In Kang & Mand Limited v HMRC [2020] TC07945, the First Tier Tribunal (FTT) upheld HMRC’s assessment of overclaimed input tax following VAT being incorrectly charged on an exempt supply.

  • In August 2016, Kang & Mand Limited (K&M) purchased a former public house which had been converted into residential flats, for £315,000 plus VAT of £63,000.
  • K&M submitted an input tax claim for the VAT charged on the property and legal fees: £63,627 was paid by HMRC.
  • Following a VAT inspection, HMRC raised an assessment of £63,627 in June 2018 as K&M failed to provide evidence of the input tax paid.
  • K&M Appealed to the FTT on the grounds that:
    • The vendor was required to charge VAT and account for that sum to HMRC. There would be no loss to the Treasury in allowing the input tax claim.
    • If the input tax claim was not accepted, HMRC would receive a windfall of £63,000 contrary to VAT law and against the principles of natural justice.

Schedule 9, Group 1 of VATA 1994 specifies that subject to exceptions, Supplies of land and buildings are exempt from VAT. In this case, the sale of a building comprised of dwellings which are not new builds is an exempt supply. 

  • At the hearing, K&M conceded that the appeal was misconceived as the sale of the property was an exempt supply: VAT should not have been charged.
  • An adjournment was granted by the FTT to allow the incorrectly charged VAT to be recovered from the vendor, repaid to HMRC and the appeal formally withdrawn.
  • Following an extension to the adjournment, nothing further was heard from K&M. The FTT dismissed the appeal and confirmed HMRC’s assessment.

Comment

This case serves as a reminder that where VAT is incorrectly charged, it is not recoverable as input tax. Transactions concerning land usually involve significant numbers: VAT errors can be costly and administratively difficult to resolve. A further consequence of the incorrect VAT charge, in this case, was Stamp Duty Land Tax (SDLT) being overpaid by £3,150.

Useful guides on this topic

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

Land & Property: Dwellings
What is a dwelling for VAT purposes? What is the VAT treatment for construction, conversion, sale, and letting of a dwelling?

Land & Property: Non-residential
This guide considers the VAT treatment of the supply of non-residential property.

Appeals: VAT
The process of making a VAT appeal largely follows that of direct taxes, however, there are some differences.

External link

Kang & Mand Limited v HMRC [2020] TC07945

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