Business or non business?

This is a Bulgarian case referred to the CJEU. Briefly, a property developer sought to recover VAT on the reconstruction of a waste water plant owned by the local council. The developer needed the waste water plant, so that it could develop a nearby holiday village. The issue was simply whether it could recover input tax in circumstances where the council also benefited from a free of charge improvement to its waste water facility. Answer, yes.

Not a long judgment and the court clearly felt that the cost incurred had a direct and immediate link with the property developer’s business. The Court held that a restriction of input tax should only arise if the developer carried out reconstruction works, which weren’t necessary for the operation of the holiday village.

A helpful decision, as HMRC can seek to restrict input tax recovery in circumstances where the asset is not owned by the business in question.

HMRC do have taxing powers under the Supply of Services Order 1993, but they would have to show non business use. This decision would rule that out in my view.