by Melanie Lord
Yet another example of why it is so important think about VAT before a deal is finalised and make sure the proposed VAT treatment is clearly communicated.
I was talking about the importance of thinking about VAT before getting to the point of issuing a sales invoice in a seminar the other day and have since been musing about situations when this didn’t happen. One example might be the CLP Holding case in the Court of Appeal, which was actually a contract law case but centred on whether CLP’s customer had to pay the VAT that was due on the transaction.
CLP had sold a building that it had opted to tax so VAT fell due on the £130,000 sale price. However CLP created an issue for itself by not telling the purchaser in advance that it was charging VAT on the sale nor was this made clear in the contracts.
Even though the contract specified that all sums payable were VAT exclusive, which CLP took to mean they could add VAT to the sale price, this wasn’t how the case was decided.
- CLP had never told the purchaser that they had opted to tax
- there was no reason for the purchaser to have suspected it might have been, and
- the special conditions specified the purchase price was £130,000.
The Court of Appeal decided that nothing more than £130,000 could be payable. In view of CLP having opted to tax there could be no doubt that VAT was due on the sale. The result was that CLP had to treat sale price as VAT inclusive and suffer reduced income as a result.
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