Property company avoids VAT disaster

In a case from Northern Ireland, which was heard in December but only recently reported, a small SPV property company had what appears to be a very lucky escape from a disastrous charge to VAT.

One of the directors of the company, an accountant, used the resources of his accounting firm to deal with the application for VAT registration of the company following the purchase of a residential development site for £2.28 million. An assistant in the accountancy firm of which the director was a partner also arranged for the director/partner to sign a notice of option to tax which was duly filed at HMRC. The director/partner apparently signed the forms without considering the implications.

A few months later the property was sold ostensibly for residential development purposes for £3.25 million without VAT being charged on the sale. Perhaps unsurprisingly HMRC raised an assessment for VAT on the proceeds of sale.

The Tribunal allowed the appeal against the assessment on the basis that they believed the evidence on behalf of the company that whilst the notice of election had been served on HMRC, no “election” had, in fact, taken place. This is despite the fact that the notice of election was signed by a director of the company, a qualified accountant.

The case illustrates the importance of ensuring that there is a proper audit trail for key decisions relating to a company’s tax affairs. In other circumstances it may be necessary to prove that an election to opt to tax land has properly been made. The process of “election” and “notification” are two separate steps in ensuring land is opted to tax and records should be kept of both stages of this process.

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

Back to news