Input tax claimed on a property owned by a separate company

The taxpayer (KAL) held a tax invoice dated April 2017 saying it had purchased a property for £240 000 plus VAT. The invoice was made out to the taxpayer and input tax was claimed on the basis that the property was used for its taxable accountancy and bookkeeping business. As a result of the input tax claim of £44 000 the taxpayer’s VAT return for period ended April 2017 was for a net repayment.

HMRC queried the return. The officer checked land registry records and discovered the property was owned by a separate company Knightsbridge Holdings Ltd (KHL) which was not registered for VAT. Annual accounts at Companies House also confirmed that KAL had no fixed asset additions for the financial year ended 31 August 2017. HMRC therefore raised an assessment to disallow the claim.

The taxpayer said KAL had a beneficial interest in the property...