Appeal dismissed as no valid invoice or supply. Mr Latifi, the sole proprietor of a property rental business, entered into a lease agreement with Oxford City Council (OCC) in 2013, in relation to premises which were used for a bed and breakfast business. The rent charged was subject to VAT at the standard rate. At the time, Mr Latifi was not VAT registered. Later that year, Mr Latifi incorporated his business and Star Services Oxford Ltd (the Appellant) registered for VAT. The lease was not transferred into the name of the Appellant until 2018. In 2019, the Appellant sublet rooms to two other businesses charging VAT on the rent to one but not the other as that rent was paid directly to Mr Latifi. The Appellant accounted for and claimed input VAT on the rent paid to OCC. Following a compliance check, HMRC issued an information notice, pursuant to paragraph 1, Schedule 36, Finance Act 2008, to the Appellant and subsequently issued a decision to the Appellant for £26,250 for a three-year period between 2014 and 2017 for input tax overclaimed on rent for the premises on the basis that the lease, held by OCC, was with Mr Latifi and not the Appellant. The Appellant requested an internal review of HMRC's decision, which was upheld, and subsequently appealed to the First-tier Tribunal (FTT). In dismissing the Appellant's appeal, the FTT made the following observations:

  • OCC leased the rental premises to Mr Latifi who then sublet the property to the Appellant (free of charge) and the two third-party lessees. The lease to the Appellant was an exempt supply as there was no option to tax in place during the relevant years in dispute.
  • The Appellant had not met the requirements of section 24, Value Added Tax Act 1994 (VATA 1994) as it could not evidence that a supply had been made to it for consideration. As the legal relationship was between OCC and Mr Latifi, there could not have been any such supply between OCC and the Appellant.
  • VAT cannot be recovered on invoices in the name of third parties and the Appellant did not hold a valid VAT invoice. The OCC invoices were issued to Mr Latifi and not the Appellant.

Why it matters: This decision serves as a reminder that in order for a VAT claim to be accepted by HMRC, the requirements referred to in section 24, VATA 1994, must be satisfied. In particular, taxpayers must be able to evidence that a supply has been made to them for consideration and that they hold a valid VAT invoice. The decision can be viewed here.