First, I have a “fairness” suggestion in respect of SDLT. This is currently calculated on the VAT inclusive price (which will be relevant solely to commercial property), and this takes no account of the recoverability of the VAT by the purchaser. This creates a disadvantage upon purchase compared with properties that are not opted into VAT, or for those that cannot be sold as a transfer of a going concern (which is a VAT-free treatment). Though the exceptions to these cases may be less numerous than the cases themselves, nonetheless it distorts the taxation of property sales. In particular it burdens commercial rents in opted properties. There should be a change which bases SDLT on the net of VAT price.  If that is thought to impose too little tax on the VAT-exempt sectors, then perhaps it should be calculated on the gross price only where a purchaser or lessee cannot certify that it enjoys 100% VAT recovery.

Second, the rules for gift aid on donations by individuals needs to be addressed again despite the disappointment of the Fanning report (see my blog dated 10 December). Currently, donors need to have paid tax in the very tax year in which their donations fall, so it seems irrelevant if they paid abundant tax in any previous year. Additionally, donors are allowed to sign a gift aid declaration covering future donations. They are supposed to tell the charity if the declaration becomes unsuitable (such as when they donate in a year in which they pay no tax). Presumably, if they then become eligible again (by recommencing the payment of tax) they have to write to the charity again. This process, one imagines, never or very rarely happens in practice, though voids in paying tax, on the part of donors, can arise from time to time. The result is that a charity may well make a claim on a routine donation where the tax-paying criteria happen not to be met. In theory, if discovered, either the charity or the donor has to recompense HMRC with the relevant sum. That is a big “if”. It all gives rise to a very unsatisfactory situation where errors seem almost unavoidable and are impractical to rectify. If, instead, the rule allowed that the payment of enough tax over the last three years (say), including that in which the donation falls, would be sufficient to justify the charity’s gift aid claim (even if not justifying higher rate relief for the donor) then it would clear up a messy situation and reduce the hidden non-compliance to a much lower level.

 

On to VAT: I feel that it is time for the government to consider greater targeted use of the permitted supplies that qualify for the reduced rate. In general, home improvements which add, say, 10% or more to a dwelling’s floor area would appear valid because that would make it more likely that an owner would find an alternative to moving house which, in these times, would be a great help. It would reduce the SDLT receipts by reducing the quantum of house purchases, but that should be beside the point when one considers the overall merits of the situation. I also favour targeted introduction of the reduced rate for restaurants and cafes (excepting alcoholic supplies), and perhaps theatrical events, since we need something to cheer us up in these dark times, and they help make the high streets bustle, and improve consumer confidence and appetite.

 

I think there are clear signs emerging that the new penalty regime as it applies to VAT errors is not working well. Too many officers are demanding a penalty for a careless error as the starting point in any error related discussion. It should be the other way round. It would take a whole article to explore this point and put forward a coherent basis to address the position, but I have come to feel that a legal definition of what may be taken to be “careless” should be attempted, because otherwise the tax payer is going to be harried by officers who see an opportunity to make money by requiring every tax payer who makes an unaccountable mistake to demonstrate the taking of positive “care”.

 

Finally (at least for now), I have two suggestions that will provide greater ease and justice in dealing with property related VAT. One is to allow new dwellings to be zero rated (or to qualify for a DIY claim) even if the planning permission was deficient at the time of construction as long as rectified planning permission is later obtained. Second, to allow an option to tax to be made over a future proposed development from an indeterminate future date, but as long as there is a binding means of ascertaining the date, such as “the date from which the relevant development commences”. This allows (without tortuous references to case law) VAT recovery on development expenditure incurred before the bulldozers arrive, where there is no good purpose in imposing tax on the rents arising, in the meantime, in an old complex.