In David John Matthews and Pamela Ella Matthews v HMRC [2016] UKFTT TC05426, the First Tier Tribunal (FTT) found that the sale of a tenanted pub with a flat should be apportioned on a floor area basis for VAT purposes.

The case concerned how the output VAT on the sale of a tenanted pub, with both a commercial and residential element, should be calculated.

  • The taxpayer sold the pub shortly after purchasing it and without making any commercial sales.
  • They tried to treat the sale as 100% related to the residential element and wholly exempt.
  • HMRC raised an assessment and issued a late payment surchage based on the Brewers’ Society’s suggested 90:10 split, claiming output tax should be paid on the commercial 90% of the property.

HMRC have never formally endorsed, agreed or disagreed with this 90:10 split, but they generally look to this as appropriate.

The FTT found the following:

  • The 90:10 split was not appropriate in this case, but would have been sensible if the pub had been sold as a going concern.
  • When sold there was no restriction as to who could occupy the residential part of the property.
  • Instead, it was deemed appropriate to use floor area to split the consideration between commercial and residential.
  • The appropriate split was found to be two-thirds commercial, one-third residential.

The taxpayer had to pay a reduced output VAT assessment and HMRC were invited to recalculate the default surcharge to account for the reduction.


VAT: Land & Property at a glance

VAT: Land & Property (notes)

Opting to tax land and property

Capital goods scheme

Case reference: David John Matthews and Pamela Ella Matthews v HMRC [2016] UKFTT TC05426