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Indirect Tax Update for week ending 7 November 2014
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Indirect Tax Update for week ending 7 November 2014
When a new house is constructed, the purchaser does not, generally, pay any VAT on the purchase price. For DIY house-builders, there is a scheme which purports to put them on the same footing. VAT incurred on a self-build project can be reclaimed provided that the claimant complies with the scheme rules. In a recent case, the claimant's claim for a refund was rejected but the Upper Tribunal has refused HMRC's application for costs.
In HMRC v Asim Patel, the Upper Tribunal allowed HMRC's appeal against the First-tier Tribunal's decision to allow Mr Patel's DIY House-builder's VAT claim. HMRC had refused to pay the claim on the basis that the work actually undertaken by the taxpayer was not the work detailed in the planning permission. However, the First-tier Tribunal allowed the taxpayer to obtain retrospective planning permission and allowed his appeal. HMRC then appealed to the Upper Tribunal and, effectively, changed its grounds of objection stating that, although the planning permission was granted retrospectively, the First-tier Tribunal's decision was wrong on the basis that the statutory time limit for providing the planning permission had expired.
Based on this new line of objection, the Upper Tribunal had no choice but to allow HMRC's appeal. The First-tier Tribunal was wrong to allow the appeal as the taxpayer had not (and could not) furnish valid planning permission within the statutory time limit. However, HMRC did not advance any such objection at the First-tier Tribunal. In essence, the First-tier Tribunal's postponement of the case to allow Mr Patel to obtain retrospective planning permission was wholly unnecessary given HMRC's new objection based on time limits.
Not content with winning the substantive case, HMRC then applied to the Court for Mr Patel to pay its costs of taking the appeal. Rightly, the Upper Tribunal has refused that claim. As a consequence of HMRC's variation of its grounds for objection and its failure to inform the First-tier Tribunal of it meant that the Upper Tribunal was not inclined to make a costs order against Mr Patel. The Upper Tribunal concluded in this case that, in light of HMRC's later 'time limit' grounds, the First-tier's postponement of the earlier hearing - to allow the taxpayer to obtain retrospective planning permission – was without purpose since the time limit had already been breached. As such, whilst both parties should be treated equally in relation to the awarding of costs, this was one of those cases where an order for costs to be paid for by the taxpayer was not appropriate.
Comment – this case serves to highlight the complexities of the costs regime in relation to litigation – complexities which should not be overlooked by any party contemplating taking a case to the First-tier or Upper Tribunals. The Court's decision not to award costs in this case appears to be something of a rebuke to HMRC which, it seems, had every opportunity to make its legal position clear when the First-tier Tribunal postponed the original hearing.
For further information in relation to any of the issues highlighted in this Indirect Tax Update please contact: Karen Robb [email protected] Stuart Brodie [email protected]
Andrea Sofield [email protected]
Richard Gilroy [email protected]
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Indirect Tax Update 41/2014
