In SM Developments North West Ltd v HMRC [2025] TC09665, the First Tier Tribunal (FTT) found that input VAT could not be recovered on a property development as the invoices for supplies received predated the effective date of registration.
SM Developments North West Ltd (SMD) was Incorporated in September 2018 and exceeded the VAT threshold in August 2021. The company registered for VAT, with an effective date of registration for VAT purposes of 1 August 2022.
- SMD had purchased a large house that was partly demolished, with the remaining part being refurbished. A new semi-detached house was also built, attached to the first.
- Both houses were then sold:
- The newly built semi-detached house was sold in November 2021.
- The original refurbished house was sold in October 2022.
- The sale of the semi-detached house was included in the sales figure on SMD's VAT return for the period from 1 August 2022 to 30 September 2022. No output VAT was included.
- HMRC concluded that there was no evidence that the supply was zero-rated and assessed SMD for 20% of the sales amount.
- HMRC also denied Input VAT recovery:
- Most of the supplies received predated the effective date of registration.
- Limited VAT invoices were produced. No suitable alternative evidence was provided that would have justified HMRC exercising its discretion to accept alternative evidence.
- SMD appealed to the First Tier Tribunal (FTT).
SMD did not take issue with the output VAT being assessed, so the tribunal only considered the input VAT element.
The FTT found that:
- The burden of proof lay with SMD to prove that it had valid invoices to support its claim or that HMRC had unreasonably refused to accept alternative evidence.
- Only six invoices relating to the recovery of input tax were produced. Of the invoices that were supplied:
- Most predated the effective date of registration.
- One had the incorrect VAT registration number.
- One did not clearly state that it was a VAT invoice.
- Several other invalidations occurred that meant the invoices produced did not meet the conditions in Regulation 14 of VAT 1995.
- Although SMD did provide some alternative evidence in the form of spreadsheets, a purchase day book analysis and a stock list, there was no sufficient link between these items and the VAT reclaimed.
- HMRC were also unable to identify whether purchases related to the recovery of input tax were made before or after the effective date of registration.
The appeal was dismissed.
Useful guides on this topic
Input VAT claims: Pre-registration
When can pre-registration input VAT be recovered? What are the time limits and restrictions?
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?
Starting in business: VAT
One of the first decisions to make when starting in business is whether or not you should register for VAT. Am I running a business for VAT purposes and if so, when do I register?
Partial exemption & input VAT
How do you calculate the amount of input tax you can recover under the VAT partial exemption rules? What are the de minimis rules?
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