This taxpayer was surcharged for the late payment of amounts declared on VAT returns. These amounts included output VAT on supplies that should have been exempt. HMRC had given a liability ruling to that effect. When an interest in a retirement home is transferred the transferor must pay a transfer premium to the landlord. The taxpayer, as landlord of some transferred homes, had been paid some of these premiums and accounted for VAT on the income. However, the liability of these premiums should have followed the liability of the property transfer to which they related, and therefore been VAT exempt. The First-tier Tribunal (FTT) has concluded that this incorrectly accounted for VAT, and should not be included when calculating the taxpayer’s default surcharge.
The taxpayer had been unable to make a section 80 claim for this VAT due to unjust enrichment as it could not give the undertaking to repay the VAT to the transferors that had paid it the premiums. The taxpayer appeared to accept that it would have been unjustly enriched by keeping any section 80 refund.
HMRC argued the VAT wrongly declared on exempt supplies (exempt VAT) could only be taken into account for surcharge calculation purposes if a section 80 claim had actually been made.
The FTT has decided, however, that the exempt VAT is not outstanding VAT for surcharge purposes. It is an amount wrongly declared as output tax on supplies that are not, in the terms of the Directive, taxable. The fact HMRC would have taken that VAT into account for surcharge calculations if a section 80 claim had been made is support for the analysis that events which occur after the due date of the return can be taken into account for surcharge purposes. The taxpayer was never liable to account for that VAT (per section 80 it was an amount paid as output tax, not output tax), and it cannot be taken into account for surcharge calculation purposes.
Although Schedule 11 of VATA 1994 would give HMRC the power to recover the exempt VAT as a debt due to the Crown, as it would have been shown as VAT on invoices, it was not VAT for the reasons given above. So it could not be outstanding VAT on the due date of the returns and could not be surcharged. The surcharges should therefore be recalculated to take account of the lower sums that would have been outstanding on the due date, if the liability for each period was recalculated to reflect the position if the correct VAT liability had applied to the premiums at the time of supply. To access the decision click here.
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