Exempt loans or taxable supplies of building services?

The taxpayer was a property developer and needed funding for a project that related to a new supermarket. It received £282 000 of loans in seven separate payments during 2016 from a finance company MFS Ltd. The loans were not reported on the VAT returns.

During a VAT compliance review HMRC decided that the paperwork did not support the argument that the money related to loans rather than building services. It raised an assessment using the officer’s ‘best judgement’ powers (VATA 1994 s 73(1)) on the basis that the £282 000 receipts were inclusive of 20% VAT.

The taxpayer appealed.

The First-tier Tribunal reviewed the documentation provided by the taxpayer and was satisfied that it did support the loan argument. The tribunal noted that MFS Ltd’s records at Companies House showed it had a £1m loan book. The taxpayer was paying interest on a monthly basis...