Automated Summary
Key Facts
The case concerns a VAT dispute regarding the sale of property by Mr. Moulsdale to Cumbernauld SPV Ltd in September 2014. Mr. Moulsdale had previously exercised an option to tax the land, which would have required him to charge VAT on the sale. However, he did not charge VAT on the sale price of £1,149,374. HMRC assessed him for output VAT as if the price included VAT, resulting in a £191,562 assessment. The core legal issue was whether the sale qualified for exemption under Schedule 10 to the Value Added Tax Act 1994, which depends on whether Mr. Moulsdale intended or expected that Cumbernauld SPV would pay VAT on the acquisition costs of the building. The Supreme Court upheld the lower courts' decisions that Mr. Moulsdale did not qualify for the exemption, as he did not intend or expect that Cumbernauld SPV would incur VAT-bearing capital expenditure on the building beyond the acquisition cost.
Tax Type
VAT
Issues
- The court determined whether the acquisition cost of land should be considered as 'VAT bearing capital expenditure' for the purpose of determining if land would be a relevant capital item under Schedule 10, which would affect whether the option to tax land is disapplied.
- The court determined that the grantor's intention or expectation must relate to expenditure other than the acquisition cost itself, not the sale price, to avoid the circularity problem and ensure the anti-avoidance provisions work as intended.
- The court had to resolve the circularity problem in Schedule 10 where the grantor's intention about charging VAT on the sale affects whether VAT should be charged, creating a logical loop that needs to be broken.
Holdings
The Supreme Court refused the appeal, determining that HMRC's interpretation of the VAT legislation was correct. The court held that the grantor's intention or expectation regarding VAT bearing capital expenditure must relate to costs other than the acquisition price itself, avoiding a circularity problem. The court concluded that the statutory provisions should be narrowly construed to prevent exempt businesses from recovering input tax.
Remedies
The Supreme Court refused Moulsdale's appeal, confirming that he was required to charge VAT on the sale of his property to Cumbernauld SPV. This decision maintained the previous rulings of the First-tier Tribunal, Upper Tribunal, and Court of Session, which had all determined that the sale was taxable and that Moulsdale should have charged VAT.
Tax Issue Category
Gaar / Anti-Avoidance
Legal Principles
- The court applied a purposive approach to interpretation, construing Schedule 10 in its context to give effect to the purpose for which it was enacted, which was to prevent tax avoidance by exempt businesses.
- The court determined that Schedule 10's anti-avoidance provisions should be narrowly construed to prevent exempt businesses from recovering input VAT through the option to tax land, as the provisions were enacted to ensure such businesses cannot recover input tax.
Disputed Tax Amount
191562.00
Precedent Name
- Robert Gordon's College v Customs and Excise Comrs
- Principal and Fellows of Newnham College v Revenue & Customs Commissioners
- PGPH Ltd v Revenue and Customs Comrs
Cited Statute
- Value Added Tax Act 1994
- Council Directive 2006/112/EC
- VAT Regulations 1995
- Value Added Tax (Buildings and Land) Order 2008
Judge Name
- Lord Hamblen
- Lord Briggs
- Lord Sales
- Lord Reed
- Lady Rose
Passage Text
- The problem with this is that the circumstance on which the application of the provision depends – whether Mr Moulsdale intends or expects Cumbernauld SPV to pay VAT on the price of the building – is entirely within Mr Moulsdale's control as he is the person who decides whether to charge VAT on the sale or not. As I said at the outset, the conundrum is that if he charges VAT then he is a developer of the land and VAT is not in fact payable because the option to tax is disapplied but if he does not charge VAT then he is not a developer of the land and the option to tax still applies to the sale so that he should charge VAT.
- The main argument against HMRC's construction was that it appears to render some parts of the definition of a relevant 'capital item' in para 13 redundant. At its most stark, it is clear from para 13(4)(a) of Schedule 10 that it is intended that land can be a capital item in relation to the relevant transferee and that the circumstances in which it is to be a capital item are when it would be treated as a capital item by regulation 113 of the VAT Regulations. But regulation 113(3)(a) provides that, when the item is land, the only expenditure that one looks at to see if it bore VAT is the expenditure incurred on acquisition.
- The problem with that construction is that it allows the taxpayer who has taken advantage of exercising the option to tax its land so as to claim input tax credits or to spread payments of irrecoverable input tax then to switch off the option to tax and make a cheaper, VAT exempt sale to a non-taxable purchaser simply by intending or expecting to sell the land or building for more than £250,000. I therefore agree with the reasoning of the FTT (at para 44) that although the drafting of this legislation is unfortunate, the obvious purpose of the provisions would be defeated if they had the effect of rendering a normal commercial transaction such as this one exempt in circumstances where the owner of the land had, presumably for its own advantage, previously opted to waive the exemption and tax transactions relating to the land.