Constable VAT Land and Property Focus July 2022

This newsletter is intended for readers with an interest in the land and property sector and provides a summary of recent updates and significant judgements from the tribunals and courts which may be relevant to you or your business.


Change to HMRC Option to Tax process
Many of our readers will be aware that there have been significant delays in receiving a response from HMRC’s Option to Tax unit following the submission of an option to tax (OTT) notification. To try to address this issue HMRC is trialling a new system. This trial began at the end of May 2022 and was initially planned to last 6 weeks. We understand HMRC are consulting on the new system and it will continue to be operated during this time.  Previously when a taxpayer notified HMRC of an option to tax, HMRC acknowledged the notification confirming that the option was in place.

Under the new trial system HMRC will only acknowledge the receipt of the OTT. Our full article covering this change in HMRC procedure can be read here. We will update readers on any extension to the trial, or any further comment from HMRC on the subject, in future editions of VAT Focus.

If you or your business require assistance on any issues involving an Option to Tax, Constable VAT has a great deal of experience in this area and would be happy to assist with any queries.

Energy-saving materials and heating equipment (VAT Notice 708/6)
This guidance sets out how contractors or subcontractors should account for VAT when installing energy saving materials and grant funded heating equipment. It has recently been updated with information about legislative changes effective from 1 April 2022 to include guidance on when the zero, reduced and standard rates apply to the installation of energy saving materials in Great Britain and Northern Ireland.

Revenue and Customs Brief 8 (2022): Single DIY Claim
HMRC issued this Brief to clarify its position in relation to making a claim under the DIY Housebuilders scheme, following the First-tier Tribunal’s decision in the case of Andrew Ellis and Jane Bromley. This case specifically considered the implication of multiple DIY claims submitted for the same building.

Apply for permission to opt to tax land or buildings
In certain circumstances taxpayers need to apply to HMRC for permission to opt to tax land or buildings for VAT purposes using form VAT1614H. This form has recently been updated.


DIY Claims – only a single claim is possible
Constable VAT has released a blog following the issue of HMRC’s Revenue & Customs Brief 8 (2022) and the implication of multiple DIY claims submitted for the same building.

Land Promotion – What are the key VAT considerations?
Constable VAT has also released a blog regarding Land Promotions. This considers Land Promotion Agreements and key VAT considerations including whether it is beneficial to opt to tax; is permission to opt to tax required; understanding legal and beneficial ownership and more.


Since the end of the transitional period on 31 December 2020 European Court judgements are not binding on the UK in most cases. However, it is expected that UK courts will still take these judgements into consideration when reaching their own conclusions and there may be occasions where they have a more binding effect. We will therefore continue to include summaries of any European judgements that we consider to be relevant. If you are concerned about the impact of any matters raised in the following cases, please contact us.


1. Rate of VAT applicable to lift repair and maintenance services

DSR is a Portuguese company which produces lifts, hoists and conveyor belts and provides lift repair and maintenance services. In 2007, DSR applied a reduced rate of VAT to the lift refitting and repair services supplied by it, while invoicing the materials incorporated in connection with those supplies at the standard rate of VAT. Following a tax inspection in 2011, the Portuguese tax authority found that DSR had wrongly applied the reduced rate of VAT to those services.

In a judgement on 16 October 2017, the Portuguese Administrative and Tax Court held that lifts are an integral part of the buildings in which they are installed and therefore, the application of the reduced rate of VAT isn’t precluded in respect of the repair and maintenance services for such lifts, provided that those services are carried out under a works contract and that rate is only applied to the labour.

The tax authority brought an appeal against the judgement of 16 October 2017 before the Portuguese Supreme Administrative Court. In support of its appeal, the tax authority submitted that the reduced rate of VAT is to be applied to certain works contracts relating to immovable property for residential use, excluding materials which constitute a significant part of the service supplied. The Court referred questions to the CJEU regarding whether ‘renovation and repairing of private dwellings’ covers repair and renovation services for lifts in residential buildings.

The CJEU ruled that the reduced rate of VAT can apply to services relating to the ‘renovation and repairing of private dwellings, excluding materials which account for a significant part of the value of the services supplied’. These words must be interpreted uniformly and in accordance with their meaning in everyday language. The words ‘repairing’ and ‘renovation’ refer to the restoration of a damaged object and the refurbishment of an object. Such services are characterised by their occasional nature so that routine maintenance services supplied on a regular and continuous basis cannot fall within the reduced rate provisions. Accordingly, it must be concluded that the provision covers repair and renovation services for lifts in residential buildings, excluding routine maintenance services for such lifts. The Court acknowledged that Member States can exclude ‘concrete and specific’ elements of a supply from the reduced rate but that Portugal had not taken action to do this by changing its VAT law.

Constable Comment: This case highlights the complexity of the VAT law regarding land and buildings and installed goods. Certain services within the construction industry can be either zero rated or reduced rated, however these are always subject to strict conditions. If a business applies the wrong VAT treatment it could potentially incur VAT assessments and penalties. Therefore, where there is a significant amount of VAT involved in a land and building related service, we would always recommend seeking professional advice. Constable VAT has relevant experience and have VAT land and property specialists who would be happy to assist.


2. VAT treatment of conservatory roof solution

Conservatory Roofing (CR) appealed a decision of the First-tier Tribunal (FTT) which rejected CR’s case that its supplies were insulation for roofs and therefore subject to the reduced rate of 5% VAT. The FTT found that they were supplies of a “composite insulated roofing system” and were standard rated and subject to VAT at 20%.

CR submitted that in 80% of supplies a new, external light-weight roof tile system is secured to the outside of the existing roof, whilst on the inside insulating material is provided and plasterboard applied to a bespoke frame ready for the application of decorative finishes and insertion of lights. In the remaining 20% of supplies where the roof panels are too heavy to safely leave in situ, the roof panels are removed. Otherwise, no alteration is made to the existing conservatory roof structure.

CR contended that the FTT decision displayed a lack of reasons and failed to correctly apply a test derived from CJEU case law dealing with how a single VAT supply with multiple elements is to be treated for VAT purposes, the test being that the predominant element of a supply had to be ascertained from the view of the typical consumer and that this was done having regard to objective factors.

The UT held that in reaching this decision the FTT adopted all of HMRC’s submissions and failed to explain why it had disregarded some of CR’s evidence, namely marketing material for the supplies and a witness statement. These were matters which were relevant to the case and which were disputed. The FTT needed to explain why it rejected CR’s arguments and evidence on issues that were relevant. The UT noted the disparity between the texts the FTT devoted to summarising CR’s submissions compared to HMRC’s submissions.

The UT considered that the reasons given in the FTT decision were inadequate and there was an error of law in the decision and allowed the appeal. The UT considered whether it should remit the decision to the FTT or re-decide the matter. With reluctance, as the FTT decision lacked a clear findings of facts and the UT did not hear the live evidence, the UT remitted the appeal to be fully re-determined by the FTT.

Constable comment: The Upper Tribunal has remitted this case back to the FTT and it remains to be seen how this case will be concluded. As part of this decision the UT also commented on how the FTT had determined the predominant element of a composite supply. It decided that the FTT had been entitled to take into account that most of the materials used by CR were not energy-saving materials. We will keep readers up to date on the development of this case.


3. Sale of property: Supply of an asset or transfer of a going concern?

This case concerns Haymarket Group Properties Limited (HGPL), the appeal being against a notice of assessment for VAT raised by HMRC in the sum of £17,000,000. The assessment was in the consequence of the ruling by HMRC which concluded that the sale of land and property at Teddington Studios, Middlesex (The Property) was a supply of an asset and not a transfer of a business as a transfer of a going concern (TOGC).

The property in dispute, the “Teddington property”, was to be sold by HGPL with a planning permission for the demolition of the existing building and construction of over 200 new flats and houses. The issue for determination was whether the sale of the property with planning permission was a TOGC as it was the transfer of a property letting business (steps had been taken to create an in situ tenant across the transfer) or whether as an alternative this was the sale of a development business. There was no dispute in case the transaction was not a TOGC the VAT payable of £17 million was fully recoverable by Pinenorth (the purchaser). The “sticking” tax at stake was £680,000 of SDLT as a result of including or excluding VAT from the calculations along with negative cashflow outcomes in paying and then recovering the large sum of VAT that would apply to the sale.

HGPL contended it was carrying on a business before the sale of the property consisting of two elements, property development and property lettings. HGPL argued it took the property and improved its value for future sales including by obtaining planning permission, the property was then transferred as a going concern, with the benefit of that planning and other preliminary development arrangements, to Pinenorth who continued to operate it as a property development business. Also, the property generated letting income and steps were taken to put in place tenants (albeit connected to the buyer) across the transfer.

The property rental business had been the initial focus of discussions with HMRC with later thoughts around a property development business transfer. Regarding the TOGC of a property rental business, HMRC argued that the leases were only entered into after the exchange of contracts for the purpose of achieving TOGC. Essentially, this was not the transfer of the existing business of HPGL. HMRC also considered the property development argument and responded that the contract for sale was for a sale of property not a business. HMRC took the view that the alleged property development business was an ‘afterthought’ merely to facilitate the TOGC conditions.

The Tribunal initially considered the property development business aspect of the appeal and concluded that it was not HGPL’s intention to carry on a property development business for various reasons including that HGPL has never been in the business of property development, the property was held as an investment as part of its portfolios of freehold estates, HGPL never intended to develop the property prior to the sale or had the capital available to do so.

The Tribunal then considered whether there was a property letting business and concluded there was not. The reason why there could not have been a property letting business was because to complete the sale, the property must have been transferred to Pinenorth with vacant possession at the point of exchange of contracts. The leases entered into as part of the sale (commencing between exchange of contracts and completion) was purely to play its assigned role to structure the transaction as a TOGC, which was evidenced by discussion between HGPL and advisors, HGPL was not entirely content with this approach (advisors cautioned it might be questioned) and required assurance through specific terms incorporated into the Sale Agreement to protect HGPL’s position in the event that the TOGC structure was challenged.

As a result of the above, it was clear to the Tribunal there was neither a property development nor a property letting business transferred, therefore the appeal was dismissed. VAT, in the sum of £17,000,000 was due on the sale, as it was not a TOGC.

Constable Comment: VAT of £17 million was due as a result of the sale of property not falling within the TOGC provisions. Although the VAT charges were subsequently recoverable by the purchaser there is a significant SDLT implication with this being due on the VAT inclusive sale value. This case highlights the risks of structuring transactions for a VAT advantage with superficial arrangements to create the desired outcome. If VAT is incorrectly charged and / or recovered, there is potential for assessments and penalties, therefore we would always recommend seeking professional advice regarding the transfer of a going concern particularly as this so often involves material values.

4. Demolition of an existing building

This case concerns Northchurch Homes Ltd (the appellant) and the demolition of an existing building. The appellant was a building company that received supplies from a sub-contractor called Sword.  Sword charged VAT on its invoice to the appellant. The appellant argued that the supply was zero rated as a construction of a new dwelling with the subsidiary argument that if it failed on that point the reduced rate of 5% applied.

The construction of a new dwelling can be zero rated for VAT purposes.  There are strict rules to consider when deciding whether a replacement dwelling can be considered “new”.  In this case there was already an existing building, but after lengthy planning procedures, planning permission was granted to demolish the existing building and construct a new dwelling. However, based on Note (18) of Group 5, Schedule 8, a building only ceases to be an existing building if it is demolished to ground level, which was not the case here, or ‘the part remaining above ground level consist of no more than a single façade or where a corner site, a double façade, the retention of which is a condition or requirement of statutory planning consent or similar permission’. In this case, as part of the planning permission, the front elevation and part flank return walls together with a section of the front roof were protected and retained.

Initially, HMRC challenged zero rating on the grounds that the condition as to lawful development was not met. The Tribunal rejected this argument and confirmed it was satisfied that the works were carried out in accordance with the planning permission and did not present any breach of planning control.

However, the Tribunal took the view that what was retained, in accordance with the planning permission, was more than a single façade, hence the development was ineligible for zero-rating because the existing building did not cease to be a building. It arrived at this conclusion on the grounds that the façade does not include a roof slope. These are different structures, with different names, made of different materials and have different aspects. The Tribunal rejected the appellants argument that the roof was part of the façade simply because it can be seen by passers-by or approaching visitors. This was sufficient to dismiss the appeal with regards to zero rating.

The Tribunal went on to conclude that the supply was in the course of the renovation or alteration of a qualifying residential premises of qualifying services related to the renovation or alteration where the premises met the empty home condition, as it has been empty for a 2 year period ending with the commencement of the relevant works. As a result, the construction works carried on by Sword should have been subject to the reduced rate of VAT at 5%, instead of the standard rate.

Constable Comment: This case highlights the importance of meeting the conditions set out in the legislation regarding construction works in order to treat them as zero rated. Often a property owner’s hands will be tied by planning restrictions that cannot be removed.  However, understanding the VAT impact in advance may allow a dialogue with planners that will allow the development to proceed in a way that delivers VAT savings. 

5. VAT Exemption: Installation of flexi vault burial chambers

This case involved Hodge and Deery Limited (“Hodge”) and whether a supply of services in connection with the installation of flexible pre-formed burial vaults at a burial site was VAT exempt.  The vaulting system is installed in graveyards with unstable soil structures which can result in toxins from the decomposition of bodies escaping into the ground water, and in subsidence of an existing grave when another grave is dug in the adjacent plot.

UK VAT legislation exempts, “the making arrangements for or in connection with the disposal of the remains of the dead”.

Hodge contended that the installation of the flexible burial vaults should be treated as the advance digging of multiple graves, and it should not be regarded differently from the preparation of graves on demand. The sole purpose of the preparation of a grave is to dispose of the remains of the dead, therefore the supply should be VAT exempt.

HMRC rejected the argument that the supplies fell within the VAT exemption because in its view the making of arrangements for, or in connection with, the disposal of the remains of the dead, should only relate to supplies that are directly involved with the disposal of the remains of a dead person and application of exemption is limited to supplies directly made by the funeral director with care and custody of the deceased and does not extend to subcontractors.

The Tribunal held supplies by Hodge resulted in the provision of many graves for the disposal of the remains of the dead. The aim of the services satisfies the object of the exemption. The Tribunal concluded that it does not matter that the services are provided in advance, and nor does it matter that the services are not provided in connection with a specific funeral.

Constable Comment: Another interesting aspect of this case was that a new technology of pre-formed flexible vaults was used rather than brick retaining walls as mentioned in the legislation and guidance, which HMRC challenged. The Tribunal stated that the legislation must, in their opinion, be construed in a manner to enable new technology to be adopted to achieve the result expected by the legislation. As technology evolves in the construction sector this is an important point to bear in mind when applying the correct VAT treatment.

Please note that this newsletter is intended to provide a general overview of the subject. 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 blog post. Specialist VAT advice should always be sought in relation to your particular circumstance.