A Supreme Court ruling that sale and leaseback arrangements will not be subject to retrospective VAT charges could save care homes millions of pounds, according to tax experts.
The UK’s highest court upheld a 2019 decision in the Scottish Court of Session that ruled the taxpayer was not entitled to £800,000 of VAT and interest payments from a £4m sale and leaseback deal in 2013 by Balhousie Care.
Many owners and operators of care homes enter into sale and leaseback arrangements in order to fund the construction of the property or fund possible future construction projects.
The lost Supreme Court appeal by Her Majesty’s Revenue & Customs (Scotland) means a VAT charge applies only to a disposal when the liable company is left with no interest in the property.
“This is long-awaited good news for those organisations that have used leaseback arrangements to finance new residential or charitable buildings…such as care homes,”said Alan Pearce, VAT partner at tax and advisory firm Blick Rothenberg.
“When these properties are first constructed, they qualify for zero rating. However, where the construction costs have been zero rated, there is a self-supply charge that can be can retrospectively applied where there is a dispose or change of use of the zero-rated building within ten years of its completion,” he added.
“This can effectively reverse some or all the VAT savings and result in a significant payment of VAT to HMRC.
“Care homes should be reviewing their arrangement to ensure they fall into line with the Balhousie decision and are not susceptible to challenge by HMRC.”
