VAT Reclaim On Purchases Succeeds

VAT Reclaim On Purchases Succeeds At Tribunal Overview

This is a case in which a VAT reclaim on purchases succeeds in relation to assessments in the 09/19 year for £28,221.96.

The company appealing the HMRC position was the case of Heartlands House Limited v HMRC [2023] UKFTT 747 (TC). Heartlands House Limited (“Heartlands”) was involved in construction.

HMRC said it could not see that the payments for supplies were in respect of taxable supplies.

HMRC’s Case

The arguments raised by HMRC concerned timing of invoices, queried that Heartlands did several stages of work without being paid, no evidence of reasonable steps to pursue payment until after HMRC refused the input VAT claim and one of the key supplies had compliance failures suggesting that it was reasonable to anticipate due diligence to be done on it.

Reclaiming Input VAT

Under Section 26 of the Value Added Tax Act 1994, input VAT can be reclaimed for the period relating to taxable supplies.

HMRC did not appear to contest the integrity of the purchases but whether they were made in connection with the relevant taxable supplies to which they were claimed.

Tax Tribunal Findings

The Tax Tribunal found evidence of relevant payments, contracts and there was no connection to Heartlands in respect of the suppliers.

HMRC noted Heartlands was not referred to in any planning documents but the Tribunal suggested this was irrelevant to the matter of taxable suppliers. It appears that anyone can apply for planning permission. 

Two of the suppliers did make payments to Heartlands which the Tribunal found as relevant.

The Tax Tribunal said it was “puzzled” that HMRC had not accepted the incurring of costs and that entering into contracts was not consistent with the intention to make taxable supplies.

It said other compliance failures and what is referred to as “poor management” such as with respect to enforcement of payment were not evidence of a lack of intention to make taxable supplies. The same position was found in respect of any failure to do rigorous due diligence on suppliers. 

Tax Tribunal Result

Result: appeal succeeded.

The Tribunal found the Heartlands’ Director to be reliable.

It seems that HMRC’s case may have relied too heavily on circumstantial issues as opposed to the fact that there were invoices matching a contract, contracts had been entered into and payments had been made.