Revenue and Customs Brief 13 (2021) Change in the VAT treatment of the construction self-supply charge
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Published 6 October 2021
Purpose of this brief
This brief confirms that, following the Supreme Court decision of 31
March 2021 in the case of Balhousie Holdings Limited 2021 UKSC 11, HMRC
have revised the meaning of ‘entire interest’ for the
purposes of the self-supply charge.
Who needs to read this
You should read this brief if you’re:
- an organisations within the care home, NHS or charities sector
- business is engaged in property transactions which are carried
out for a relevant residential or relevant charitable purpose
In March 2013, Balhousie Care Ltd bought a care home at the zero
rate of VAT. To finance the acquisition and further developments, they
entered into a sale and leaseback arrangement with Target Healthcare REIT. As a result of that
arrangement, Balhousie Care conveyed the land to Target, and Target
simultaneously granted the land on a long lease back to Balhousie. The
premises continued to operate as a care home without interruption.
When a property has been purchased or constructed at the zero rate
of VAT, with a certificate stating that it will be used for a relevant
residential or relevant charitable purpose, the property may be liable
to a self-supply charge if there is a change in use or the entire
interest is disposed of within a 10-year period. The self-supply charge
is calculated from the date when the change of use occurs or when the
entire interest is disposed of. VAT then becomes due on the remaining
months within the 10-year period.
In the case of Balhousie, the Supreme Court looked at the meaning of
the disposal of the ‘entire interest’ in the property.
Balhousie had a sale and leaseback arrangement where Balhousie
continued to operate the premises for a relevant residential purpose
throughout the transaction.
Supreme Court decision
The Supreme Court ruled that in the case of Balhousie, the sale and
leaseback did not account for the disposal of its ‘entire
interest’ in the property because the simultaneous sale and
leaseback meant that Balhousie Holdings Limited always had an interest
in the property either as owner or lessee without interruption. This
meant there was no break in the operation of the property as a care
home throughout the transfer from the sale to the lease agreement.
HMRC view a sale and leaseback as 2 separate transactions and this
was accepted by both the Upper Tier tribunal and Court of Session. The
Supreme Court did not revisit this point and stated that the issue to
address in Balhousie was whether or not there had been a disposal of an
in relation to the self-supply charge
The disposal of your entire interest in a property will not occur
when all the following conditions are in place:
- a qualifying property must have been purchased
- when the property is sold, there must be an immediate lease in
place, which is a seamless transaction with no time lapse
- the lease must be for the remaining term of the 10 years from the
original purchase date or longer
- the property must be continually used or operated for a
qualifying purpose, meaning the business suffers no break in trade
during the sale and leaseback
If these conditions are not met then the sale of the property or the
giving up of a long lease within the 10-year period will be subject to
the self-supply charge for the remaining term, as you will have
disposed of your entire interest in the property within the 10 year
Further information on the construction self-supply charge can be
found in Buildings and construction (VAT
For information on how to make adjustments see How to correct VAT errors and make adjustments or
claims (VAT Notice 700/45). Be aware of the 4-year cap, and the
rules of unjust enrichment.
About the Author
© Crown Copyright 2021.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
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Article Published/Sorted/Amended on Scopulus 2021-10-06 21:58:52 in Tax Articles