Realreed VAT case leave residential landlord with a £4.5m VAT cost

The Realreed Limited case from the First Tier VAT Tribunal has reported and, sadly for the tax payer, has not provided the Christmas cheer they would have hoped for.

The case deals with the VAT liability that had been applied to income from the letting of residential flats in a large block situated in London. The company had been treating the income as VAT Exempt - you may remember our earlier commentary of the judicial review they had requested on the basis that they felt HMRC were fully aware of that VAT treatment and had not raised a concern at that time. That request was refused so the VAT liability case entered the Tribunal for review.

The short version is the taxpayer failed in their arguments that their supplies of residential accommodation were not supplies that would be “similar” to supplies of sleeping accommodation in a hotel, inn or similar type establishments. HMRC argued they were similar and therefore VAT at the standard rate should have been accounted for on the income.

It's an interesting case on how all the elements of a supply, from the actual nature of what is being offered, to the paperwork and the language used on documents, all come together to inform the view of the liability. Substance over form as they say.

There is a growth in the area of serviced residential lettings across the UK and the VAT issues are not just about whether the supply is subject to VAT or Exempt. There is also the issue of how the calculation of the VAT due can be undertaken. The Sonder Europe VAT case is currently under appeal by HMRC but that looks at whether Sonder were correct in using the VAT margin scheme - TOMS - to account for the VAT due, as opposed to VAT on the full value. The Tax payer was more successful than Realreed in that regard, but as noted it has gone to appeal.

Call your usual VAT contact here in the Indirect Tax team if this causes any questions for you or your clients - we'll be happy to help. As usual contact us at IndirectTax@xeinadin.com 

This note is for information only and specific VAT advice should always be sought.