Blandy & Blandy Solicitors

Making an Appointment and Visiting our Offices >>

Insights // 24 May 2021

Balhousie Holdings Limited v HMRC [2021] - Supreme Court Ruling May Be Good News for Some Charities

Nick Burrows and Ed Giles, in our Charities & Education team, explain the recent Supreme Court ruling that could be good news for some charities.

In Balhousie Holdings Limited v HMRC [2021], the Supreme Court has recently given a ruling which stands to potentially save charities millions of pounds in VAT when constructing or purchasing zero-rated buildings.

Background of the law

The Value Added Tax Act 1994, Section 30, stipulates that goods and services specified in Schedule 8 to the Act are zero-rated, meaning that VAT is not payable when it normally would be. This includes a premises being renovated or altered, which is solely for use as a ‘relevant residential purpose’ after the works have been carried out.

Balhousie Care run a group of residential care homes and acquired a new property which was zero-rated for VAT. The property’s zero-rated status was on the basis that Balhousie intended to use the building as a care home which met the requirement a ‘relevant residential purpose,’ and issued a certificate confirming there position.

What was the issue?

In this recent case, Balhousie Care issued a zero-rating certificate for the construction of a residential care home which saved it circa £800,000 in VAT on the £4 million value. As part of the financing of the construction, the company completed a sale and leaseback arrangement; a common means of financing such projects.

Typically, a VAT update will be required for buildings which are zero-rated for a relevant residential purpose or charitable purpose and subsequently disposed of within 10 years. The key term here being ‘disposed’ (i.e. sold).

In this instance, HMRC contested that the sale and leaseback was in fact a disposal, and so the VAT should be paid and adjusted to the amount of the 10-year period remaining.

The ruling

The ruling, which overturned an earlier decision that VAT should be paid in certain circumstances, concerns the application of clawback provisions that apply where the construction or purchase of a new building is made on a zero-rated basis, and the building is later sold within the first 10 years.

Lord Briggs set out as part of his ruling that “there was no time when [Balhousie Care] was neither the owner nor the lessee of the relevant premises. It had not therefore disposed of its entire interest in the care home.” As such the zero-rating certificate remained valid.

It has become clear from this case that in such instances where an operator wishes to make use of a sale and leaseback arrangement, it must pay careful attention to the timing of each component; being the sale, and the leaseback, to ensure that at no time the full interest in the property has been disposed of.

If you are concerned about how this recent ruling may affect you, your business, or your charity, please contact Nick Burrows and our Charities & Education team.

For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.

This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.

Nick Burrows

Nick Burrows

Chairman & Partner, Charity & Commercial Law

Read Bio

Ed Giles

Ed Giles

Trainee Solicitor

Read Bio

News & Insights

Report on How Police Respond to Violence Against Women and Girls Published
Elizabeth Owen

Elizabeth Owen

Solicitor, Family Law

What is Spousal Maintenance and How is it Calculated?
Rebecca Ledgerwood

Rebecca Ledgerwood

Solicitor, Family Law

Community Infrastructure Levy (CIL) - Exemption for Residential Extensions
Kayleigh Chapman

Kayleigh Chapman

Solicitor, Planning & Environmental Law

More Stringent Obligations on the Horizon for Landlords Relating to Minimum Energy Efficiency Standards (MEES) for Non-Domestic Rented Property
Gemma Smith

Gemma Smith

Associate Solicitor, Commercial Property Law

Conditions Restricting Permitted Development Rights
Kayleigh Chapman

Kayleigh Chapman

Solicitor, Planning & Environmental Law

Financial Settlement On Divorce - What Can I Do to Manage My Legal Fees?
Claire Dyer

Claire Dyer

Partner, Family Law

Why It Is Important to Make or Review Your Will When Moving Home
Dani McGurk

Dani McGurk

Solicitor, Wills, Probate, Tax & Trusts & Court of Protection

Considerations for Charities in England and Wales as COVID-19 Restrictions Are Lifted
Nick Burrows

Nick Burrows

Chairman & Partner, Charity & Commercial Law

Blandy & Blandy Advises on The Cold Chain Federation’s Acquisition of Commercial Transport Publishing
David Lamont

David Lamont

Marketing Manager

View More