Disapplication of the option to tax - relevant case law

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Disapplication of the option to tax - relevant case law
  • Newnham College v Revenue & Customs Commissioners
  • Winterthur Life v C&E Commissioners
  • Brambletye School Trust v C&E Commissioners
  • Trustees of the Lyndon David Hollinshead v C&E Commissioners

The following cases are intended to provide an overview of the relevant case law which tests the application of the anti-avoidance provisions by HMRC.

Newnham College v Revenue & Customs Commissioners

The college, which made predominately exempt supplies for VAT purposes, entered into an arrangement intended to reduce the amount of irrecoverable VAT incurred on the renovation of the library.

In order to mitigate the amount of irrecoverable VAT incurred, the college formed a wholly owned subsidiary and funded all of the subsidiary's set up costs. The directors were all members of the college.

The college opted to tax the main college building including the library. The college entered into an agreement with the subsidiary and a formal lease was granted when the building was completed. The college granted its subsidiary a lease of the new library for lease premium of £1,000 plus VAT for a term of 11 years. The annual rent was £165,000 plus VAT.

The college also agreed to sell the library books and other assets to its subsidiary. The college also provided the staff and operated the library on behalf of the subsidiary.

HMRC refused to allow the college to opt to tax the property under the anti-avoidance provisions and stated that the option to tax was disapplied under VATA 1994, Sch 10, para 12(1)-(5).

The college claimed that it did not occupy the library and that it was used by students and fellows atten

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