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Steve Allen of VAT Advisers Ltd highlights a further selection of recent VAT cases.

Tribunal Says New Building Linked to Care Home was Not Eligible for Zero-Rating

This case concerned a newly-constructed building adjacent to a residential home intended for use solely for a residential purpose.

The first issue was whether the supplies related to the construction of a zero-rated building. In deciding whether the building was a standard-rated extension, the Tribunal found that it was similar in appearance to the existing building, was dependent on the main building, and was inextricably linked to it for access. As such, it found that the new building was an extension.

The second issue was that if the building was found to be an extension, it was not caught by the restriction for extensions under VATA 1994 Sch 8 Group 5 note 16(b), because it created additional dwellings. The Tribunal dismissed this argument.

First of all, the zero-rating provisions applied to the construction of buildings as dwellings or intended for use solely for a residential purpose. The Judge pointed out that the new building was either a residential home or a dwelling, but could not be both. This contention ‘flew in the face of its evidence’ that the building was a residential home, and contradicted its principal assertion.

However, even if this was the case, the Judge pointed out that the individual rooms did not meet the definition of a dwelling in note 2 of group 5. The Tribunal found that the building was not an extension that created additional dwellings, and so dismissed the appeal.

Rebba Construction Ltd (TC00240)

Tribunal says Appellant Can Recover VAT on Relocation and Accommodation Expenses

In this case, the Appellant, a taxable consultancy business, appealed against an input tax assessment raised by HMRC after a VAT visit.

The assessment related to two types of expense. The first was the VAT incurred on providing accommodation used by both directors and employees whilst attending clients in the area. The second was the VAT incurred on the relocation costs of an employee (who later became a director). The costs were paid by the Appellant to reduce the employee’s travelling time. One of the other arguments raised by the Appellant was the conflicting rules between direct and indirect tax, which it contended should be the same.

On the accommodation expenses, given the information presented to it, the Tribunal said the input tax should not be wholly disallowed as a proportion of it was used for the purpose of the business rather than domestic use by a director. This part of the appeal was therefore allowed, and HMRC were invited to agree a suitable apportionment.

On the relocation expenses, the Tribunal said the key issue was whether the expenditure was for the purpose of the business and not just for its benefit. The Tribunal accepted that HMRC’s internal manuals have no force of law, but said they were clear that VAT can be recovered on costs linked to the actual relocation. As such, the input VAT in relation to the actual move was allowed. With regard to the other relocation costs, the Tribunal noted that HMRC’s arguments were based on the false belief that the person was a director at the time of the move. Again, this part of the appeal was remitted to HMRC to agree an appropriate apportionment.

On the Appellant’s contention that there should be the same rules for indirect and direct tax, HMRC drew attention to the fact that indirect tax legislation is implemented under European legislation, and the rules and regulations which govern the taxes are completely different. The Tribunal therefore concluded that regardless of the fact that there is now one HMRC department, each tax should be applied separately.

Roderick Gunkel & Associates Ltd (TC00252)