In Silver Sea Properties (Leamington Spa) SARL v HMRC [2021] TC08284, the First Tier Tribunal (FTT) found that input VAT was largely irrecoverable on furniture, fixtures and equipment incorporated into a leased care home. Where input VAT was recoverable, their onward supply under the building’s lease was not part of a single composite supply and output VAT was due. 

A common arrangement seen in care home groups is where the development of new care homes is undertaken by a dedicated company, ‘PropCo’. Once development is completed, a lease is granted to a second company, OpCo, which then operates the care home.

The primary motive for these arrangements is that finance for the development is generally easier to obtain via PropCo.

  • In 2014, Silver Sea Properties (Leamington Spa) SARL (PropCo) granted a 25-year lease in a new care home to Care UK Community Partnerships Ltd (OpCo).
  • For VAT purposes, this represented the first grant of a major interest in a building intended for use for a Relevant residential purpose and so was a zero-rated supply.
  • The lease also included the provision of furniture, fixtures and equipment (FF&E) supplied by PropCo to OpCo.

HMRC raised an assessment of £96,000 covering both input and output VAT on the basis that:

  • Input VAT incurred by PropCo on the purchase of incorporated FF&E was blocked from recovery due to the 'Builder’s block'. Any items which qualified as building materials were not subject to this block.
  • Output VAT should have been charged on the supply of other FF&E to OpCo. Loose FF&E not subject to the builder’s block must be treated as separately supplied from the grant of the major interest in the building: PropCo had treated this as a single zero-rated supply.

PropCo Appealed to the FTT which largely agreed with HMRC, finding that:

  • The majority of FF&E was incorporated in the building and did not fall within the definition of building materials.
  • These items were subject to the builder’s block and input VAT was not recoverable by PropCo.
    • This included wardrobes, chests of drawers, shelving, bookcases, workstations, filing cabinets, display cases, lockable storage cupboards, picture frames and TVs.
    • Many of these items were screwed to the wall for the safety of residents.
    • Curtains and bath thermometers were not considered to be incorporated into the building.
  • The supply of FF&E by PropCo to OpCo was not part of a Single composite supply.
    • Loose items supplied to OpCo should have had VAT charged by PropCo.
    • This included items such as linen, crockery, general household goods, first aid kits, hairdressing kits and puzzles.

Useful guides on this topic

Land & Property: Relevant residential & relevant charitable purpose
What are the VAT rules for land and property that is used for a relevant residential purpose or a relevant charitable purpose? What are the clawback provisions affecting a change of ownership or use?

Mixed supplies: Single or Multiple supply?
Is a mixed supply a single or multiple supply for VAT purposes? What tests and case law apply?

Land & Property VAT at a glance
A summary of VAT on common land and property transactions.

Land & Property VAT (Subscriber guide)
An outline of the VAT treatment of some of the more common supplies of land and property.

External link

Silver Sea Properties (Leamington Spa) SARL v HMRC [2021] TC08284

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