Hills and Another v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 April 2016 |
| Neutral Citation | [2016] UKUT 189 (TCC) |
| Date | 25 April 2016 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Judge Greg Sinfield, Judge Guy Brannan
Rebecca Murray, counsel, instructed by The VAT Consultancy, appeared for the appellants
Hui Ling McCarthy, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Option to tax – Whether supply of land taxable at standard rate because option to tax validly exercised – Whether prior permission from HMRC was required and whether HMRC can validly dispense with this requirement for prior permission – Value Added Tax Act 1994 (“VATA 1994”), Sch. 10, para. 3(9) and para. 30.
The Upper Tribunal (UT) dismissed the appeal by Mr and Mrs Hills against the First-tier Tribunal (FTT) decision (Hills TAX[2014] TC 03770) that VAT was chargeable on the sale to them of a freehold commercial property.
This was an appeal against the decision of the FTT that the sale to Mr and Mrs Hills of the freehold interest of a property (the Property) in the Cardiff Gate Business Park by NM Pensions Trustees Limited (the Trustee) was chargeable to VAT at the standard rate.
If the supply was chargeable to VAT, the Trustee would be obliged to charge VAT and account for it to HMRC and the purchasers (Mr and Mrs Hills) could only recover the VAT as input tax under the normal VAT recovery rules.
As Mr and Mrs Hills ran a dental surgery and made exempt supplies, the input tax would be irrecoverable (it was £130,000).
In this case, the UT had to consider the prior permission legislation in VATA 1994, Sch. 10 in respect of the option to tax. It is a central point in the option to tax legislation that prior permission would be required if exempt property supplies had been made before the option was made.
This is to allow HMRC to agree any recovery of input tax that had been incurred on the original purchase by the Trustee (a fair and reasonable attribution is required in the legislation – VATA 1994, Sch. 10, para. 3(9)).
However, this is subject to a discretion that the need for a permission can be waived under VATA 1994, Sch. 10, para. 30.
There was also a cross appeal from HMRC. The FTT had refused permission for HMRC to amend its Statement of Case to raise a new point (the “dispensation issue” – see below), but after discussion in the UT, the parties agreed that it could be raised.
The Trustee was the trustee of a self-invested pension plan (“the SIPP”). Dr and Mrs Patel, who were dentists, became members of the SIPP in 2003.
The Property was purchased by the Trustee on 30 March 2004.
The next day, on 31 March 2004, the Trustee granted Dr and Mrs Patel a lease of the Property (the Lease).
Dr and Mrs Patel used the Property to run their dental practice.
The Trustee charged the dental practice VAT on the rent and accounted for it to HMRC, on the grounds that it had exercised a valid option to tax.
In September 2010 Dr Patel died and the Trustee made the decision to sell the property.
In December 2011, the Trustee sold the Property to Mr and Mrs Hills (the appellants) for £650,000, “plus VAT (if applicable)”.
However, the Trustee had not notified their option to tax within the normal 30 day period from 30 March 2004 as is required by the legislation and belatedly informed HMRC in late 2010 after Dr Patel's death. Under the discretion granted in VATA 1994, Sch. 10, HMRC accepted the belated notification and advised the Trustee that the effective date of the option would be 30 March 2004.
The option to tax legislation is in VATA 1994, Sch. 10. Options to tax in some circumstances require the prior permission of HMRC (known as permission options).
The legislation was reforged in June 2008, but essentially remained the same in respect of the issues in front of the UT.
The basic shape of the option is that a person can opt to tax a building and by doing so, undertakes to charge VAT on the rent and the final sale.
There are some circumstances where an option cannot take effect and one of these is where a supply is covered by the anti-avoidance legislation in VATA 1994, Sch. 10, para. 2(3AA) and para. 3(2). In which case, the supply of that property must revert to being an exempt supply.
There were two issues before the UT:
1) the prior permission issue;
2) the dispensation issue.
The appellants argued that prior permission was required under VATA 1994, Sch. 10, para. 3(9) and that it had not been sought, so any supplies (both to the Patels and in particular the sale to the Hills) had to be exempt.
HMRC countered by saying that prior permission would only be required if exempt supplies had been made before the date that the option became effective.
Given that the property was only purchased on 30 April and the option was effective from that day, then there were no exempt supplies before that date. Had there been, the permission legislation would have been relevant.
The appellants also argued that the FTT had erred in law and that the supply to the original dental practice (the Patels) should have been covered by the anti-avoidance rules in para. 2(3AA) and para. 3(2) and would therefore be exempt for VAT purposes. So it was incorrect that the Patels had been charged VAT.
The UT upheld this point, but did not uphold the appellants on the para. 3(9) point and considered that its purpose was the cover exempt supplies made before the date of the election and on the facts, there were none.
So the UT decided the prior permission point in HMRC's favour (and reached the same conclusion as the FTT).
Having decided the prior permission point against Mr and Mrs Hills, it was not strictly necessary for the UT to consider the dispensation issue which only arose if para. 3(9) imposed a requirement that prior written permission of the Commissioners should have been obtained in March 2004. Nonetheless, because the point was fully argued before the UT, the UT considered the dispensation issue only briefly.
The UT accepted HMRC's submission that there had been no change of law in the 2008 rewrite of the option to tax legislation.
Para. 30 was already in existence when Mr and Mrs Hills bought the Property and, therefore, any argument that they might have based on the prior permission issue was always subject to the operation of that provision.
For these reasons, the UT rejected Mr and Mrs Hills' arguments on the dispensation issue.
The appellents lost the appeal on both points.
[1] This is an appeal against the decision of the First-tier Tribunal (“FTT”) [2014] TC 03770 (Judge Cornwell-Kelly and Mr John Coles) released on 2 July 2014 that the sale to Mr and Mrs Hills (“the Supply”) of the freehold interest in Unit 4, Cardiff Gate Business Park (“the Property”) by NM Pensions Trustees Limited (“the Trustee”) on 22 or 23 December 20111 was chargeable to VAT at the standard rate.
[2] If the Supply is chargeable to VAT, the obligation to account for and pay VAT falls on the Trustee rather than on Mr and Mrs Hills. They are, however, concerned in the VAT treatment because the sale price of the Property (£650,000) was expressed to be “plus VAT (if applicable)”. The amount of VAT involved is £130,000.
[3] Mr and Mrs Hills run a dental practice from the Property. The dental practice is exempt from VAT and, therefore, any VAT charged on the Supply will be an irrecoverable cost to Mr and Mrs Hills.
[4] In addition, HMRC cross-appeal against the FTT's case management decision refusing HMRC permission to amend its Statement of Case to raise a new point (“the Dispensation Issue”). HMRC also make a protective application to raise the Dispensation Issue before this Tribunal should HMRC's cross-appeal be dismissed.
[5] The FTT set out the facts in [3]–[14]. The FTT's findings of fact are not in dispute and these can be summarised as follows.
[6] The Trustee was the trustee of a self-invested pension plan (“the SIPP”). The SIPP was established by a Trust Deed dated 3 January 2002.
[7] Dr and Mrs Patel, who were dentists, became members of the SIPP on 30 July 2003 and 5 August 2003 respectively.
[8] The Property was purchased by the Trustee on 30 March 2004.
[9] The next day, on 31 March 2004, the Trustee granted Dr and Mrs Patel a lease of the Property (“the Lease”). Dr and Mrs Patel used the Property to run their dental practice.
[10] On 6 April 2006, the rules of the SIPP were replaced by a new governing Trust Deed (“the 2006 Deed”).
[11] Over six years later, on 6 August 2010, the Trustee belatedly notified HMRC that it had opted to tax2 the Property with effect from 14 April 2004. The effective date was amended in correspondence to 30 March 2004. On 16 November 2010, HMRC formally accepted the Trustee's late notification and confirmed that the effective date was 30 March 2004. From 31 March 2004, the Trustee had charged VAT on the rental payments and had accounted for tax on the basis that its supplies to the Patels were taxable.
[12] Dr Patel died on 8 September 2010.
[13] On 22 or 23 December 2011, the Trustee sold the Property to Mr and Mrs Hills for £650,000, “plus VAT (if...
To continue reading
Request your trial
-
Hills and Another v Revenue and Customs Commissioners
...2014, on the standard basis. SummaryThe UT had dismissed the appeal by the taxpayers from the FTT, which related to the option to tax ([2016] BVC 513). This second hearing at the UT concerned the application for costs payable to HMRC. That application was not opposed in principle, but the p......
-
Darren Hills and Lynne Hills v The Commissioners for HM Revenue and Customs
...[2016] UKUT 0189 (TCC) Reference: UT/2014/0055 UT/2014/0056 VALUE ADDED TAX – option to tax- whether supply of land taxable at standard rate because option to tax validly exercised – whether prior permission from HMRC required for late election – whether HMRC can validly dispense with this ......
-
Darren & Lynne Hills and The Commissioners for Her Majesty's Revenue & Customs
...[2016] UKUT 0189 (TCC) Reference: UT/2014/0055 UT/2014/0056 VALUE ADDED TAX – option to tax- whether supply of land taxable at standard rate because option to tax validly exercised – whether prior permission from HMRC required for late election – whether HMRC can validly dispense with this ......