Key Facts
- •Mr. Moulsdale sold a property to Cumbernauld SPV Ltd in 2014 without charging VAT.
- •HMRC assessed Mr. Moulsdale for VAT, arguing the sale was subject to VAT under Schedule 10 of the Value Added Tax Act 1994 (VATA).
- •The dispute centers on whether Schedule 10's provisions disapplying the option to tax applied, rendering the sale exempt from VAT.
- •Mr. Moulsdale had previously opted to tax the property and claimed input VAT on its purchase.
- •A tenant, Optical Express, occupied the property and ran a VAT-exempt business.
- •The case involves interpreting complex interactions between Schedule 10 VATA and the VAT Regulations 1995, particularly regulations 112 and 113 (Capital Goods Scheme).
Legal Principles
A fundamental feature of the VAT regime is that traders with exempt supplies are denied input VAT deductions.
Principal and Fellows of Newnham College v Revenue & Customs Commissioners [2008] UKHL 23
Tax legislation aims to prevent taxable traders from benefiting from exempt businesses without bearing the burden.
This case
Schedule 10 VATA provides an option to tax transactions relating to land, but this option can be disapplied under certain circumstances (paras 12-17).
Schedule 10 VATA
The Capital Goods Scheme (VAT Regulations 1995, regs 112 and 113) allows adjustments to input VAT deductions for capital items used in businesses with mixed taxable and exempt supplies.
VAT Regulations 1995, regs 112 and 113
Schedule 10 aims to prevent businesses from recovering input VAT on capital items by using the option to tax as a means of creating a VAT-bearing output supply.
This case
The intention or expectation in Schedule 10 para 13(4) is a subjective test, focusing on the grantor's belief at the time of the grant.
PGPH Ltd v Revenue and Customs Comrs [2017] UKFTT 782
Outcomes
Appeal dismissed.
The court adopted HMRC's construction of Schedule 10, holding that the grantor's intention or expectation regarding VAT-bearing expenditure must relate to costs other than the acquisition cost of the property itself. This avoids circularity and aligns with the anti-avoidance purpose of Schedule 10.