Pension scheme at risk of losing £60k

• The VAT People were brought in by a client in 2013 to assist with the recovery of VAT paid on the purchase and refurbishment of a new property
• The client, a pension scheme, was at risk of losing VAT of approximately £60,000 when an application was incorrectly rejected by HMRC

The case

A case brought to us in 2013 was typical of the type of issues our team is used to working out at The VAT People, and we were pleased to find a solution for our client. In this instance, the case involved a client - a pension scheme - paying VAT on the purchase of a new property, while also paying VAT on the significant cost of refurbishing the property.

The client applied to register for VAT in 2013 in order to be able to recover the relevant costs, and notified the HMRC of its decision to “opt to tax” the property. This decision meant the client was able to charge VAT on the rent that it was due to charge for the refurbished property, and in return, should have been able to recover the VAT incurred on the cost of refurbishment. HMRC raised numerous queries in relation to the application. However, because the client did not respond, the application was effectively cancelled.

Realising its error, our client submitted a fresh application in 2015, attempting to backdate the VAT registration and option to tax to 2013. HMRC, however, rejected this application, stating that it would only allow the client to register for VAT with effect from a current date. As a result, the client stood to lose VAT of approximately £60,000 in the event this decision was maintained by HMRC.

At this point, The VAT People was brought in to advise.

How we helped

We helped our client by reviewing the relevant case files and considering the law to formulate an argument claiming that HMRC had been wrong to deny the backdating of the VAT registration. We then submitted a formal request for the decision in question to be reviewed. Following a period of discussion, HMRC agreed to backdate the VAT registration, as well as the option to tax, meaning the client would be in a position to recover the VAT of £60,000.

When asked about their dealings with the VAT People, and our director, Rob McCann, the client said: “We have previously worked with Rob and found him to be very efficient and effective at eliciting a successful response from HMRC.  

“We provided sufficient information for Rob to negotiate with HMRC and as a result of his work, they ultimately reversed their position and confirmed that the VAT registration could be backdated. The fees charged by Rob were very reasonable and he kept us informed of progress throughout the process.  We would not hesitate to recommend Rob and to use him again should another specialist VAT problem arise.

Key takeaways/learnings

• Always respond to communication from HMRC in a timely manner.
• Adopt a VAT plan following all property purchase and improvement projects, and importantly ensure that the plan in question is implemented properly.
• The VAT treatment of projects involving land and property is often complex and thus advice should be sought in order to remove the risk of costly mistakes.
• Do not assume that a decision made by HMRC is not open to challenge.  Run any adverse decision by The VAT People.