It Pays to Plan Well in Advance to Save VAT Costs

It can be a source of frustration for VAT consultants, clients and other advisers alike when businesses lose out on easy VAT gains. It is common for many tax payers to find that they have an unexpected cost as they have assumed that VAT can be claimed when it is not the case, either due to their having the incorrect information to support a claim or having misunderstood the legislation. In many cases these issues could be avoided by taking timely VAT advice.

In the case of J Radcliffe v HMRC, the appellant (R) demolished an existing bungalow in sections resulting in only an interior wall remaining from the original bungalow and built a new bungalow in its place. As R had in his view built a new dwelling he sought to recover the VAT on the construction costs from HMRC (presumably this was materials as if the property was a new dwelling building services would be zero rated).

HMRC refused R’s VAT claim on the basis that planning permission had only been given for an extension to the original building and not for the construction of a new dwelling. The Tribunal said that there was no doubt that R did not have planning permission to build a new bungalow, this meant that R was not classed as building a new dwelling for VAT purposes and could not recover the relevant VAT.

If R had taken advice prior to the construction (or should we properly say extension) of the bungalow he would have been advised to either obtain revised planning consent for a new dwelling or be prepared to suffer the VAT cost.

In the case of S Smith (t/a Heliops UK) (S)v HMRC (2014) it is a more simple matter of missing an easy opportunity to maximise VAT recovery. S was a commercial pilot who voluntarily registered and sought to recover VAT on pre-registration costs. These included the cost of pilot training .

The Tribunal determined that supplies of pilot training were to be treated as supplies of services rather than goods. This meant that the VAT could not be claimed as the pilot training had been purchased more than six months pre VAT registration. Therefore the effect of VAT Regulations 1995, reg 111(2) was to disallow the input tax repayment claim because the supplies were made over six months before the date from which S was voluntarily registered for VAT. S’s appeal was dismissed.

If S had taken advice from our firm pre-registration we would have advised him to submit a backdated voluntary registration which would have maximised his VAT recovery position, or even better as backdated voluntary registrations are at HMRC’s discretion, if he had sought advice earlier on he could have registered as an intending trader.

If you or your client are entering into new types of transactions or are starting a new business or development taking timely VAT advice has been proven over and again to be a worthwhile investment that more than pays for itself. Please call our free VAT helpline for an initial discussion.


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