unable to show ...

Be very careful when opting to tax

In this case, a property company sought to argue that its option to tax a property was invalid because it had been submitted in error, due to a misunderstanding between the Appellant and its VAT advisers. However the First Tier Tribunal considered that th...

VAT reverse charge on building and construction services

Effective for certain supplies of construction services with a tax point on or after 1 October 2019, an anti-avoidance reverse charge of VAT will apply. The customer, rather than the supplier, will account to HMRC for the VAT on the supply and recover it, subject to the normal VAT recovery rules. This article includes further details of the revised rules. Recipients of the affected services may wish to review their due diligence, contracting and VAT accounting procedures.