VAT Advice Case studies
Ian Spencer & Associates Limited only began trading in December 2009 and given the nature of VAT services has had insufficient time, as yet, to generate a large catalogue of success stories. However we set out below some of the areas worked in over the preceding few years where there have been successful outcomes for clients.
VAT Advice for Property
- A property developer client was acquiring a new property for circa £3.5M + VAT. His question was whether he would get this VAT refunded. In short the answer was no, not unless he acted and acted quickly. With timely advice and actions he was able to avoid any VAT cost saving himself the bother of having to claim £525K, as well as an outright saving (SDLT) of £21K. Without the correct VAT advice his extra costs would have been £546K.
- On a £70M development a property developer client was converting existing non-residential buildings into luxury apartments, constructing what was ostensibly a car park to provide car parking for the owners of the newly created apartments at a cost of £3M. The way the development was structured meant that if there was a (standard rated) supply of a car park between the development companies whilst there would be no sticking VAT charge, there would be a cash flow disadvantage and a penalty of £78,750. Negotiation with HMRC allowed this element of the development to be considered as 'garages' and therefore zero rated.
- On a £250K purchase a developer suffered a VAT charge of £43,750. Before this VAT was recovered they struck a deal to sell with a significant profit. Careful wording of the sale and purchase agreement allowed the client to dispense with the necessity of recovering and charging VAT on the property whilst agreeing a sale price that appeared to the purchaser to include (what was for them irrecoverable VAT) allowing the developer to make an increased profit.
- A developer acquired a property at auction for £250K + VAT (£43,750), despite the correct notification to the vendor VAT was charged where it ought not to have been and as this VAT was recoverable in full at the date of purchase there seemed to be little else that was required. Subsequently the developer changed his intention in respect of the property and sold it in an unaltered state without charging VAT on the sale. Two years later HMRC challenged the recovery of this VAT and raised an assessment. After a protracted argument HMRC withdrew the assessment and agreed to pay the majority of the client's costs in following this matter to its correct conclusion.
VAT Advice for Leisure industry
Assistance has been provided over a number of years, for a variety of clients seeking VAT refunds for clients of overpaid VAT. Significant sums have been recovered for relatively small businesses such as ski slopes, bowling alleys and ice rinks. More recently, VAT claims have been submitted for gaming machine operators and golf clubs – all as yet unsettled but taking advantage of new case law to provide clients with the opportunity to receive windfalls.
An employment bureaux client provided staff to a large financial institution and had been charging VAT on the full cost of that provision. Careful explanation of the correct liability of this allowed the client to recover in excess of £400K overcharged VAT back from HMRC, which it refunded in full (less its costs) to the grateful client.
Assistance has been given to a number of nursing and care home providers to assist them with recovering VAT overpaid to suppliers for staff, for works in converting properties to relevant residential purpose buildings and in minimising VAT costs on the construction of new purpose built care and nursing homes. With careful planning it has been possible to avoid any 'sticking' VAT charge on all costs associated with a new development.
Assistance has been provided to a number of private schools and new Academies on how to avoid VAT costs where possible on the liability of certain incomes and where it was possible to recover VAT on existing activities. One client was building new facilities and careful planning allowed the irrecoverable VAT cost of £175,000 to be avoided in full.
Assistance has been provided to clients who have been accused and found guilty of VAT evasion. In one instance the clients assessment was reduced from £120K to £37K with a reduction in penalty from 60% to 40% (of the tax evaded) – allowing the client a saving of £140K. In another instance a client was saved in excess of £220,000 of penalties by ensuring he took the correct actions, penalties the director was personally liable for.
A number of MTIC cases have been dealt with where HMRC allege knowledge of fraud or insufficient care to avoid dealing with people that a reasonable person might have suspected of fraud. The amounts at stake for clients have been huge, ranging from £600K to £3.25M. Currently we are seeing and assisting clients dealing with high value low volume that were previously not considered to be on HMRC’s radar.
Social landlords have a wide variety of activities and income sources, which means their VAT affairs are very complicated and VAT recovery suffers significant restrictions.
Significant experience across a sizeable number of social landlord clients has allowed VAT costs to be minimised in a variety of ways:
- Identifying where VAT is charged incorrectly by suppliers (on certain goods and buildings intended for a wholly charitable use)
- VAT recovery in instances where clients have been unaware of what VAT could be recovered
- Structuring and consideration of development plans, and consideration of the activities of the client in relation to the costs it incurs allowing better allocation of VAT costs and improved recovery percentages.
A newly acquired property was to be extended by a charity client at a cost of £750K + VAT (£131,250). All VAT was wholly irrecoverable and had to be funded directly by the charity by fundraising efforts. Careful consideration of the plans allowed adjustments to be made which barely altered how the building would function and allowed the VAT charge to be eradicated.
A charity client was acquiring a property where the owner had Opted to Tax its interest, meaning that VAT would be charged to the charity which was wholly irrecoverable (in excess of £150K – again funded wholly by public fundraising). Consideration of the use the building was to be put to and notification at the correct point allowed this VAT cost to be avoided.