Input VAT largely irrecoverable by property partnership

In Majid and Miah Properties v HMRC [2022] TC08588, the First Tier Tribunal (FTT) found a property letting partnership could not recover input VAT on the majority of incorrectly addressed purchase invoices.

• The Partnership, Majid and Miah Properties Registered for VAT in 2010 on the basis that it intended to make taxable supplies.
• It then acquired a commercial property on which it exercised an Option to tax.
• Input VAT was claimed on the costs of a lengthy refit of the property, after which, on 6 August 2016, it entered into a 15-year lease with a backdated commencement of 3 August 2015.
  • The lessee, Mehfil (Preston) Ltd (Mehfil), was a company in which both partners were directors.
  • The lease stated that rent of £2,166.67 per month was payable from 1 September 2016.
• HMRC undertook a VAT visit in July 2016 and identified input VAT had over-claimed.
• It also concluded that the rent commencement date in the lease was an error, and should have read 1 September 2015.
• Assessments for overclaimed input VAT of £30,446 and undeclared output VAT of £8,664 were raised.
• The partners accepted that some of the assessed input VAT related to their other business Mehfil, a restaurant, and was not recoverable by the partnership, but otherwise disagreed with the assessment.
• They Appealed to the First Tier Tribunal (FTT).

The FTT found that:

Output VAT

• Rent was payable under the lease from 1 September 2016, not 2015. There was a one-year rent-free period during which no output VAT was due.
• Rent had been due until 1 February 2017, when Mehfil closed, but this was not paid. This non-payment meant that no VAT Tax point arose under Regulation 90 of the 1995 VAT Regulations. 
• As the lease was terminated in February 2017, under the Basic tax point rules, the partnership became liable to output VAT on the rent which was due on the 6 rental payments falling after 1 September 2016.

Input VAT

• Where the partnership had recovered VAT on redevelopment and fit-out invoices which were addressed to a non-VAT registered builder who could not reclaim the VAT, it was accepted that the VAT had been incurred as Agent for the Partnership and was recoverable.
• In cases where the VAT registration status of the builders was unknown, such that they may have recovered the VAT, input VAT was not recoverable
• VAT on invoices dated 2012, which were addressed to the Mehfil restaurant was recoverable: it was highly implausible that the supplies were made to Mehfil. These invoices were acceptable as Alternative evidence.
• Input VAT could not be recovered on pro forma invoices, other invoices addressed to Mehfil, or invoices addressed to other third parties.

The output VAT assessment was reduced to £2,166 and the input VAT assessment was amended to £27,360.

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?

Time of supply (Tax Point)
The time of supply of goods or services determines the date on which VAT becomes due. There are a number of different rules which must be considered.

Agents and principals
What is an agent for VAT purposes? When do the agency rules apply?

Opting to tax land and property
What is an option to tax? What do I need to do to opt to tax? What happens if I buy an opted property?

Partnerships & VAT
Like any other business, partnerships are required to register for VAT once their taxable turnover passes the applicable threshold. However, there are some complications specific to partnerships.

Assessments: Best judgement
What is a 'best judgement' assessment for VAT? When can HMRC raise one? What are your rights of appeal? How do you displace a best judgement assessment?

External link

Majid and Miah Properties v HMRC [2022] TC08588