Customs & Excise could face claims for millions of pounds, followingdlords. a VAT tribunal ruling which decided inducements paid by landlords to new tenants can be VAT-exempt.
At a tribunal hearing last month, Mirror Group appealed against Customs’ decision to reject its claim for a #2.1m repayment of VAT paid on a #12m inducement from Olympia & York Canary Wharf.
The tribunal upheld the publisher’s claim that VAT was not chargeable on that part of the #12m which related to the Mirror’s agreement to enter into the lease.
Historically, Customs has taken the view that tenants receiving an inducement agree to do something in return, and that ‘something’ is a supply of services subject to VAT at the standard rate.
But the tribunal ruled the tenant’s supply is VAT-exempt if the service to the landlord is simply to take the lease and move into the building in exchange for the inducement.
Customs, which is planning a High Court appeal, claimed Mirror had to undertake separate services in return for its inducement, making the #12m taxable. But the tribunal found #6.5m of the total was paid simply for the Mirror’s agreement to accept the lease.
The remaining #5.5m was paid into a separate account as security against Mirror taking out its option to let four extra floors. The tribunal agreed with the commissioners this money was not a quid pro quo for Mirror taking up the lease, and was not therefore VAT-exempt.
Greg Sinfield, the Lovell White Durrant solicitor who represented Mirror in the case, said: ‘The kernel of the case is that a tenant accepting a lease for an inducement is making a supply within the exemption in article 13B(b) of the sixth VAT directive. All tenants who have charged VAT on such inducements have accounted for too much VAT and they may be able to make a claim.
‘Also landlords who were charged VAT on reverse premiums which they could not recover, should contact the tenants and ask for a refund.’
Claims can be made for any transaction that has taken place in the last three years.
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