Glais House Care Limited v The Commissioners for Her Majesty’s Revenue & Customs
We were surprised by the content of this case, the relatively low values to take a case to Tribunal, and the error in entitlement, eligibility, apparent valuation methodology plus also the contract of sale which ignored the facts of the values involved. There is no mention of who prepared the claim, only that is was the accountant who instructed counsel for this client.
In summary, this is a case about the valuation of the allowances on the perceived simple acquisition of a care home. In addition to the claimant not recognising legislation restrictions on the value of the claim the vendor had also submitted a claim on items that were ineligible. The result was a reduction in the claim from £318,792 to £254,602.
This case covers many aspects of the Capital Allowances legislation, but fundamentally is that to make a claim a tax payer must claim in accordance with the legislation. However, it is complicated, and emphasises the point that specialist advice should be taken to reduce the risk of ending up in a lengthy and costly exercise in court, over what is a relatively small amount of benefit in the resulting decision.
There were errors in the claim preparation by both the vendor and purchaser, as well as in the sale contract. First, that there was not enough due diligence during the acquisition to establish the vendors position, and that this should have been agreed and a CAA2001 S198 entered into the contract. It also demonstrates that attaching a figure in a contract for “equipment” does not hold HMRC to agree to that figure, as in this case they did not.
The vendor made a claim for £220,454, including cold water, which they were not entitled to as the legislation specifically excluded this item. “I would note cold water may have qualified if it was argued as an item of plant for the specific use of the trade”. The purchaser submitted a claim based on their purchase price for £318,792, less the equipment figures, but also included correctly “an overage” claim for cold water and electrics installation, being the first tax payer to incur expenditure after the introduction of integral features in 2008. The issue is that you are often restricted to a previous claim and this was not considered.
A point was also made that the claim was calculated by valuing the fixtures and applying an index. It was reported The Valuation Office Agency used a different basis, which we assume to be the recognized formula for an apportionment, and it just so happened to come out to the same figure. If it had not, there would have been a further issue regarding the valuation.
The parties at the time of the property sale agree to allocate £35,000 to equipment, however, under the capital allowances calculation this figure was £18,458, and the figure overruled by HMRC. The reason being that the value transferred can only be the maximum amount claimed by the vendor, a figure half the value in the contract.
The case demonstrates that whilst the HMRC had just cause to dispute the figures, and do check capital allowances claims, it is also reported they acted unreasonably during the proceedings, going back on previously agreed values. This case emphasises the importance to use an experienced Capital Allowances advisor who has dealt with HMRC and the Valuation Office, as well as the Tribunal, to ensure a favourable outcome without incurring avoidable expensive costs.