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A taxpayer had built several outbuildings including a play area, large hot-tub area and a swimming pool at his home. He then purchased two residential properties backing on to his house. On the land he now had he had built an “entertainment complex”.

The local council started proceedings because it had been built without the relevant permission. This generated media interest and the taxpayer was quoted as saying the whole purpose of the site was for his family to enjoy days out without leaving his home. He said he had his grandchildren over every weekend and this was to be for them and their children in years to come. This was also the reasoning given to the council.

When the construction on the complex began the taxpayer also voluntarily registered for VAT, as a sole prop, with the main activity being “luxury holidays”. There was one invoice to his adult children for £10,000 plus £2,000 VAT as an advance for five years use of the facilities. There was also an invoice to the taxpayer’s business (then a partnership) to use part of the facility for storage, with VAT of £79.

Further advance charges for storage were made, but the relevant payment VAT returns went unpaid.

When interviewed (under caution) by HMRC, the taxpayer said that the complex was built as a business asset for the purposes of making taxable supplies. This was compared and contrasted to the evidence and interviews regarding the planning, where he said the facilities were only for private use.

Therefore, HMRC disallowed the VAT reclaimed on the building of the facility as it was for private use. There was no business plan or budgeting for the proposed business. Equally, the storage activity was not seen to be a business. The Tribunal noted that during the hearing it had seen 352 photos (yes, 352) of the estate and not one showed storage use. Also, the business of the taxpayer had changed from a partnership to a sole prop during the period. As a sole prop he couldn’t trade with himself.

The Tribunal found for HMRC. They said that the taxpayer was not a reliable witness (indeed at the start of the hearing he said an individual who was working for him had died, but by the end was alive again). The profession of the taxpayer? Chartered Accountant.

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