Tag Archives: VAT-non-business

What is outside the scope of VAT, and what does it mean?

By   10 January 2025
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Put simply, income which is outside the scope (OSC) of VAT is UK VAT free. It means that either there has been no supply in respect of that income (non-business, or ‘NB’), or if there is, it has a place of supply (POS) which is outside the UK. Although VAT free, OSC is distinct from exempt or zero-rated supplies and has a different impact for the entity involved in NB activities.

So, here I consider the different types of OSC income and how it affects the VAT position of the recipient of such a payment.

Charity

Charities and NFP organisations often receive income from various sources and often receive NB income which is OSC. This income is often donations for which the donor does not receive anything (there is no consideration provided by the charity). An organisation such as a charity that is run on a non-profit-making basis may still be regarded as carrying on a business activity for VAT purposes. This is unaffected by the fact that the activity is performed for the benefit of the community. It is therefore important for a charity to determine whether particular transactions are business or NB activities. This applies both when considering registration (if there is only NB activity a charity cannot be registered and therefore cannot recover any input tax) and after registration. ‘Business’ has a wide meaning for VAT purposes – an activity may still be business if the amount charged does no more than cover the cost to the charity of making the supply or where the charge made is less than cost. If the charity makes no charge at all the activity is unlikely to be considered business. A common area of complexity for charities when considering whether their activities are in the course of business is receipt of grant funding (please see below).

Grants 

There is no ‘standard’ VAT treatment of grants. The VAT outcome depends on the precise facts of each specific agreement. The most important test is whether the grantor receives any consideration in return for the payment. It may be that the donor recognises the good work a body does and wishes to contribute (akin to a donation) which is OSC. Alternatively, the recipient of the grant may be obliged to provide something in return (a supply which is not OSC). A helpful way of looking at this is to consider, not what the recipient does with grant money, but what it does for it.

Inter-company charges

Charges between VAT group members are OSC. Moreover, charges between non-VAT-grouped companies may also be OSC. These are commonly called ‘management charges’ and the VAT treatment depends on a number of facts. It is often the case that a management charge is used as a mechanism for transferring “value” from one company to another. If it is done in an arbitrary manner with no written agreement in place, and nothing identifiable is provided the income is likely to be OSC. Otherwise, it is likely to be a taxable supply. What is important is not how a management charge is calculated, but what the supply actually is (if it is one). The calculation, whether based on a simple pro-rata amount between separate subsidiaries, or via a complex mechanism set out in a written agreement has no impact on the VAT treatment. As always in VAT, the basic question is: what is actually provided? 

Place of supply not the UK

If the POS is outside the UK, then the resulting payment for that supply is OSC. The POS rules can be complex and care must be taken in identifying the correct country to declare output tax (this may include the use of the OSS). In some instances, the Reverse Charge is applied. Input tax incurred in relation these supplies is recoverable, subject to the normal rules, and this distinguishes this type of supply from some of the others discussed here.

Transfer Of a Going Concern (TOGC) 

A TOGC is deemed to be neither a supply of goods nor services, so consequently, it is OSC. Input tax incurred in respect of the costs of making a TOGC are considered an overhead of the business for partial exemption purposes, so it is not automatically disallowed because it relates to a ‘non-supply’.

Supplies by a non-taxable person

Sales by a business person who is not liable to be VAT registered.

Insurance etc

A payment between persons, which is paid under a contract of indemnity, is OSC, because it does not represent consideration for a supply, eg; sums paid under an insurance policy.

Private transactions

These transactions between individuals or gifts received are OSC.

Statutory fees

These are OSC, an example of such fees are: the London congestion charge, MOT testing, some road tolls, and parking fines.

Input tax recovery 

VAT incurred on costs directly relating to OSC activities is not input tax and cannot be recovered (there are no de minimis limits). This is separate to partial exemption and a business/NB calculation is required before a partial exemption calculation is carried out, so it is a two-tier exercise. It may be possible to combine these two calculations, but that is an article for another day.

HMRC has issued new guidance on the amount of input tax claimable when an element is attributable to NB activities. If an entity is involved in both business and NB activities, eg; a charity which provides free advice and also has a shop which sells donated goods, it is unable to recover all of the VAT it incurs.  VAT attributable to NB activities is not input tax and cannot be reclaimed.  Therefore, it is necessary to calculate the quantum of VAT attributable to business and NB activities. That VAT which cannot be directly attributed is called overhead VAT and must be apportioned between business and NB activities.  There are many varied ways of doing this as the VAT legislation does not specify any particular method.  It is important to consider all of the available alternatives. Examples of these are; income, expenditure, time, floorspace, transaction count etc (similar to those methods available for partial exemption calculations). Any calculation must be fair and reasonable.

Overall

OSC income should not be recognised in the value box of VAT returns and it does not count towards the VAT registration limit. It is likely to negatively affect the recipient’s input tax recovery position. The distinction between business and non-business is crucial and will significantly impact on an entity’s overall VAT position.

Further reading

The following articles consider case law and other relevant business/NB issues:

Wakefield College

Longbridge

Babylon Farm

A Shoot

Y4 Express

Lajvér Meliorációs Nonprofit Kft. and Lajvér Csapadékvízrendezési Nonprofit Kft

Healthwatch Hampshire CIC 

Pertempts Limited

Northumbria Healthcare

VAT Business/Non-Business HMRC Internal Manual updated

By   14 October 2024
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HMRC internal guidance manual has been updated on 9 October 2024.

This is likely to affect; charities and similar bodies, NFP, clubs, associations, philanthropic organisations, galleries and museums, “hobby” activities, amongst other persons.

Business or Non-Business (N-B) is very important in VAT as it determines, inter alia, whether a supplier is

  • liable to register
  • liable to account for output tax
  • able to recover (all, some, or no) input tax

The definition of business and N-B here.

Legislation: The I Act 1994 Section 24(5).

Further reading

 I have written about this issue many times, as it is a fundamental issue in the tax.

The following articles consider case law and other relevant business/N-B issues:

Wakefield College

Longbridge

Babylon Farm

A Shoot

Y4 Express

Lajvér Meliorációs Nonprofit Kft. And Lajvér Csapadékvízrendezési Nonprofit Kft

Healthwatch Hampshire CIC 

Pertempts Limited

Northumbria Healthcare

What the Guidance Manual covers:

  • an overview of the meaning of business for VAT purposes
  • general principles
  • meaning of N-B
    • the term ‘business activity’ (economic activity)
    • the concept of ‘business’ for VAT purposes
    • the meaning of business
    • the purpose of activity
    • N-B activities
    • persons with both business and N-B activities
    • outside the scope income
    • N-B activities which result in payment
  • determination procedures to establish whether an activity is business N-B
  • the relevant UK law and caselaw (per above amongst other cases)
  • the general approach for inspectors on business/N-B
  • factors to consider when determining if an activity is business or not
  • the link between supplies and consideration
  • methods of apportionment of input tax and approval of apportionment methods
  • formal procedures and work systems
  • clubs and associations
  • specific issues
  • legal history
  • HMRC policy background

This is the main reference material for HMRC inspectors and other employees, so it is very helpful for advisers to understand HMRC’s likely approach to a potential VAT issue.

VAT: Updated guidance for public bodies

By   7 October 2024
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HMRC has updated its guidance on VAT refunds for public bodies.

Certain public bodies (known as “Section 33 bodies” per The VAT Act 1994, section 33) such as; local authorities, fire and rescue authorities, police authorities and the BBC which carry on non-business activities are nevertheless entitled to input tax recovery despite the normal non-business rules. Similar rules apply to certain museums and galleries.

The method for doing this is not on VAT returns, but by submission of Form VAT126 (for entities not registered for VAT). This form has been updated so that it can be completed and submitted digitally for first claims.

VAT Notice 998 (VAT Refund Scheme for museums and galleries) and VAT Notice 749 (Local authorities and similar bodies) have also been updated to set out how to claim VAT refunds.

VAT: Pre-registration activities

By   2 October 2024
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This article looks at the period of activity before a business VAT registers: How to deal with sales and what input tax may be recovered.

VAT Registration

The obligation to VAT register here and the pros and cons of voluntary registration here.

Sales

Between application and receiving a VAT number:

During the wait, a business cannot charge or show VAT on its invoices until it receives a VAT number. However, it will still be required to pay the VAT to HMRC for this period. Usually, a business will increase its prices to allow for this and tell its customers why. Once a VAT number is received, the business can then reissue the relevant invoices showing VAT.

Purchases

Purchases made before registration:

Only the legal entity which actually purchased the goods or services and has applied to VAT register is entitled to input tax recovery.

There are time limits for backdating claims for input tax incurred before registration. These are:

  • four years for goods on hand at the time of the Effective Date of Registration (EDR), or that were used to make other goods on hand at the EDR. This includes both stock for resale or fixed assets
  • six months for services

Input tax can only be reclaimed if the pre-registration expenditure related to the taxable supplies made, or to be made, by the newly VAT registered business (whether these supplies are subject to subsequent output tax or whether they were made pre-registration but would have been taxable if the business was VAT registered).

The only VAT return on which such input tax is recoverable is the first.

Tip

When a business applies for registration, there is an opportunity to backdate the EDR. The provision for taxpayers to negotiate an earlier date is contained in The VAT Act 1994, Schedule 1, 9. This option should be considered if there is additional VAT that would become recoverable. This will mean that the first return will be longer than the normal quarterly or monthly returns.

The limit for backdating EDR is four years.

Irrecoverable VAT

Input tax cannot be reclaimed on:

  • goods that have been completely consumed before registration, eg; fuel, electricity or gas
  • goods that have been sold before registration
  • goods or services which relate to exempt supplies made, or to be made, by the registered business (see below)
  • services which related to goods disposed of before registration

NB: Businesses are not required to reduce the VAT deducted in respect of pre-registration use of fixed assets. Eg; input tax incurred on a van purchased three years before registration and used before and after registration would be recoverable in full.

The “usual” rules for input tax also apply to pre-registration claims; that is, some VAT is never reclaimable, see here.

Specific circumstances

There are special rules for partially exempt businesses and for businesses that have non-business income and for the purchase of certain items (see below) covered by the Capital Goods Scheme (CGS).

Included in the CGS are:

  • taxable land, property purchases of £250,000 or over
  • refurbishment or civil engineering works costing £250,000 or over
  • computer hardware costing £50,000 or over (single items, not networks)
  • aircraft, ships, and other vessels costing £50,000 or more

NB: The partial exemption de minimis limit does not apply to input tax incurred pre-registration.

Pre-incorporation

A limited company cannot register for VAT until it is formally incorporated. Goods or services may have been supplied to the directors or employees setting up the company before then.

A company can claim input tax on those goods and services if the it relates directly to the taxable business to be carried on by it following incorporation and registration for VAT. The six-month (services) four-year (goods) limits also apply to pre-incorporation claims.

Documentation

Any claim must be supported by a valid VAT invoice for each item. If this documentation is not available, there is a possibility that HMRC will accept alternative evidence.

Legislation

The right to deduct input tax as above is covered by The VAT general Regulations 1995, reg 111.

VAT: Museums and galleries – updated guidance

By   16 August 2024
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The HMRC guidance for galleries and museums Notice 998 has been updated to reflect changes to the VAT (Refund of Tax to Museums and Galleries) (Amendment) Order 2024.

The Notice applies to those museums or galleries that offer free admission to the public and which are eligible for refunds of VAT under the museums and galleries VAT Refund Scheme. It can be used to find out which museums or galleries offering free admission are eligible for refunds under the scheme. The VAT Act 1994, section 33A, sets out how the scheme works, but generally:

Museums and galleries offering free access are not in business in relation to this activity (their supplies are “non-business“). They may, of course, have other activities that in their own right which are business activities, eg; catering, sales of books and gifts and exhibitions for which there is a charge.

Normally, it is not possible to recover the VAT incurred on goods and services purchased to support non-business activities. Thus, VAT incurred in connection with the free admission of the public is not normally recoverable and represents a cost to these organisations.

However, HMRC will reimburse this otherwise irrecoverable VAT. For this to be the case, the provisions of section 33A of the VAT Act 1994 must apply, and the museum or gallery must be named in an Order made by HM Treasury.

 

 

What VAT CAN’T you claim?

By   12 August 2024
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VAT Basics
The majority of input tax incurred by most VAT registered businesses may be recovered. However, there is some input tax that may not be. I thought it would be helpful if I pulled together all of these categories in one place:

Blocked VAT claims – an overview

  • No supporting evidence

In most cases this evidence will be an invoice (or as the rules state “a proper tax invoice”) although it may be import, self-billing or other documentation in specific circumstances. A claim is invalid without the correct paperwork. HMRC mayaccept alternative evidence, however, they are not duty bound to do so (and rarely do unless the amount is minimal). So ensure that you always obtain and retain the correct documentation.

  • Incorrect supporting evidence

Usually this is an invalid invoice, or using a delivery note/statement/pro forma in place of a proper tax invoice. To support a claim an invoice must show all the information set out in the legislation. HMRC are within their rights to disallow a claim if any of the details are missing.

  •  Input tax relating to exempt supplies

Broadly speaking, if a business incurs VAT in respect of exempt supplies it cannot recover it. If a business makes only exempt supplies it cannot even register for VAT. There is a certain easement called de minimis which provide for recovery if the input tax is below certain prescribed limits. Input tax which relates to both exempt and taxable activities must be apportioned. More details of partial exemption may be found here.

  •  Input tax relating to non-business activities

If a charity or NFP entity incurs input tax in connection with non-business activities this cannot be recovered and there is no de minimis relief. Input tax which relates to both business and non-business activities must be apportioned. Business versus non-business apportionment must be carried out first and then any partial exemption calculation for the business element if appropriate. More details here

  •  Time barred

If input tax is not reclaimed within four years of it being incurred, the capping provisions apply and any claim will be rejected by HMRC.

  •  VAT incurred on business entertainment

This is always irrecoverable unless the client or customer being entertained belongs overseas. The input tax incurred on staff entertainment costs is however recoverable. A flowchart for recoverability in this area here.

  •  Car purchase

In most cases the VAT incurred on the purchase of a car is blocked. The only exceptions are for when the car; is part of the stock in trade of a motor manufacturer or dealer, or is used primarily for the purposes of taxi hire; self-drive hire or driving instruction; or is used exclusively for a business purpose and is not made available for private use. This last category is notoriously difficult to prove to HMRC and the evidence to support this must be very good.

  •  Car leasing

If a business leases a car for business purposes it will normally be unable to recover 50% of the VAT charged.  The 50% block is to cover the private use of the car.

  • Fuel costs

The element of fuel costs used for personal use is blocked. There are three ways to treat input tax on fuel:

    • claim 100% of the VAT charged. This is possible if fuel is bought for business motoring only or for both business and private motoring and the appropriate road fuel scale charge is applied on the value of supplies of fuel for private use
    • use detailed mileage records to separate business mileage from private mileage and only claim for the business element
    • claim no input tax
  •  A business using certain schemes

For instance, a business using the Flat Rate Scheme cannot recover input tax except for certain large capital purchases, also there are certain blocks for recovery on for Tour Operators’ Margin Scheme (TOMS) users

  •  VAT charged in error

Even if a business obtains an invoice purporting to show a VAT amount, this cannot be recovered if the VAT was charged in error; either completely inappropriately or at the wrong rate. A business’ recourse is with the supplier and not HMRC.

  •  Goods and services not used for a business

Even if a business has an invoice addressed to it and the services or goods are paid for by the business, the input tax on the purchase is blocked if the supply is not for that business’ use. This may be because the purchase is for personal use, or by another business or for purposes not related to the claimant business.

This is not input tax and therefore is not claimable. However, there are exceptions for goods on hand at registration and which were purchased within four years of registration, and services received within six months of registration if certain conditions are met.

  •  VAT incurred by property developers

Input tax incurred on certain articles that are installed in buildings which are sold or leased at the zero rate is blocked.

  •  Second hand goods

Goods sold to a business under one of the VAT second-hand schemes will not show a separate VAT charge and no input tax is recoverable on these goods.

  •  Transfer of a going concern (TOGC)

Assets of a business transferred to you as a going concern are not deemed to be a supply for VAT purposes and consequently, there is no VAT chargeable and therefore no input tax to recover.

  •  Disbursements

A business cannot reclaim VAT when it pays for goods or services to be supplied directly to its client. However, in this situation the VAT may be claimable by the client if they are VAT registered. For more on disbursements see here.

  •  VAT incurred overseas

A business cannot reclaim VAT charged on goods or services that it has bought from suppliers in other EU States. Only UK VAT may be claimed on a UK VAT return. There is however, a mechanism available to claim this VAT back from the relevant authorities in those States. Details here. However, in most cases, supplies received from overseas suppliers are VAT free, so it is usually worth checking whether any VAT has been charged correctly.

  • Business assets of £50,000 and more

There are special rules for reclaiming input tax using the Capital Goods Scheme, which means a business must spread the initial VAT claimed over a number of years.

VAT: What is an exempt supply, and what does it mean?

By   17 June 2024
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VAT Basics

Exemption generally

Some services are exempt from VAT. If all the services a business provides are exempt, it will not be able to register for VAT, which means it cannot reclaim any input tax incurred on its purchases or expenses.

If a business is VAT registered it may make both taxable and exempt supplies (it will need to make at least some taxable supplies to be registered). Such a business is classed as partly exempt and it may be able to recover some input tax, but usually not all (Please see de minimis below).

Types of supply which may be exempt

Examples are:

The above list is not exhaustive.

* Most businesses which do not routinely make exempt supplies usually encounter exemption in the area of land and property and it is an easy trap to fall into not to consider VAT when involved in property transactions. This is one area where VAT planning may be of assistance as it is possible in most situations to deliberately choose to add VAT to an exempt supply to avoid a loss of input tax.  This is known as the option to tax, and it is considered in more detail here.

The legislation covering exemption is found at The VAT Act 1994, Schedule 9. 

What does exemption mean?

 An entity only making exempt supplies cannot register for VAT and consequently has no VAT responsibilities or obligations. While this may seem attractive, exemption is often a burden rather than a relief. This is because any VAT it incurs on any expenditure is irrecoverable and represents an additional cost.  This often affects charities, although there are some limited reliefs.

Exempt supplies are completely different to non-business activities, although the VAT outcome is often similar.

 Partial exemption de-minimis

A partly exempt business cannot usually recover all of the input tax it incurs. However, there is a relief called de minimis. Broadly, if VAT bearing expenditure is below certain limits in may be recovered in full. These are provisional calculations and are subject to a Partial Exemption Annual Adjustment.

Further information on terms used in partial exemption here.

VAT: Education – what, precisely, is exempt?

By   17 June 2024
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In my experience, there is a general assumption that all “education’ is exempt. It is true to say that a lot of education and tuition is indeed exempt, but that is not automatically the case. It is important to establish the reason for the application of non-taxable treatment. The VAT treatment depends on; what is actually being provided, who is providing it and the precise arrangements. I consider the more common issues below.

The legislation covering education is VAT Act 1994, Schedule 9, Group 6.

What does the term education mean?

It means a course, class or lesson of instruction or study in a subject. This includes:

  • lectures
  • educational seminars
  • conferences and symposia
  • recreational and sporting courses
  • distance teaching and associated materials

Schools etc

The first type of education exemption is relatively clear: It is the provision of education by an eligible body. An eligible body is, broadly; a school, college, or university (supplies by Local Authority schools, city technology colleges, sixth form colleges, academies and free schools – where education is provided for no charge, are non-business activities rather than exempt, and have their own set of rules). More on academies here

It is also worth noting that any ‘closely related” goods or services provided with exempt education are themselves exempt. This may cover items such as; certain stationery, accommodation, transport and catering.

There is usually very little disagreement about the VAT treatment of these entities.

Charities/ non-profit making organisations

If a charity/NFP entity is an eligible body supplies of education and vocational training (see below) by it are exempt. Such an organisation is likely to be an eligible body, where it’s a charity, professional body or company which:

  • cannot and does not distribute any profit it makes, and
  • any profit that does arise from its supplies of education is used solely for the continuation or improvement of such supplies.

There can be disputes over the term “does not distribute any profit” so care should be taken in this respect and advice sought if there is any doubt.

Tuition

Exemption applies to the supply of “private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer” – VAT Act 1994 Schedule 9, Group 6, item 2.

Taking each of these tests in turn:

  • What is “private tuition?

In order to qualify, the provider of tuition must act independently and not be an employee. Practically, this means that the person providing the tuition must either be a sole proprietor, a partner in a partnership, or a member of a Limited Liability partnership (LLP). Consequently, exemption does not apply if the teaching is carried out by a company or an employee. This is a matter of fact, however, it is possible to structure matters such that the exemption applies if it does not currently (and the restructure is possible commercially).

  • What does “ordinarily taught” in schools/universities mean?

This is often a moot issue and the significant amount of case law highlights this. Most of the mainstream subjects are covered of course, but what about subjects like; golf, horse riding and dance? Would they be ordinarily taught in schools? (The answer according to case law is; yes). However, there are many other subjects which are debatable and HMRC usually take an uncompromising line on this area, especially around sporting activities. If there is any doubt, we recommend seeking advice.

  • What does tuition mean?

Clearly, if a person teaches or coaches a subject to an individual or group, then this qualifies as tuition. However, a distinction must be made between this and a recreational type of activity which may be called a “class”, but no actual tuition is provided. Exemption does not apply, for example, for the simple provision of gymnasium or swimming pool facilities, or a yoga class where no coaching takes place (however, it is possible that these may be exempt under different parts of the legislation, but that is not the subject of this article).

Vocational training

Vocational training means training or re-training and work experience for paid employment or voluntary employment in areas beneficial to the community.

If vocational training is provided for a charge the VAT consequences are either:

  • for an eligible body (see above) vocational training is exempt
  • for a non-eligible body vocational training is still exempt to the extent that it is funded under an approved government funding scheme. Otherwise the supply is taxable.

English as a Foreign Language (EFL)

If a commercial entity makes supplies of tuition of EFL they will qualify for exemption. In these cases, tuition includes all elements that are integral to the course, held out for sale as such, and are the means by which it is intended to promote fluency in the use of the English language.

General

In respect of all of the above, if exemption does not apply the supply of education falls to be taxable as a default.

For completeness, exemption may also apply to; research, examination services, youth clubs, day nurseries, crèches and playgroups but these activities are outside the scope of this article.

Summary

There are many traps for the unwary here. Planning is always advisable and I recommend that any entity which provides education is conscious of the VAT implications and seeks advice where/when necessary.

VAT Road Fuel Scale Charges from 1 May 2024

By   22 April 2024
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HMRC has issued its 1 May 2024 to 30 April 2025 Road Fuel Scale Charges (RFSC)

RFSC

A scale charge is a way of accounting for output tax on road fuel bought by a business for cars which is then put to private use. If a business uses the scale charge, it can recover all the VAT charged on road fuel without having to identify specific business and private use. The charge is calculated on a flat rate basis according to the CO2 emissions of the car.

More on motoring expenses here.

A business will need to calculate the correct RFSC based on a car’s CO2 emissions, and the length of its VAT accounting period. This will be either one, 3, or 12 months. The CO2 emissions figure may be found here if the information is not available in the log book.

Alternatives to using RFSC

  • use detailed mileage records to separate business mileage from private mileage and only claim for the business element
  • claim no input tax

Business/private mileage calculation example:

  • Total mileage: 4,290
  • Business mileage: 3,165
  • Cost of fuel: £368.
  • Business mileage: £368 × (3,165 ÷ 4,290) = £271.49
  • Claimable input tax: £271.49 × VAT fraction = £45.25

VAT: Difficulties with DIY Housebuilders’ claim – The Spani case

By   18 September 2023
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Latest from the courts

In the First Tier Tribunal (FTT) case of Spani v HMRC [2023] UKFTT 00727 (TC) the issue was whether a claim under the DIY Housebuilders’ Scheme (the scheme) was valid.

Mr Spani appealed against HMRC’s decision to refuse a claim. It was rejected as the respondents concluded that the property was to be used for business purposes because Planning Permission was for a holiday let rather than residential own use. To claim under the scheme, the relevant the property must be used “otherwise than in the course of furtherance of business” – VAT Act 1994, section 35)

Background

The cottage was constructed in Seaford – within the Souths Down National Park and, in order to obtain planning consent, it was required to be made available for letting on a commercial basis for 140 days a year. The appellant contended that it was his primary residence in the UK and any letting (which was interrupted by covid in any case) was/would be incidental to this primary purpose.

The property was listed on Air BnB in order to satisfy the requirements of the planning consent, but the property had not been actively marketed and no lettings had taken place.

Mr Spani contended that the use of the cottage “falls far short of the HMRC’s position that it was the appellant’s intention to use the property for a wholly commercial purpose”. It was simply the appellant’s home in the UK and that an identical property built outside the National Park would not have the Planning Permission holiday let requirement.

Further, if it was a commercial enterprise, Mr Spani could have could have used another reclaim route, viz: registering for VAT and recovering an element of the input tax incurred.

Decision

The appeal was dismissed – The judge opined that “none of these events subsequent to the grant of the Planning Permission and completion certificate detract from the fact that the property was built to be a holiday let (as stipulated by the planning consent) and was therefore constructed in furtherance of a FHL* business”.

Additionally, the FTT stated that: it is plain that the appellant’s plan to live in the property within the FHL regulations does not (and cannot) alter the property into a dwelling… when there is the express prohibition placed on the property to be a dwelling.

The conclusion was that the property was built in furtherance of a business which prohibited a claim.

Commentary

Yet another case highlighting precise requirements of a claim under the scheme and HMRC’s strict application of the rules. Care must always be taken in such cases and we advise professional advice is sought prior to a submission of a claim.

More on similar cases here and here  and Top Ten Tips for the scheme.   

* Furnished Holiday Let