Provision of Temporary Buildings – Risk for Builders & modular building suppliers but Opportunity for VAT sensitive customers: Exempt Businesses and Not for Profit Bodies

VAT can often be a double-edged sword and this recent ruling from the Upper Tribunal is no different. The matter relates to the VAT treatment that a Modular Units supplier Sibcas Ltd (Sibcas) had applied to its supply of prefabricated units to a school. Sibcas had treated the supply of the units as subject to VAT being a supply of facilities that fell short of being  “the leasing or letting of immovable property”.

Treating it as a taxable supply meant that the company recovered its VAT costs in relation to the supply. HMRC disagreed with this view but when the case appeared at the First Tier Tribunal Sibcas were successful in arguing for the taxable treatment of their supply.

However, the issue did not end there as HMRC appealed to the Upper Tribunal and their decision has now been released.

VAT Sensitive sectors such Charities, Education providers, Housing Associations, Financial or Healthcare are unable to recover a larger proportion of the VAT they incur. Whilst Sibcas was protecting its right to recover its input tax, any VAT Exempt business receiving such charges would be out of pocket from their inability to recover the VAT charged by Sibcas. Clearly those VAT sensitive businesses will all have an interest in this case.

An Upper Tier Tribunal (UT) does create a legal precedent so the findings of this UT will need attention across the relevant sectors.

The finding of the UT was that Sibcas was making a VAT Exempt supply of the “letting of immovable property” and in the absence of any option to tax their supply would be Exempt from VAT.

• Impact for the supplier taxpayer – they will need to establish what VAT on costs will be at risk because of now having to apply a VAT Exempt treatment to this income stream
• Impact for a VAT sensitive customer of such services – they have been charged VAT which should not have been applied and can seek a VAT credit note from their affected suppliers.

Care is needed before quick decisions are made by readers of this article. Cases are determined on the facts and the nature of the foundations required for the positioning of these modular units, their connections to services and other factors including the nature of the fixing of external staircases, were all aspects the UT considered when deciding that the supply was one of immovable property.

Providers of such modular, prefabricated units - where they are responsible for securely fixing them in place - need to establish their exposure to over claimed input tax over the last four years. Partial Exemption methods and how they operate will need consideration and future contractual arrangements for such supplies should be reviewed.

The opportunity for VAT sensitive customers is equally as clear - to recover VAT over paid to their suppliers for the affected supplies.

This case may be appealed by Sibcas so it’ll be important to keep an eye on the matter but equally all sides affected by this need to establish the relevance and impact for their organisations and there are a range of issues to consider.

Your Centurion VAT team are available to discuss these impact areas so do not hesitate to contact for usual VAT contact here or give us a call on 01633 415390 or email on emailus@centurionvat.com

© Centurion VAT Specialist Ltd August 2017