The First-tier Tribunal has upheld an appeal against an HMRC decision that a construction company was not entitled to reclaim £28,221.96 of input VAT as it had not provided sufficient evidence that it had made or had the intention to make taxable supplies (Heartlands House Ltd v HMRC  UKFTT 747 (TC)).
HMRC did not dispute that the purchases had been made, and the VAT incurred, nor contend that the appellant did not have the necessary evidence to support deductions. The question was whether the purchases had been made in connection with actual or intended taxable supplies. The FTT found that the appellant provided clear evidence of payments to a number of suppliers in connection with construction, and also provided contracts under which it was engaged for three construction projects, one of which did not proceed. The other project was for its own offices, to be used in making taxable supplies. The suppliers had no connection to the appellants, nor was there any submission that the engager clients in the construction projects were connected to the appellant. Although a substantial proportion of the VAT reclaimed related to purchases from Caihma, an unconnected company that was ultimately struck off without ever filing corporation tax or VAT returns, over 30% was not so related. In making its decision, the FTT responded to HMRC’s points as follows:
- It was not surprising that amounts invoiced by the appellant to its customers did not correspond to invoices received from sub-contractors as these would have been agreed stage payments, which would not necessarily match the actual costs incurred to date.
- Likewise, it was not surprising that the appellant (which was not the architect or even the main contractor) would not have been referred to in planning documents that were submitted some time before they were engaged.
- Delays in the appellant pursuing outstanding invoices from customers was not evidence that no taxable supplies had been made, payments were subsequently received from these customers and it was not credible that they would have made any payments if no supplies at all had been made to them by the appellant.
- Considering that the appellant had made purchases and incurred VAT, had entered into construction projects and was not involved in the compliance failures of Caihma, the FTT could not understand why HMRC considered that the appellant did not intend to make taxable supplies.
- Whilst the appellant had demonstrated poor management in respect of a number of matters that did not mean that there was any lack of intention to make taxable supplies.
- Likewise, failure to perform due diligence in respect of Caihma was further evidence of poor management but it did not mean that the appellant’s evidence should be discounted, the FTT found Mr Rehman, the company’s director, a reliable witness.