Tag Archives: village-hall-vat

VAT: Issue of zero-rating certificate – The Westow Cricket Club case

By   18 December 2019
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Issue an incorrect certificate to obtain zero rated building work at your peril! Don’t get caught out – A warning.

In the First Tier Tribunal (FTT) case of Westow Cricket Club (WCC) the appeal was against a penalty levied by HMRC for issuing a certificate to a contractor erroneously under The VAT Act 1994, Section 62 (1).

Background

WCC was an entity run by volunteers but was not a charity, although it was a Community Amateur Sports Club (“CASC”). It decided to build a new pavilion and wished to take advantage of certain zero rating which was available for the construction of a building that the

“…organisation (in conjunction with any other organisation where applicable) will use the building, or the part of the building, for which zero-rating is being sought …..solely for

a relevant charitable purpose, namely by a charity in either or both of the following ways:

….(b) As a village hall or similarly in providing social or recreational facilities for a local community.”

– Public Notice 708 para 14.7.1.

To ensure that the issue of such a certificate was appropriate, the appellant wrote to HMRC giving details about the building project and seeking guidance on the zero rating of supplies to WCC in the course of the construction of the pavilion. The response was important in this case as WCC sought to rely on it as a reasonable excuse. Part or the reply stated:

“HM Revenue & Customs policy prevents this Department from providing a definitive response where we believe that the point is covered by our Public Notices or other published guidance, which, in this case, I believe it is. In view of the above, please refer to section 16 of Public Notice 708 Buildings and construction. This explains when you can issue a certificate. Section 17 includes the certificates. Furthermore, I would refer you to sub-paragraph 14.7.4 which covers what is classed as a village hall or similar building. Providing the new pavilion meets the conditions set out, and it appears to do so, the construction work will be zero-rated for VAT purposes…”

Decision 

Regrettably, the FTT found that, despite HMRC’s letter expressing a ‘non definitive’ view; which was wrong, this was insufficient to provide reasonable excuse and could not be relied upon. The FTT made references to the fact that the club was not a charity and could not therefore issue the certificate. Consequently, the 100% penalty was applicable and not disproportionate (the penalty imposed is nothing more than the VAT that would have been paid by any other CASC seeking to build a pavilion incurring a vatable supply of a similar sum).

Commentary

HMRC was criticised for potentially leaving taxpayers in ‘no man’s land’ by expressing a view whilst at the same time saying that this was not a definitive response. This is a common tactic used by HMRC and one which many commentators, including myself, have criticised.

Tribunal’s unease

The judge commented that he trusted that HMRC will take note of his concerns and if this is a matter of policy to revisit it in light of the comments made in this decision. Let us hope HMRC listens. It is also an important case for charities (and others) to note when considering if they are able to obtain the construction of buildings VAT free. This is not a straightforward area, and the penalty for getting it wrong is clearly demonstrated here.

Always get proper advice – and don’t rely on vague rulings from HMRC!

The ABC of VAT – property

By   28 May 2019
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A glossary

Anyone who has had even the slightest brush with VAT will know that it is a very complex tax. Now, multiply that complexity by the intricacy and occasionally arcane nature of property law and one may see that the outcome will be less than straightforward. I have produced a general guide and an article on residential property VAT Triggerpoints

I hope the following glossary will help with steering through some of the difficulties.

  • Annex– a building which is joined to or is next to a larger main building usually an extension or addition to a building
  • Assign – to transfer the right or interest in a property from one party to another
  • Break clause – a clause allowing either landlord or tenant to give written notice after a particular date or period of the tenancy in order to end the tenancy
  • Beneficial owner – party deemed to make a supply of property rather than the legal owner
  • Blocked input tax – VAT which a developer is unable to recover when constructing a new dwelling. Typically, expenditure on good such as; carpets, fitted furniture, and gas and electrical appliances
  • Building materials– goods ordinarily incorporated into a property which attracts similar VAT treatment to the construction services.
  • Capital Goods Scheme(CGS) – a method of calculating the recovery amount of input tax incurred on property over a ten-year period, Details of the CGS here
  • Certificate – a document issued to a supplier in order to obtain certain zero-rated or reduced-rated building work
  • Change of number of dwellings– usually a conversion from commercial to residential, or a single house into flats (or flats into a single house) at 5% VAT
  • Consideration– a thing done or given in exchange for something else = a supply. Usually quantified in money, but in some cases non-monetary consideration
  • Construction of new dwellings – a zero rated supply
  • Contract – legal document detailing the agreement of terms between the vendor and buyer
  • Contractor – entity responsible for building works
  • Conversion–work on a non-residential building which results in a property designed as a dwelling(s) being created
  • Covenants – rules governing the property in its title deeds or lease. May impact the definition of dwellings
  • Curtilage– either a garden, or an area surrounding a building which is deemed to be part of the property
  • Designed as a dwelling– a property initially designed for residential use, regardless of any subsequent alternative use
  • Dilapidations – items that have been damaged during a tenancy for which the tenant is responsible for the cost of repair or replacement. Usually VAT free
  • DIY Housebuilders’ Scheme – a scheme which ‘self-builders’ to recover VAT on a new build dwelling or conversion. Details here
  • Dwelling– a building deemed to be residential
  • Empty house – if, in the ten years before work on a dwelling starts, it has not been lived in, the work may be subject to 5% rather than 20% VAT
  • Exempt– a supply that is VAT free. It usually results in attributable input tax falling to be irrecoverable
  • Facade– a wall (or two walls on a corner plot) which may be retained without affecting the zero rating of a new dwelling construction
  • Grant– a supply of an interest in land
  • Holiday home – the sale or long lease of a holiday home cannot be zero-rated even if it is designed as a dwelling
  • Housing Association – a non-profit organisation which rents residential property to people on low incomes or with particular needs
  • In the course of construction– meaningful works that have occurred in relation to the construction of a building (but prior to its completion)
  • Incorporated goods – goods sold with a new dwelling which are zero rated and to which the input tax block does not apply. See white goods
  • Input tax– VAT incurred on expenditure associated with property
  • Interest in, or right over, land– the right to access to and use of, land. Usually via ownership or lease
  • Lease – legal document governing the occupation by the tenant of a premises for a specific length of time
  • Licence to occupy– a permission to use land that does not amount to a tenancy
  • Live-work units – a property that combines a dwelling and commercial or industrial working space. Usually subject to apportionment
  • Major interest–a supply of a freehold interest or a lease exceeding 21 years
  • Multiple occupancy dwelling – a dwelling which is designed for occupation by persons not forming a single household
  • New building–a commercial building less than three years old the sale of which is mandatorily standard
  • Non-residential– a commercial building which is not used as a dwelling
  • Open market value – likely sale price with a willing seller and buyer, with a reasonable period of marketing and no special factors affecting the property
  • Option to tax (OTT) – act of changing the exempt sale or letting of a commercial into a taxable supply. The purpose is to either; recover input tax or avoid input tax being charged. Details here
  • OTT disapplication– the legal removal of a vendor’s option to tax
  • OTT not applicable – the OTT does not apply to residential buildings (so VAT can never apply to dwellings)
  • OTT revocation– the ability to revoke an option to tax after six months or twenty years
  • Partial exemption– a calculation to attribute input tax to exempt and taxable. Generally, VAT incurred in respect of exempt supplies is irrecoverable
  • Person constructing – a developer, contractor or sub-contractor who constructs a building
  • Premium – upfront payment for a supply of property
  • Relevant Charitable Purpose (RCP)–the use by a charity for non-business purposes or for use as a village hall or similar
  • Relevant Residential Purpose (RRP)– dwelling used for certain defined residential purposes, eg; children’s home, a hospice or student accommodation
  • Reverse surrender– a tenant surrenders an onerous lease to the landlord and makes a payment to surrender
  • Share of freehold – where the freehold of the property is owned by a company and the shareholders are the owners of the property
  • Single household dwelling– a building designed for occupation by a single household
  • Snagging – the correction of building faults. Usually follows the VAT liability of the original work
  • Stamp Duty Land Tax (SDLT) – tax paid by a purchaser of a property. SDLT is increased if the sale of a commercial property is the subject of an option to tax
  • Substantial reconstruction– certain significant works to a listed building
  • Surrender– a tenant surrenders the lease to the landlord in return for payment
  • Taxable supply– a supply subject to VAT at the standard, reduced or zero-rate
  • Use as a dwelling – a building which was designed or adapted for use as someone’s home and is so used
  • Vendor – entity selling a property
  • Transfer of a Going Concern (TOGC) – the VAT free sale of the assets of a business as a going concern. This may include a tenanted property
  • Zero-rated– a taxable supply subject to VAT at a rate of 0%

We strongly recommend that advice is obtained if any property transaction is being undertaken.

Details of our land and property services may be found here.