Sellers of Commercial Property Lose 20% to HMRC

If you are selling commercial property and have “opted to tax” for VAT purposes then you have to charge vat on the sale price unless you are selling the property to a VAT registered buyer as part of a sale of a business as a going concern

As a seller, it’s important you find out if you have opted to tax before you start to market your property (a quick check with your accountant should suffice).

In the recent case of CLP Holding Co Ltd v Singh & Kaur, the seller did not find out in time, and the Court held later that the seller could not add VAT onto the price even though there was a general condition in the standard contract terms that allowed for VAT to be added on if it was properly chargeable

What seems to have happened in this case is that the deal was done very quickly, with exchange and completion happening at the same time. The sale price was £130,000 and there was no mention of any possibility of VAT being charged in the negotiations. However, the standard small print of the contract said that if VAT was chargeable then VAT would have to be paid on top of the purchase price

Following completion the sellers found out that they would have to pay VAT, and delivered a VAT invoice to the Buyers for £26,000, which the buyers refused to pay. The sellers relied on the wording of the standard conditions of the contract, but the Court agreed with the Buyers that the wording of the standard condition was not sufficient to override the clear statement that the purchase price was £130,000, when there had been no specific reference to VAT being actually or possibly chargeable either during negotiations or in the contract itself.

The Court held that the specific contract terms (which included a statement that the price was £130,000) overrode the general conditions

The end result of this was that the seller’s had to pay 20% VAT out of the money they received, which meant that HMRC got £21,666.66 and they were left with £108,333.34, instead of the £130,000 they were expecting.

If the buyers had been VAT registered they may have been more accommodating, and the case may not have come to court, but this is a Court of Appeal ruling and warns us all to take care. If you want to do a quick deal and haven’t got time to check the VAT position then make sure something specific goes into the contract to cover the risk.

For more information on commercial property transactions contact partner and head of the commercial department, Gillian Jones.


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