No valid invoice or supply, no input VAT claim

In Star Services Oxford Limited v HMRC [2022] TC08573 the First Tier Tribunal (FTT) dismissed a claim for input tax on rents paid by a company where the lease agreement was in the name of the sole trader. There was no supply to the company and the invoices were in the name of the individual.

In 2013 Mr Latifi, a sole trader entered into a lease agreement with Oxford City Council (OCC) for a property used in a bed and breakfast business.

• The rent charged was subject to VAT at the standard rate. Mr Latifi was not VAT registered.
• Later that year Mr Latifi Incorporated his business and the company, Star Services Oxford Ltd (SSOL) registered for VAT. The lease was not transferred into the name of SSOL until 2018.
• The following year SSOL sublet rooms to two other businesses charging VAT on the rent to one but not the other as that rent was paid to Mr Latifi direct.
• SSOL accounted for and claimed input VAT on the rent paid to OCC.
• Following a compliance check, HMRC issued a Schedule 36 information notice and then raised an assessment on SSOL for £26,250 for a three-year period between 2014 and 2017 for input tax overclaimed on rent for the property on the basis that the lease with OCC was with Mr Latifi and not the company. SSOL requested a review which upheld the assessment, they then Appealed the assessment.

The FTT dismissed the appeal reinforcing the point that SSOL and Mr Latifi were separate legal entities requiring separate VAT registrations:

• OCC leased the property to Mr Latifi who then sublet it to SSOL (free of charge) and the two third-party lessees. The lease to SSOL was an exempt supply as there was no option to tax in place during the periods in question (2014-17).
• SSOL had not met the requirements of s.24 VATA 1994, it could not evidence that a supply had been made to it for consideration. Since the legal relationship was between OCC and Mr Latifi there could not have been any such supply between OCC and SSOL.
• VAT cannot be recovered on invoices in the name of third parties and SSOL did not hold a valid VAT invoice. The OCC invoices were issued to Mr Latifi and not SSOL.
• That Mr Latifi had registered for VAT in 2017 and Opted to tax the sub-lease between himself and SSOL was not pertinent to the appeal and any claims to Pre-registration input tax should have been made by him in the usual manner via his first VAT return.

Useful guides on this topic

Input VAT: What constitutes a valid claim (& VAT invoice)?
What is Input VAT? Who can claim it? What is needed for a valid claim? What needs to be included on a VAT invoice and can you make a claim without one? 

Registering for VAT
When should a business register for and charge VAT? What are the VAT registration thresholds? What penalties might HMRC issue for late notification of registration? When do you need to file a VAT return?

Input VAT claims: Pre-registration
When can pre-registration input VAT be recovered? What are the time limits and restrictions? 

Incorporation checklist
This checklist covers how to incorporate an existing business.

External link

Star Services Oxford Limited v HMRC [2022] TC08573