HMRC challenged the arrangements Lower Mill Estates had put in place which involved two separate but connected companies making supplies in relation to holiday homes – one supplied standard rated land with planning permission and the other supplied zero rated construction services. If a single supplier had supplied the completed holiday home the entire amount payable by the purchaser would have been subject to VAT at the standard rate. The Upper Tribunal essentially found that there was sound commercial rationale for structuring the contracts in this way. HMRC regularly raise abuse challenges of this nature following their success in the Halifax case.
We are aware of numerous situations in which this is happening but with limited success if the case goes to litigation. More worryingly there appears to be a significant increase in abuse challenges in relation to ‘mixed supplies’, eg where a package of standard rated and zero rated items is sold for a single price. The exhibition industry has been targeted for providing entrance to an event with a zero rated publication.
Whilst the commercial rationale for every business will differ, the Lower Mill Estates decision does seem to reinforce the findings of much older VAT decisions such as Telewest in supporting the view that you cannot force a single supply for VAT purposes from two separate suppliers, provided they are operating on an armslength, commercial basis and have sound business rationale for doing so.
Businesses that supply packages consisting of standard and zero rated/exempt items would be well advised to review the VAT treatment applied to ensure there is no risk of challenge and equally to ensure the business is not unnecessarily over accounting for VAT.
If you would like to know about these issues then get in touch with Julie Park – email@example.com or call her on 01962 735350.