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In the First Tier Tribunal (FTT) case of Mr Mufwankolo the dispute was whether the appellant was able to recover VAT charged by the landlord of the property from which he ran his business – a licenced retail outlet on Tottenham High Road.
Background
The landlord had opted to tax the commercial property and charged VAT on the rent. The appellant was a sole proprietor; however, the lease was in the name of Mr Mufwankolo’s wife, and the rent demands showed her name and not that of the sole proprietor. It was contended by the appellant, but not evidenced, that the lease had originally been in both his and his wife’s names, despite his wife being the sole signatory.
The issues
Could the appellant recover input tax?
- Did the business receive the supply?
- Was there appropriate evidence?
It was clear that the business operated from the relevant property and consequently, in normal circumstances, the rent would be a genuine cost component of the business.
The Decision
The FTT found that there was no entitlement to an input tax claim and the appeal was dismissed. The lease was solely in the wife’s name and the business was the applicant as a sole proprietor. (There was an obvious potential for a partnership and an argument that a partnership was originally intended was advanced. The status of registration was challenged in 2003, but, crucially, not pursued).
It was possible for the property to be sub-let by the wife to the husband, however, this did not affect the VAT treatment as matters stood. Additionally, there was no evidence that the appellant actually paid any of the rent, as this was done by the tenant. There were no VAT invoices addressed to the sole proprietor.
Given the facts, there was no supply to the appellant, so there was no input tax to claim, and the issue of acceptable evidence fell away.
It was a certainty that the appeal could not succeed.
Commentary
There were a number of ways that this VAT cost could have easily been avoided had a little thought been given to the VAT arrangements. An oversight that created an avoidable tax hit.
A helpful guide to input tax considerations here: Care with input tax claims.
Legislation
The VAT Act 1994 Section 3 – Taxable person
The VAT Act 1994 Section 4 – Taxable supply
The VAT Act 1994 Section 24 (1) – Input tax
The VAT Act 1994 Section 24 (6) – Input tax claim evidence