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Construction, Land and Property

That sinking feeling


The issue of what constitutes the letting of immoveable property is one HMRC are seemingly constantly trying to challenge, especially, no doubt coincidentally, if there’s a significant VAT assessment to be had.

A hairdressing business had the lease to the ground and first floors of a property. Two rooms at the back of the first floor were let to beauticians; with no option to tax on the property they did not charge VAT.

HMRC issued an assessment for underpaid VAT, on the basis that the supply was one of facilities not the letting of immoveable property. The beauticians had to supply their own materials, (furniture, lotions, creams, towels, etc.) and were responsible for keeping the rooms clean and tidy. The rent was set as a percentage of the turnover.

HMRC took the position that the rent being a percentage of turnover “does not meet the condition that payment must be given for a defined area”. Thankfully, not only did the Tribunal dismiss this they debunked HMRC’s argument by extending HMRC’s logic - this would mean any rent free periods would preclude the existence of a lease.

HMRC’s other argument was that the supply of the facilities were an aim in themselves and not ancillary. The only facility within the room (apart from lighting and heating) was a sink. HMRC even said that the sink showed the rooms were prepared specifically for beauticians. In making comparisons to an earlier case HMRC seemed to ignore that the facts of the earlier case were significantly different. There the landlord provided furniture, linen and towels and a cleaning service to the occupants. Appointments and payments had to be made through the staff of the landlord. That was not the case here, and that whilst the landlord’s receptionists could take bookings and payments, the beauticians could also (and often did) do this themselves.

HMRC lost the case but there seems to be theme developing of HMRC trying to narrow the definition of the exemption of letting immoveable property beyond what the law intended. If HMRC are trying to assert that an exempt supply is actually taxable due to the availability of facilities, etc. please talk to us.

This article is from the latest issue of our Construction, Land and Property Bulletin - Spring 2022. To receive future copies of any of our newsletters directly to your inbox please visit our preference centre and register your interest.

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