Clark Hill, a property investment business, sold four properties and raised VAT invoices for each but subsequently considered that the supplies fell within the transfer of a going concern (TOGC) provisions and were therefore outside the scope of VAT.
HMRC disagreed with Clark Hill’s decision and issued an assessment for VAT and interest on the sale of the four properties totalling £920,128.90 for the quarter ending 31 January 2014.
Although the four transactions had slightly different fact patterns, the case mainly focused on the circumstances of two of the four property transactions, where the purchasers of the properties paid a deposit to be held as agent for the seller prior to notifying HMRC of their decision to tax the properties.
It was agreed between the parties that the relevant TOGC point in issue was whether the notification of the option to tax by the purchasers of the four properties was made by the 'relevant date' within the Value Added Tax (Special Provisions) Order 1995 (the ‘ VAT Order 1995’ ).
With regards to determining the 'relevant date' Clark Hill sought to argue that:
- the 'relevant date' for the purposes of article 5(3) of the VAT Order 1995 in cases where a deposit was paid to the seller’s agent (as agent for the seller) at the time of the contract should be the date of completion of the sale and purchase; or in the alternative
- where a deposit is paid to the seller’s agent (as agent for the seller), there were two potential ‘relevant dates', one at the time of the deposit and one at the time of completion and as such section 6(4) of the VATA 1994 does not apply to the balance of proceeds until this is paid at completion.
HMRC sought to rely on the principle established in Higher Education Statistics Agency v Commissioners of Customs and Excise (2000) (‘ HESA’ ) where it was held that in the case of transfers of properties, there could be two potential times of supply which were i) the date on which the deposit was received and ii) the date on which the transfer completed. The ‘relevant date’ in these scenarios was the earlier to the two dates (therefore, when the deposit was received).
The FTT agreed with HMRC's view and held that the decision in HESA was binding in relation to determining the ‘relevant date’ of the supply.
On this basis, the FTT held the following:
- In the case of the first two properties, the buyers notified HMRC of their options to tax prior to completion but after deposits had been paid by the buyers to be held as agent for the seller. The ‘relevant date' was the date of payment of the deposit.
- In the case of the third property, although the buyer’s option to tax the property was notified to HMRC before the ‘relevant date’, the contract was subsequently novated to a new buyer who failed to notify HMRC of their decision to tax the property before the ‘relevant date’.
- In the case of the fourth property, the buyer’s deposit was held as a stakeholder (rather than as agent for the seller) and the FTT held that the ‘relevant date’ was the date that the auctioneer released the deposit to Clark Hill, not the date on which the deposit was paid to the auctioneer. In this case, the option had been notified to HMRC before the release so that the transfer benefitted from TOGC relief.
Addressing Clark Hill’s second argument, the FTT held that Moses J in HESA did not decide on the issue of whether there were two potential ‘relevant dates’ in a case where a deposit was paid at a date prior to completion of the transaction. This was on the basis that the parties in HESA assumed there could only be one ‘relevant date’.
For the avoidance of doubt, the FTT held that there could only be one ‘relevant date’ of each grant stating that:
‘Section 6 [VATA 1994] does not therefore apply to treat a single grant as two separate grants. There remains only one ‘ grant’ of an interest in land in relation to the transfer of each of the four properties. The effect of section 6 is simply that the supply consisting of the grant is treated as taking place at two points in time for the purpose of charging VAT.’
Therefore there are two dates in which the grant is treated as having been made, (i) the date the deposit was received and (ii) the date on which the transfer was completed. However, the 'relevant date' is the earlier of those two dates.