Recent VAT Cases Concerning The Option to Tax

Recently the VAT and Duties Tribunal heard the appeal of Higher Education Statistics Agency. (HESA) This case concerned members of a VAT group involved in purchasing properties with the intention of leasing them to a third parties.

A company purchased a property at auction and the properties were subject to the waiver of exemption of VAT by the vendor. It was agreed that the purchase should be treated as a transfer of a going concern, it being the purchaser’s intention to apply for a waiver of the exemption before completion of the property purchase. A deposit was paid by the purchaser to the auctioneer in respect of the property.

Customs & Excise did not agree that the purchaser had complied with the regulations regarding a transfer of a going concern as when the deposit was paid, he had not notified Customs & Excise of his application to waive the exemption for VAT on the property. The sale was therefore subject to VAT according to Customs & Excise.

The Company appealed this decision to the VAT Tribunal who decided in favour of the Commissioners. Their decision was based on two points. Firstly, it decided that the deposit that was paid was a supply for VAT purposes. It followed from this, the Tribunal considered, that the purchaser was not in the same position as the vendor, and therefore the transfer of a going concern rules did not apply. Secondly the Tribunal considered that a transfer of an equitable interest passed to the purchaser on exchange of contracts, so for the regulations to be complied with the purchaser should have notified the Commissioners in respect of the waiver of exemption prior to the equitable transfer and the deposit being paid. The Company has appealed the decision to the High Court.

This decision has cause many problems for all businesses involved in the purchase and sale of property. It appears to say that for the transfer of a going concern to be acceptable to the Commissioners, a person bidding at an auction must have already notified Customs & Excise applying for a waiver of the exemption in the hope that he is successful. If such a person is not successful does this mean that the application will have to be withdrawn from the Commissioners?

This refers to another recent decision of the VAT and Duties Tribunal relating to the waiver of exemption for VAT. This case concerns an assessment issued by Customs & Excise for VAT not paid on all the properties on which the option had been made. It was found that the advisor to Blythe Partnership had applied for the waiver on all the properties purchased, whereas it was the intention of the purchaser only to apply for some of the buildings being purchased. The tribunal found against the Commissioners of Customs & Excise and agreed that the purchaser’s intention was paramount. However, this should be understood as a warning for the future that accuracy is essential in these circumstances.

This decision is not being appealed by Customs & Excise to the High Court.

Customs & Excise have announced subsequent to these decisions that they are undertaking a consultation exercise to review the procedures applying to the waiver of exemption and the transfer of a going concern. The Commissioners are asking for the opinion of all interested parties as to difficulties that are being experienced in respect of these procedures. They will obviously bear in mind the two recent decisions when considering any changes that are required for future applications.

Hammond Suddards are at present compiling an approach to the Commissioners for their consideration as part of the consultation.

For further information please contact Beverley Tanner, Trinity Court, 16 John Dalton Street, Manchester M60 8HS, Tel: +44 161 830 5000

This article was first published in the Autumn 1999 issue of Hammond Suddards' Tax Insight Newsletter.

The information and opinions contained in this article are provided by Hammond Suddards. They should not be applied to any particular set of facts without appropriate legal or other professional advice.