The question whether or not the price for land includes or excludes value added tax turns on the provisions in the parties’ contract. It is in the seller’s interest to make the position clear because it will have to account for any value added tax due to HMRC on the basis that the amount received equals the value of the land plus the tax. So a seller who fails to make it plain that the buyer must pay value added tax in addition to the purchase price will have to account to HMRC for the tax due out of what it receives.
The litigation in CLP Holding Company Limited v Singh [2014] EWCA Civ 1103 concerned a contract for the sale of land that incorporated the Law Society’s Standard Conditions of Sale (4th Edition). They provide that “an obligation to pay money includes an obligation to pay any value added tax chargeable in respect of that payment” and stipulate that “all sums made payable by the contract are exclusive of value added tax”.
The company sold a property for £130,000. It had waived the exemption from value added tax in respect of the property many years previously, but did not collect value added tax from the buyers and made no mention of the subject until it received an assessment from HMRC. In due course, it wrote to the buyers claiming that they were liable to pay the tax demanded by the Revenue by virtue of the general conditions in the contract for sale.
The Court of Appeal dismissed the seller’s claim. It ruled that the contract must be interpreted as a whole in the light of the surrounding facts and all the circumstances of the parties’ relationship. There had never been any suggestion that value added tax was due, or that the buyers would be liable for it. The special conditions stated that the purchase price was £130,000; they did not indicate that the price was exclusive of VAT and provided that, where there was any conflict with the general conditions, the special conditions would prevail.
The seller’s solicitors had expressly acknowledged that the seller had received “all of the sale monies of £130,000” and a reasonable person with all the background knowledge reasonably available to the parties at the time would have concluded that the parties had not intended the buyers to pay anything more than £130,000. Therefore, in the particular circumstances of this case, it was impossible to reconcile the special conditions with the general conditions and the special conditions prevailed.
Practitioners may question the decision. However, the moral of the story is that the special conditions should always make the position clear. This may come more naturally to conveyancers using the Standard Conditions of Sale (5th Edition), which state that the purchase price is inclusive of value added tax, or the Standard Commercial Property Conditions (2nd Edition), where the default position is that the sale is not a taxable supply. This means that practitioners will have to incorporate a special condition reversing the position under the SCS, if value added tax is due, or, in the case of the SCPC, expressly incorporating alternative provisions in the SCPC specially designed for use in connection with taxable supplies.
Allyson Colby is a property law consultant
