In Clark Hill Limited v HMRC [2018] UKFTT TC06368, the First-Tier Tribunal (FTT) found that three of four properties sold did not meet the conditions for TOGC as the options to tax were not in place before the deposit was paid.

To benefit from Transfer of a Going Concern (TOGC) treatment on a property (outside the scope of VAT) which is subject to an Option To Tax (OTT) by the seller, the buyer must opt to tax and notify HMRC of the option, before the “relevant date”.

The relevant date means the date upon which the grant would have been treated as having been made or, if there is more than one such date, the earliest of them.

  • Clark Hill (CH) were property investors, registered for VAT.
  • They had opted to tax the 4 properties in question around 6 years prior to the sales taking place.
  • VAT was initially charged by CH on the sales, but they later decided that the VAT was not due, that the properties could benefit from TOGC treatment.
  • HMRC disagreed and assessed CH for £920,128 including interest for the quarter ended 31 January 2014.
  • CH appealed.

The key argument at the FTT centred around what the “relevant date” was for the properties, i.e. the date that the buyer had to have opted to tax the property to get TOGC treatment.

  • In each property’s case, a 10% deposit was paid before completion.
  • CH argued that the relevant date for the deposit was the date of completion, i.e. there is only one grant and that grant can only have one relevant date, which should be the date of completion.
  • In the alternative, CH argued that there were two relevant dates, one relating to the deposit and one relating to the final sale. This would mean that, even if the deposit didn’t qualify for TOGC this did not necessarily mean the final sale and balancing payment could not.
  • HMRC’s view was that there is one relevant date, and, in these cases, it is based on the first Time of supply relating to the property: the date of the deposit.

The FTT agreed with HMRC’s view:

  • Previous binding case law had found that the relevant date for a deposit cannot be the date of completion. That case did not decide whether there were two relevant dates, one for deposit and one for completion payment.
  • There can be only one grant of the interest in the property. That grant can only have one relevant date but can have more than one time of supply:
    • The first time of supply is the date of the deposit, as payment has been made prior to any passing of the goods.
    • The second time of supply will be the date the goods pass to the purchaser, unless a payment or invoice is made before that date, or where an invoice is issued within 14 days of that date.
  • For the purposes of what the “relevant date” is, i.e. the date the OTT must have been notified to HMRC by the purchaser, there is one grant with two dates on which it is deemed to have been made. In the case of all four properties, the deposit is the earlier of those dates, and is the relevant date for the whole grant.

Applying this to the four properties:

Properties 1 and 2 were subject to auction underwriting agreements:

  • Sale was agreed with a purchaser subject to the properties getting higher prices at auction.
  • The purchaser paid a 10% deposit on 4 December 2013. This was held by the solicitors as agents.
  • The properties did not sell at auction and the buyer notified HMRC of its OTT on 7 January 2014. This meant the earliest date that it could have had effect was 8 December 2013 and the buyer did not request effect from earlier than 7 January 2014.
  • Completion was on 16 January 2014 and on 17 January 2014 the invoice was issued.
  • The relevant date was 4 December 2013 and, at that date, the OTT had not been notified to HMRC.
  • TOGC did not apply.

Property 3 was sold at auction:

  • On the day of the auction, 3 December 2013, the buyer paid a 10% deposit to the auctioneer.
  • On 4 December 2013, the buyer notified HMRC of the OTT but specified 25 March 2014 as the effective date.
  • The auctioneer passed the deposit to the solicitors on 16 December 2013, who held it as agent.
  • On 9 January 2014, the buyer wrote to HMRC to amend the effective date of the OTT to 3 December 2013.
  • Completion was on 14 January 2014 and the invoice was issued on 16 January 2014.
  • On 21 January 2014, HMRC confirmed that the effective date of the OTT was changed to 3 December 2013 and that the notification was treated as received on 4th December 2013.
  • In this case, the deposit was paid to the auctioneer before the OTT, but was not paid to the solicitor until 16 December 2013:
    • The FTT concluded that the deposit was not received by the seller until it was paid to the solicitor as the auctioneer was not holding the deposit as agent for the seller.
    • The relevant date was therefore 16 December 2013 and OTT was in place by this date.
  • TOGC conditions were met.

Property 4 was sold to a company:

  • On 27 November 2013, Mr S notified HMRC of an OTT.
  • On 29 November 2013, Mr S entered into a contract for the purchase of the property.
  • On 2 December 2013, a deposit was paid by Mr S.
  • On 6 January 2014, a company, MP notified HMRC of an OTT asking for it to be effective 10 January 2014.
  • On 9 January 2014, MP and Mr S entered into a deed of novation:
    • MP undertook Mr S’ obligations under original contract as if MP were Mr S.
    • CH agreed that Mr S was released of all obligations and accepted MP in place.
  • Completion was on 10 January 2014 and the invoice was issued on 16 January 2014.
  • The FTT found as follows:
    • The date of the novation agreement was the relevant date, as this was the date MP were treated as having made the deposit.
    • The relevant date was 9th January.
    • The notification of the OTT was 6 January 2014, but it was effective from 10 January 2014.
    • CH could not treat the 6 January 2014 notification as the effective date if the purchaser has chosen a different effective date.
    • The TOGC conditions were not met.

This case demonstrates how important it is to make timely OTT. It should also be noted:

  • An OTT can be made at any time, even if there is no interest in the property at that time.
  • An OTT must be notified to HMRC within 30 days of making the decision to opt and it can then be treated as made on the date of that decision, if requested.

It was quite possible that all of these properties could have been treated as a TOGC if timely OTTs requesting the appropriate date had been made.


VAT: Land & Property (notes)

VAT: Land & Property at a glance

Opting to tax land and property

Transfer of a going concern (TOGC)

External link: Clark Hill Limited v HMRC [2018] UKFTT TC06368


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