Constable VAT Focus 26 March 2020


In the week since our last VAT focus the position has changed rapidly. We have taken the decision to issue our bulletins more regularly to keep our readers abreast of any important VAT issues that may be missed at a time when we are focused on other, more important, matters.

Constable VAT continues to operate as normally as possible, with most of our staff and partners now working remotely. We are holding meetings with clients using Zoom and are still contactable on our usual numbers so please let us know if we can be of any help at this time. Some of you may be busier than usual because of the nature of your business, others may be restructuring or diversifying. If this gives rise to any VAT questions we would be happy to help and we will be issuing a special bulletin on such matters in the next few days, which will address some of points likely to arise.

To assist throughout this difficult period, the UK Government has made a wide range of reliefs available for businesses and individuals alike. With regard to VAT, the Chancellor has announced that VAT payments by businesses will be suspended until the end of June, as explained below. However, deferring payment of a bill does not ensure that a business will be able to cover its VAT liability when payment is due.

Therefore, businesses which are eligible may wish to consider the VAT Cash Accounting Scheme which allows certain businesses to account for VAT on the basis of cash paid and received, rather than on invoices. This can be particularly helpful if customers are often late paying, or you are concerned that your customers may soon fall behind on prompt payments. Our coverage of the scheme can be read here.

We hope that you are all managing to adapt to the new circumstances we find ourselves in and continue to keep safe and well.


The Chancellor has announced that VAT payments will be deferred between 20 March and 30 June 2020. Businesses taking up this option will be given until the end of the financial year to clear any VAT due, which is not paid in the suspension period.

However, VAT returns must still be filed. If your business has a Direct Debit in place, the submission of the return will trigger the VAT payment. You should ensure that you cancel your Direct Debit before you submit your VAT return if you wish to take advantage of the deferment option!

On a cautionary note, we have already seen indications that HMRC may have advised its staff to raise assessments immediately based on HMRC’s “best judgement” of the sums due rather than delay until a situation has been fully resolved and liabilities agreed. This means that clients with open enquiries/disputes may start to receive VAT assessments that are incorrect or wildly inaccurate.

If businesses have open enquiries but have not yet received an assessment it may be prudent to consider whether there are steps that could be taken to:

  • prevent an assessment being raised; or
  • ensure that any assessment HMRC issues is not wildly inaccurate to reduce the risk of costs on a future dispute.

If you have any concerns on this particular point please reach out to you usual Constable VAT contact.


HMRC Non-Statutory Clearance Service Update
Due to COVID-19, HMRC are currently unable to process applications for Non-Statutory Clearances which are made by post. Applications should be submitted to the following email address:

COVID-19 Guidance
The UK Government continues to update its Guidance for businesses and employees during the COVID-19 outbreak. It is important to stay abreast of the most recent updates.

Late Payment Interest Rates
HMRC has announced that, following the Bank of England’s decision to reduce interest rates further to 0.1%, HMRC late payment interest rates are to be revised.

HMRC Contact: Is It Genuine?
HMRC has updated its guidance on recognising phishing emails and texts. There seems to have been an increase in these types of emails and texts during the current crisis and extra care should be taken if you receive contact unexpectedly from HMRC and others.

The Value Added Tax (Drugs and Medicines) Order 2020 Tax Information Impact Note
HMRC has released an Information and Impact Note about amendments to the scope of the zero-rate for drugs dispensed on the prescription of an appropriate practitioner.

Making Tax Digital
HMRC has released an evaluation of the Making Tax Digital service for VAT and an update on the Income Tax service.


First Tier Tribunal

1. Input Tax: Direct & Immediate Link

This appeal concerns HMRC’s decision to disallow claims for input tax recovery relating to invoices for the provision of legal advice to the appellant, Mr Malde, in relation to a freezing order over his assets. The freezing order was originally for £8.8M but was subsequently expanded to over £22M. The freezing order was placed over Mr Malde’s assets following the issue of personal liability notices (PLNs) on the basis of Mr Malde’s alleged involvement with overseas tax evasion.

Mr Malde incurred significant legal costs in defending against the allegations that he was involved with overseas companies, which had been found guilty of tax evasion and sought to recover the VAT on these costs through his UK sole proprietorship, which held rental properties in the UK. HMRC denied this VAT recovery on the grounds that the input VAT did not relate to Mr Malde’s business and the services supplied by the solicitors were to him in his personal capacity.

The appellant argued that, as the freezing order covers all of his assets, he was unable to invest in and grow his UK sole proprietorship. Mounting an argument similar to that in Kretztechnik, Mr Malde argued that the cost of fighting the freezing order over all of his assets would have a benefit to his UK business and, therefore, the legal fees should form part of his sole proprietorship’s general overheads. HMRC argued that the legal fees were incurred to establish that Mr Malde was not the director of overseas companies and that he failed to demonstrate a sufficient link between the VAT incurred and the taxable outputs of his UK property rental business.

The Court considered that there was not a sufficient link between the input tax and the business activities of the sole proprietorship. The solicitors were engaged by Mr Malde in a personal capacity to prove that he was not involved in the management of overseas companies and this does not create a sufficient nexus between the input tax and a taxable output.

Constable Comment: This case is useful as it illustrates a fundamental principle of VAT being applied in complex circumstances. There are a number of previous decisions which discuss the principle that in order for VAT to be recoverable as input VAT, it must be directly linked with the taxable supplies of a business.

2. DIY Housebuilders Scheme: Time Limits

This case concerned Neil Proffitt who had constructed a property and sought to recover input VAT incurred on the project through the DIY Housebuilder’s VAT Refund Scheme. HMRC refused his claim for recovery. The issue at hand is the three-month time limit for submitting a claim for repayment of input VAT which applies to the DIY Housebuilder Scheme, an issue which is increasingly common in the First Tier Tribunal.

Mr Proffitt obtained planning permission in 1998 to erect a detached dwelling and double garage. Initially, Mr Proffitt did not have sufficient funds to carry out the complete build so he and his wife continued to work full time and worked on the property where possible. This continued and, in 2010, Mr Proffitt attended a VAT seminar where he received advice regarding making DIY claims. He understood from the advice that he had unlimited time to complete his home but that it was essential that a Completion Certificate should be provided to HMRC along with the claim itself.

Mr Proffitt and his wife were evicted from their main residence in 2010 and moved into the incomplete property. After speaking to the local council, they were informed that a Completion Certificate could not be issued until further specified works had been completed. Between 2010 and 2017, various works were carried out to the property until a Completion Certificate was issued on 9 February 2018, following the receipt of a Gas Safe Certificate. Mr Proffitt submitted the claim to HMRC on 27 March 2018; well within the three-month time period for submitting a claim. Following discussion with HMRC, the claim was formally rejected in September 2018 on the grounds that the claim was out of time as the building had been habitable for some time, 2016 at the latest, judging from the schedule of construction works. Mr Proffitt appealed against this decision as there is no reference in the VAT Regulations relating to the scheme to the building being habitable, but the Completion Certificate is highlighted as evidence required for a claim unless other evidence is available that the building is complete.

The Tribunal considered a wide selection of case law on the subject which highlights the frustrating nature of this point of law; there is case law to support both the taxpayer and HMRC’s arguments, but none of it is binding as it is all related to First Tier Tribunal decisions. Some previous decisions suggest that a building is “complete” for the purposes of the scheme when the Certificate of Completion is issued, others suggest that “completion” is a subjective concept and must be decided on a case by case basis. Which way the Tribunal rules on this point has become something of an unsatisfactory lottery for taxpayers.

In this instance, The Tribunal held in favour of Mr Proffitt, commenting that a building should be regarded as complete when it is complete in line with the building regulations and requirements. This is evidenced by the Certificate of Completion. Therefore, the three-month time limit for submitting a claim runs from the issue of the Certificate of Completion.

Constable Comment: As mentioned in our review of another along similar lines in our last VAT focus there is a frustrating lack of clarity around this point; HMRC’s guidance is misleading and there is case law to support both the taxpayer’s and HMRC’s position in this case but none of it is binding.

This must be viewed as an entirely unsatisfactory situation and, in our view, HMRC needs to grip this problem and also accept that the time limit should not be used to deny legitimate claims, bearing in mind HMRC will often refuse claims because the completion certificate has not been issued, creating a bizarre “Catch 22” situation.

This blog is intended as a general guide to current VAT issues and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this newsletter. Specialist VAT advice should always be sought in relation to your particular circumstance.