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HMRC internal manual

VAT Input Tax

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Legal history: cases about regulation 111

Please note that the following material is not a full summary of the case - it merely highlights the principle referred to in the appropriate section of this manual.

Byrd (GN) t/a GN Byrd & Co VTD 12675

The business began as an insurance brokerage in 1985. In 1986 it started to also provide photocopying and faxing services. In 1992 the business voluntarily registered for VAT and tried to claim input tax on purchases made between 1987 and 1991.

The tribunal said HMRC was correct to reject the claim. The decision reinforced HMRC’s right to use our discretion when applying regulation 111.

The tribunal also commented that the business had been a taxable person within the meaning of the Sixth Directive before it registered for VAT and became a taxable person within the meaning of the VAT Act 1994. Its right to claim VAT had arisen when it had used the supplies for the purpose of taxable business transactions. However, at that time the business had chosen not to register for VAT. As a result it could not claim the VAT charged.

Douros (T) (t/a Olympic Financial Services) VTD 12454

The business provided financial services as well as making some taxable supplies. When it registered for VAT in 1993 the business tried to claim input tax on purchases of office equipment made between 1988 and 1992.

The tribunal held that the office equipment had been used almost exclusively to make exempt supplies. It also held that, because no claim had been made at the time of purchase, HMRC had discretion over whether to allow a claim under regulation 111.

Haugh (D) VTD 15055

The business deregistered when its turnover went down. It accounted for VAT on machinery and equipment on hand at the time it deregistered. It then registered once more in 1994 when its turnover went up again. The business tried to claim the VAT it had accounted for when it had previously deregistered because it still had the machinery and equipment.

The tribunal disallowed the claim because there was no provision within the law to allow it. The amount claimed did not relate to a supply by another person. Nor was the supply made by a taxable person.

Lai (K&M (trading as The Rice Bowl) VTD 20531

A restaurant was refurbished but did not register in time to recover all of the VAT incurred on services received prior to registration. The tribunal directed HMRC to look at a breakdown of invoices from the building contractor.

HMRC was directed to allow recovery for certain large value, discrete goods that were bought in by the main contractor and charged on, for example stand alone stainless steel preparation tables. The tribunal envisaged some discretion to allow recovery in respect of discrete goods that have been acquired not as a supply of goods but incorporated within a single supply of services.

Such an approach does not affect HMRC policy on single supplies of services but simply reflects the economic reality of the acquisition of certain stand alone goods. HMRC does not allow this approach in respect of goods that are essential to general supplies of services, for example purchases of building materials that are consumed within the fabric of the building.