The Supreme Court heard the taxpayer’s appeal in respect of the Scottish case Moulsdale t/a Moulsdale Properties v HMRC  CSIH 29 on 17 January 2023.
Recordings of the hearing may be watched here (Case ID: 2021/0216).
Whether the taxpayer’s sale of certain property was a supply exempt from value added tax (“VAT”)? More specifically, whether the taxpayer intended or expected that the property sold was or would be a capital item in the hands of the purchaser under Schedule 10 of the VAT Act 1994, resulting in the taxpayer’s option to tax being disapplied?
Sales of land and buildings are generally exempt from VAT. However, an owner of land and buildings can opt to tax their property so that it then includes VAT. Schedule 10 of the VAT Act 1994 provides for compulsory disapplication of an option to tax in certain circumstances. If the relevant provisions apply, a sale of property where an option to tax has been exercised goes back to being a sale that is VAT exempt.
In 2001, David Moulsdale, trading as Moulsdale Properties (“Moulsdale”) purchased office property. Moulsdale exercised an option to tax over the property. In 2014, Moulsdale sold the property. When Moulsdale sold the property, VAT was not charged. Moulsdale argues he did not charge VAT because Schedule 10 of the VAT Act 1994 meant his option to tax was disapplied and so the sale of the building was VAT exempt. His Majesty’s Revenue and Customs (“HMRC”) disagreed. HMRC’s position was that the option to tax was not disapplied under Schedule 10 of the VAT Act 1994. Accordingly, the sale was not tax exempt and Moulsdale should have accounted for VAT on the sale of the property which HMRC assessed to be £191,562 (plus interest of £11,491).”