vat reclaim on land purchase

by **rav147** on Thu Sep 02, 2010 2:00 pm

hi, about 3 1/2 years ago i bought some land from a large company who had opted to tax so I had to pay vat on the purchase.
at the time i owned a couple of small businesses (sole trader) and i decided to reclaim the vat input by claiming it against my quarterly vat return for one of the businesses. the vat people came to see me to check things out and asked me a few questions and approved the repayment which i recieved no problems.

recently hmrc have been investigating my businesses which are now closed and they are asking about that vat claim. they want to know why it was claimed through the business.

was i wrong to claim? the vat people approved it. they may want the money back approx £30k, what can i do? if i have to pay it back can i claim back again by following the "correct" procedure?

your advice much appreciated.
thanks

by **saharwood** on Thu Sep 02, 2010 2:45 pm

Hello

In detail, can you clarify what the land was used for exactly?

regards

Scott Harwood

by **rav147** on Thu Sep 02, 2010 3:22 pm

when i bought it the land was vacant - just a plot in a town.
previously it was used a petrol station owned by BP
i bought it and did nothing with it due to planning and contamination problems
i sold it to a company who have since leased it for a car wash.
i did not opt to tax it when i sold it so no vat was involved
im not sure but i dnt think that vat charged on the current rent either

thanks

by **saharwood** on Thu Sep 02, 2010 3:34 pm

ok.

First, the basics of VAT - if you charge VAT you can reclaim VAT. if you don;t charge VAT you can't reclaim it. ergo, HMRC are thinking you did not charge VAT on the sale of your land (no OTT) hence why should you be allowed to reclaim it (on your purchase).

HMRC may want to know your original intention of the land purchase (any official minutes etc) - as this would dictate the original right to claim Input Tax.

As the intended supply changed, the 'Clawback' provision may well apply (i.e. an apportionment of the original Input tax claim back to HRMC to account for the Exempt supply made). Google "Curtis Henderson" vat case.

The question also begs, who did you sell the land to and could you have applied the OTT on your onward sale without much detriment to the purchaser?

Regards

Scott Harwood

by **rav147** on Thu Sep 02, 2010 3:40 pm

yes i sold onto a company and i would be willing to change it so that we did OTT. the other party would agree also. is it too late now or can we OTT?, the land has been sold to the company already and the transaction was completed oficially through solicitors.

by **saharwood** on Thu Sep 02, 2010 4:01 pm

i'm afraid the OTT can not (generally) be applied retrospectively.

If i was you I would be very cross with your Accountant/Solicitor, if they were involved, for not mentioning/spotting this oversight.

Could you re-clarify what your actual intention was with the land?

Another last resort is to look at the TOGC rules to see if this may apply to you (long shot)

best of luck,

Scott Harwood

by **rav147** on Thu Sep 02, 2010 4:11 pm

if HMRC are successfull in clawing the money back, can i reclaim the vat with a fresh claim?
what are the time limits?
thanks

by **rav147** on Thu Sep 02, 2010 4:13 pm

my intention was to develop the land for housing and/or shops/offices/leisure use

by **saharwood** on Thu Sep 02, 2010 4:56 pm

I'm afraid you can not retrospectively OTT and the transaction has already taken place. It appears the original intention was to make taxable supplies (assuming there were no plans to make residential lettings), so HMRC were correct with their original advice. Did you claim any other input tax as well (e.g. legal fees etc)?

by **Generix** on Thu Sep 02, 2010 5:25 pm

saharwood wrote:I'm afraid you can not retrospectively OTT and the transaction has already taken place. It appears the original intention was to make taxable supplies (assuming there were no plans to make residential lettings), so HMRC were correct with their original advice. Did you claim any other input tax as well (e.g. legal fees etc)?

You may have already opted to tax however but just forgotten to notify HMRC

This won't help you though as you should have charged VAT on the sale of the land/property in that case and therefore made an underdec (and caused the value for Stamp Duty - assuming SD was chargeable - to be incorrect). :cry: