Sale of property — Seller electing to waive exemption — Seller failing to notify Revenue of election until after property sold — Revenue accepting election — Purchaser challenging seller’s election to waive exemption — Whether seller making valid election — Whether notification operating retrospectively — Appeal dismissed
In October 1998, a company (NSL) acquired a property for £195,000 plus VAT. It let part of the building to an associated company, deciding to charge VAT on the rent of the premises from the outset. VAT was accounted for on the rent on quarterly VAT returns and, in 2000, an extension was built and input tax on the cost recovered in full. In January 2004, the appellant purchased the property from NSL. A question arose as to whether VAT was payable on the sale price. The appellant resisted this since it was not registered for VAT.
NSL was entitled, under para 2(1) of Schedule 10 to the Value Added Tax Act 1994, to elect to bring the property into the VAT regime by waiving exemption from VAT in respect of any land. If it had done so, it would have been required to charge VAT on the disposal to the appellant. Such a decision involved two stages: (i) an election under para 2(1); and (ii) under para 3(6), notification of that election to the respondents within 30 days.
By the time the sale in question had been completed, notification had not taken place, even though an election had been made. However, in February 2004, NSL wrote a letter to the respondents that was apparently accepted as effective late notification. Should that notification be valid, the election would be treated as being retrospective to the date of the election.
The VAT Tribunal held that, notwithstanding NSL’s failure to notify the respondents of its election to waive exemption, it had made the necessary election with effect from 31 October 1998. The appellant challenged that decision contending that: (i) the tribunal had erred in law in holding that a valid election had been effected; and (ii) if the election were valid, the tribunal had erred in holding that the notification given in 2004 operated retrospectively.
Held: The appeal was dismissed.
The tribunal had been entitled to conclude that a relevant election had been made and that the notification relied upon was valid for the purposes of para 3 of Schedule 10.
(1) The validity of the election was a finding of fact for the tribunal. An appeal to the court lay only on a question of law and the appellant had failed to demonstrate that the evidence had been insufficient to justify the tribunal’s conclusion. The tribunal had had before it certain material that entitled it to find that an election had taken place and it had not omitted any relevant consideration: Fencing Supplies Ltd v Commissioners of Customs & Excise [1993] VATTR 302 considered.
(2) It was clear from paras 2 and 3, read together, that those provisions operated so as to effect a form of retrospection and that notification of an election to waive exemption from VAT could be made after a disposal of land. If a taxpayer had made an election on day 1, made a chargeable output on day 3, incurred a chargeable input on day 5 and stopped the clock at that point, the election to waive the exemption would have no effect for fiscal purposes. However, if notification occurred on day 8, the effect of the notification would be to complete the election from the beginning of day 1. Accordingly, at that point, the events of days 3 and 5 became events subject to the VAT regime.
Eamon McNicholas (instructed by Hunt & Coombs, of Peterborough) appeared for the appellant; Robert Kellar (instructed by the legal department of Revenue & Customs) appeared for the respondents.
Eileen O’Grady, barrister
