UK VATable or not?

A recent First-tier Tribunal decision highlights how easy it can be to become involved in an expensive dispute with HMRC relating to the VAT treatment of supplies of services and the impact of applying for the wrong type of VAT registration.

 

The dispute involved Muster Inns, which owned the Maltsters, a pub, restaurant and B&B business in Devon. The business engaged a Guernsey based construction company to refurbish the pub . The construction company registered for UK VAT , it is assumed as a UK established business, and invoiced Muster Inns for the work done plus VAT. Muster Inns claimed this VAT back as input tax on its VAT returns.

 

HMRC decided that the construction company did not belong in the UK and that as a result of this the VAT registration and VAT invoices were invalid. Instead of it charging VAT that Munster could have recovered, Munster was liable to account for output VAT and recover input VAT under a reverse charge.

 

The Tribunal upheld HMRC’s decision on the basis that the construction company was not UK established, and therefore not a taxable person albeit VAT registered. This meant that it could not charge VAT and Muster could not claim it.

 

The decision highlights the fact that it is very easy to fall foul of the complex place of supply rules with supplies of land in the UK. The place of supply is the UK with a liability to register for VAT if the land supplied is ‘VATable’ land. However in the case of services relating to land supplied by a non-established supplier, it is optional for the supplier to either VAT register as a non-established business or for the customer to account for VAT under the reverse charge. 

 

In general  most UK based suppliers making supplies of services relating to land will register for UK VAT as overseas traders and account for VAT on their onward supply as it enables them to recover UK VAT incurred on related costs. Sadly, had the construction company in the case of Munster registered for VAT as an overseas trader there would be no argument that it was a UK taxable person and that it could charge UK VAT that its customer could recover.

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