Tribunal: Accepted that ‘option to tax’ was made in error
The Tribunal has accepted that a taxpayer did not intend to make an ‘option to tax’ for VAT purposes even though their accountants had filed such a claim.
The taxpayer company was set up as a special purpose vehicle to acquire property. The company had three directors, one of whom, McA, wasa partner in the firm of accountants instructed to look after the company’s tax affairs.
In June 2006, McA, as director of the company, signed a notification form for option to tax land and buildings in relation to the property. The form, together with the company’s application to register for VAT, was sent to HMRC in July 2006.
The property was sold in November 2006 to a company which was not VAT registered. No VAT was charged. HMRC said that a valid option to tax was in place and therefore the company should have charged VAT on the disposal of the property.
The company claimed that the election has been made by mistake and the directors had not had any intention to make the election.
The Tribunal accepted that in respect of the property in question, an option to tax (ie: an election to waive VAT) made no commercial sense. After looking at the evidence, the Tribunal decided that the directors had not intended to make the election.
There had been a misunderstanding between the company directors and the employees of the accountancy firm, which was compounded by the administrative process within the firm: forms were presented for McA’s signature without him carrying out any serious checking.
Overall, the Tribunal found that no positive intent to make the election existed within the taxpayer company at the relevant time. The Tribunal therefore allowed the company’s appeal.