Tribunal allows VAT appeal and accepts that letter was sent to HMRC

01 May 2013. Published by Adam Craggs, Partner

The First-tier Tribunal ('FTT') has allowed the taxpayer's appeal in Exeter Estates Ltd v HMRC[1] against a decision of HMRC that it had opted to tax all the land and buildings on one of its sites.

The facts

In 2007, the taxpayer purchased a site consisting of land and buildings (the 'Site').  On 18 January 2007 it wrote to HMRC informing them that it was in the course of acquiring an existing trading business and enclosing a completed VAT 1. At the time, it had been expected that completion would be on 31 March 2007, but in the event it did not take place until later. 

On 26 January 2007, the taxpayer notified HMRC's option to tax unit in Glasgow (the 'OTT Unit') of its option to tax the Site by reference to the Land Registry title number. The Land Registry plan outlined the boundaries of the Site in red and within the red lines eight buildings were outlined in blue. The Site had partial exemption VAT treatment and the taxpayer intended to continue the Site's previous option to tax, which excluded the buildings.

On 20 February 2007, the taxpayer telephoned and wrote to the OTT Unit seeking clarification of the status of the option to tax with regard to the buildings. The letter referred to the Land Registry plan and noted that its option to tax was to be limited to the area etched in red on the plan, excluding the buildings etched in blue. On 5 March 2007, the OTT Unit replied to this letter confirming receipt of what it termed the taxpayer's election to waive exemption under paragraph 2, Schedule 10, Value Added Tax Act 1994. This letter was followed by a further letter from the OTT Unit dated 27 April 2007, in similar terms.

The taxpayer subsequently submitted a large VAT repayment return for period 03/11. HMRC carried out a site visit, following which, the officer concerned raised an assessment to tax in the sum of £205,675.41. On 9 May 2011, the taxpayer wrote to HMRC setting out its position with regard to the option to tax as it understood it to be, namely, that it did not believe that there had been an election to waive the exemption in respect of the buildings etched in blue on the Land Registry plan.

HMRC's arguments

HMRC's case was that the buildings in question were the subject of the option to tax made in the taxpayer's original notification of election to the OTT Unit on 26 January 2007. HMRC relied upon the two letters from the OTT Unit dated March and April 2007, which referred to land and buildings. It was submitted on behalf of HMRC that this was not queried by the taxpayer after it had received these letters.

HMRC disclaimed any knowledge of the taxpayer's letter dated 20 February 2007 and questioned whether the letter had ever been sent to the OTT Unit.

The FTT's decision

The FTT was of the view that the original option to tax application, whilst intended to be in respect of the land only, was ambiguous and could reasonably be understood to relate to the land and buildings. It was unclear whether HMRC had made a determination on the issue between 27 January and 20 February 2007. However, the taxpayer had intended at all times to opt to tax the land only and not the buildings and that intention was clearly communicated to HMRC on 20 February 2007. The FTT found as a fact that the letter of 20 February 2007 was sent by the taxpayer to the OTT Unit, stating at paragraph 26:

"We accept that the letter of 20 February was sent by Exeter Estates … There is evidence before us that the unit was having difficulties in coping with its workload at the time and that the system was even less able to cope when the caller was not registered for Value Added Tax."

The FTT went on to conclude at paragraph 31:

"For all the above reasons we find that Exeter Estates did intend to opt to tax the buildings on the site and that this intention was clearly communicated to the Commissioners and evidenced by the letter of 20 February 2007. The fact that the OTT unit were unable to trace that letter does not as a matter of law mean that Exeter Estates did not send it."


This is the latest in a number of recent cases to highlight the importance of evidence. Tax appeals before the FTT are often won or lost on their facts and it is therefore important that taxpayers provide the tribunal with sufficient evidence, whether documentary or live, to establish those facts which are disputed by HMRC and which they seek to rely upon in support of their appeals. Proper case preparation can make the difference between winning and losing a tax appeal and there is no substitute for thorough case preparation.

(See also my previous blog of 12 April 2013).

1[2013] UKFTT 218 (TC).