A VAT summary document for busy accountants in general practice
I thought you might appreciate a quick summary of some recent key VAT cases and an update on recent changes by HMRC, which may be relevant to your clients. They may be worth raising, the next time you speak with them.
In this August 2024 edition, I have looked to cover a number of recent interesting judgements of the VAT courts.
In addition, there is a short piece with regards to HMRC’s powers when raising assessments and possible “ways out” for taxpayers, where it is to receive an assessment.
- Kenthouse Properties Ltd [2024] TC 09250 – Taxable supplies intention?
- Go City Ltd (formerly the Leisure Pass Group Ltd) [2024] – VAT treatment of city passes
- HMRC Assessments – possible ways out
Kenthouse Properties Ltd (“Kenthouse”)
The taxpayer had sold a mixed-use property to a company and charged VAT. Kenthouse incurred the VAT and looked to recover it from HMRC.
It would appear that it did not fully understand the VAT rules on the transfer of a property or on the recovery of any associated VAT. Furthermore, in respect of its VAT registration application, and on information provided to HMRC in relation to checks undertaken of its first VAT return, the material was contradictory.
Initially, it had said that its intention was to redevelop the property into residential flats for rent. From a VAT perspective, this was going to be VAT exempt. Accordingly, no VAT recovery was available.
Later on, Kenthouse had explained that it had intended to convert the property into residential flats in which it would grant VAT zero-rated long leases. Clearly, HMRC was confused as to what it was going to do with the flats. As no additional evidence was provided e.g., listing with an estate agent, HMRC disallowed VAT recovery.
This case is a perfect reminder of seeking professional help, especially where large amounts of VAT are at stake. Care should be undertaken in understanding HMRC’s questions, bearing in mind what information has already been provided.
In the event that you would like to discuss the specifics of a particular transaction, please do not hesitate to be in touch.
Go City Ltd (formerly the Leisure Pass Group Ltd) [2024] UKFTT 745 (TC) (“Go City”)
Go City sold the London Pass and the London Explorer Pass (“the Passes”), which entitled the purchaser to enter various attractions and use certain transport in London without further payment. It previously had a number of disputes with HMRC concerning the passes, in 2008 and 2009.
Go City had undertaken extensive contractual changes and in late 2018, let HMRC know of these. HMRC did not issue any definitive ruling and subsequently issued “protective assessments” within two years from the VAT period ends. It eventually issued a decision that they were not Multi-Purpose Vouchers (“MPVs”), and therefore were chargeable to VAT.
Firstly, the tribunal ruled that the first two assessments were out of time, as HMRC had not reached a definite decision, within the timescale permitted.
The next question which the tribunal ruled upon, was whether the passes were “tickets” as claimed by HMRC or were MPVs. As the pass holder could either receive VAT zero-rate passenger transport or VAT standard rate entry to various attractions, they were held to be MPVs.
There was a third question concerning where the passholder did not visit all the venues before it expired. The unallocated part of the payment where all the venues were not visited, was held to be not consideration for a supply.
The main point I would take from this decision, is not necessarily regarding the VAT liability issues. I would look at the first two of the assessments raised, in order to appreciate that just because they are assessments raised by HMRC, does not necessarily mean that it i.e., HMRC, is correct, in raising them.
As always, should there be something niggling you regarding a client who has received an assessment, please feel free to give me a call.
HMRC Assessments – possible ways out
The starting point is that HMRC may only raise VAT assessments on taxpayers for both under and overpayments, to a maximum of 4 years, from the end of the prescribed VAT return. This may be extended to 20 years, where the underpayments are deliberate.
In addition to this 4 year back-stop, are two additional rules, which need to be considered by HMRC when raising VAT assessments:
- An assessment must be issued within “12 months of the date that evidence of the facts that
justify making the assessment comes to our knowledge”; and
- Where the 12-month time limit has passed, the maximum assessment period is 2 years from the end of the prescribed accounting period.
Therefore, where an assessment is raised by HMRC after:
- 12 months after evidence of the facts have come to its knowledge; and
- A period of 2 years has elapsed since the end of the VAT return period when the error arose,
HMRC may be precluded from raising an assessment on a taxpayer.
As always, these VAT rules are complex and a VAT professional should be consulted. The earlier case of Go City Ltd, goes to show you that HMRC does not always get things right. In the event of wanting to run a VAT assessment by me, please do not hesitate in getting in touch.
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