VAT recovery – incomplete purchase invoices

Two ECJ judgements have highlighted the importance of suppliers drafting invoices so as to meet requirements, thereby allowing customers to recover the VAT paid.

In Senatex, the Court confirmed that the VAT authorities were correct to disallow VAT recovery where supplier invoices were incomplete; in this case missing VAT numbers.  However, it also ruled that where the customer was able to obtain the missing information, the original VAT claim should be allowed.

In Barlis, the description of legal services provided was insufficient.  Simply stating ‘legal services’ and not including a start date gave the authorities grounds to reject the associated VAT claim.  However, where the authorities have access to additional information to confirm the missing details, VAT recovery should be allowed.

Conclusion: Customers should seek fully compliant VAT invoices from suppliers to avoid rejection of input tax claims.  However, where invoices are rejected, HMRC should accept additional evidence provided.

Recovery of VAT on company cars

The First Tier Tribunal has ruled in the case Zone Contractors Ltd (TC05330) that VAT on the purchase price of cars may be recovered by a business, where the employees’ employment contract specifies that no private use of company vehicles is allowed.

This contrasts HMRC’s and previous tribunal’s stance that if the employee’s motor insurance allows for private use of company vehicles, then VAT recovery was not allowed.

It may be worth looking at this both retrospectively and prospectively.

VAT: Court of Appeal rules charitable activities are business activities

In the Court of Appeal case, Longridge on the Thames, a charity had claimed that the activities undertaken in a new building were non-business (relevant charitable) activities as the payments made by the participants were adjusted on the basis of ability to pay, and supplemented by charitable donation or income generated by other activities of the charity.

The Court ruled that, following recent guidance from the ECJ, if there was a direct link between the services provided and payment made – which it said there was in this case – the activity was a business activity even where the payment by the participant did not necessarily cover costs incurred.

The direct result of the Appeal was that zero-rating relief from VAT for the construction of charitable purpose buildings was not allowed.

This ruling is important for charities who are seeking to rely on their activities being charitable for the purposes of VAT reliefs, as new ECJ guidance appears to have narrowed the criteria.

Tribunal provides clarification on VAT treatment of construction of dwellings

In a judgement on the specific issue argued in the First Tier Tribunal (FTT) case of St George’s Augustinian Care, the FTT gave some further guidance on cases where zero-rating can apply to the construction of dwellings.

In this case, a separate building was constructed to provide communal leisure facilities for residents of a retirement village.

The FTT ruled that the construction of this building did not qualify for zero-rating as part of a dwelling, on the basis that just because a resident had the right to use these facilities; this did not mean that they formed part of a dwelling(s).

This decision contrasts the position where a gym is incorporated into a block of apartments for use by residents; which would qualify for zero-rating.  It also clarifies the position as published recently by HMRC in Brief 13/16 which confirmed that in certain circumstances a single dwelling may consist of more than one building.

Tribunal rules on VAT treatment of ‘fractional interest’ in residential property

In the First Tier Tribunal (FTT) case of Fortyseven Park Street Limited, the appellant owned a leasehold interest in a property divided into 49 residences.

It sold ‘fractional interests’ to individuals that entitled them to stay in the residences for up to 21 nights per annum; documented by a ‘membership agreement’.

The FTT ruled that the supply was not that of a membership, nor a right over land that would qualify for exemption from VAT.

Instead, it ruled that the supplies were taxable supplies of an establishment similar to a hotel, as there were ancillary services supplied akin to those provided by a hotel.  In distinguishing other similar case, the FTT stated that a determinative factor in this case was that the customer knew precisely what it was purchasing at the time of payment.