Lords to examine builder's VAT dispute

Roger Pearson says an appeal to the Lords by builders Redrow could have serious implications for home-buyer incentive schemes.

Tax lawyers and home builders will be closely watching the forthcoming House of Lords appeal involving the Redrow building group and HM Customs and Excise.

The case, which should be heard before Christmas, centres on the VAT implications of a scheme set up by Redrow Group – one of the UK's leading home-building firms – as an incentive for people to buy its properties.

The Lords battle between Redrow and the Customs and Excise department centres on the VAT treatment of the estate agent's fees involved in the scheme. The outcome of the case will have major implications for the viability of Redrow's scheme and any similar ones in the future.

In a bid to promote sales of its own properties, Redrow introduced the scheme to help prospective buyers speed up the process of selling their existing homes.

Redrow would instruct an estate agent to agree a price for the prospective buyer's existing home and then help them sell it. The estate agent would then invoice Redrow for their services on exchange of contracts, and Redrow would pay the invoice when the purchaser completed the deal for one of its new homes.

Redrow has claimed that, under the provisions of the Value Added Tax Act 1983, it has received services from the estate agents and is therefore entitled to recover any VAT paid to the estate agent as allowable input tax.

The VAT Tribunal acc-epted the view of Redrow and ruled that, if the deal went through as planned and a Redrow home was purchased, then the estate agent should be taken as having "made a supply" to Redrow. The High Court backed the tribunal's decision.

But last year the Appeal Court reversed the High Court ruling. It said the agent's services were provided not to Redrow but to the prospective purchaser. In those circumstances, they said Redrow was not entitled to recover the tax paid to the agent as allowable input tax.

It is that decision which is now the subject of appeal moves in the House of Lords.