Nissi N Nissi Limited v The Commissioners for HMRC

Introduction

1. This hearing concerned the Appellant company’s appeals against a set of VAT assessments made on 22 February 2021 under the provisions of section 73 of the Value Added Tax Act 1994 . Each assessment sought to reverse repayments of VAT claimed by the Appellant. In each of the VAT periods, the Appellant had reported no output tax but had claimed input tax in relation to supplies said to have been made to it.

2. The assessments were for the following amounts: VAT quarter ended Amount of the assessment 28 February 2017 (02/17) £155,793 31 May 2017 (05/17) £81,076 31 August 2017 (08/17) £70,100 30 November 2017 (11/17) £69,550 28 February 2018 (02/18) £84,779 31 May 2018 (05/18) £69,000 31 August 2018 (08/18) £75,866 Total £606,164

3. HMRC put forward two bases to justify the assessments.

4. The basis of HMRC’s preferred case is that the assessments are consequential on their decision to disapply the Appellant’s option to tax in relation to the Appellant’s interest in land at 51-53 Tower Bridge Road, London (“the Property”). The consequence of the disapplication of the option to tax is that the Appellant was not otherwise making any taxable supplies and, therefore, not entitled to the recovery of any of the VAT it claimed incurred on those supplies.

5. HMRC’s alternative case concerned the same set of assessments (with the exclusion of the 02/17 quarter). This alternative position was communicated to the Appellant on 12 April 2022 following further investigation work undertaken by HMRC, primarily through their officer, Mr Auchterlonie.

6. The basis of this alternative case is that HMRC believe that the supplies asserted had not actually been made to the Appellant and, therefore, the Appellant was again not entitled to the VAT repayments it had claimed.

7. In its skeleton argument, the Appellant broadly conceded the validity of HMRC’s alternative case by acknowledging that “HMRC have identified falsified tax invoices” and that “HMRC must succeed in relation to any falsified tax invoices identified”.

8. That skeleton argument proceeded to confirm that the essential argument before us is whether the option to tax had effect. The skeleton argument did nevertheless suggest that the amount of allowable input tax was still a live issue in that not necessarily all of the invoices produced were falsified. Furthermore, it became clear early in the hearing that HMRC remained open to the Appellant proving the validity of some or all of its input tax claims. Accordingly, with the parties’ agreement, we decided that we would address solely HMRC’s preferred case, with directions to follow (if appropriate) to ensure that the alternative case would be resolved without unreasonable delay.

9. For the reasons that follow, we have decided to dismiss the Appellant’s appeal and accept HMRC’s preferred argument. As a result, the need for further directions has fallen away.

10. References in the form HB## are to pages in the hearing bundle before us. Penalties

11. When preparing for this hearing, Judge Gordon was somewhat surprised that, given the allegations being made by HMRC in relation to their alternative case, there was no mention of any penalties having been issued. However, Mr Bell advised him that he had previously sat on a hearing at which the Tribunal dismissed applications by the Appellant and Miss Adeosun for the late admission of appeals against, respectively, penalties and a personal liability notice.

12. The parties confirmed at the beginning of the hearing that they had no concerns about Mr Bell being a member of the Tribunal for this substantive appeal, and (particularly as the previous application did not concern the merits of the substantive case before us) we agree that there was no risk of even a perception of bias or any other reason for Mr Bell to recuse himself. Documents before us

13. We were provided with the following documents: (1) a hearing bundle of 1,625 pages (containing documents, authorities and witness statements from two witnesses – see ¶‎22 below ); (2) a skeleton argument on behalf of the Appellant; and (3) a skeleton argument on behalf of HMRC. The legislative background

14. After dealing with preliminary matters at the beginning of the hearing, we sought the parties’ clarification as to the legal issues before us. We considered that necessary because we found it difficult to follow (either from HMRC’s Statement of Case or their skeleton argument) which route(s) they were taking to justify their decision to disapply the option to tax.

15. It was clear that they were relying on the anti-avoidance rules which are found at paragraph 12 ff of Schedule 10 to the Value Added Tax Act 1994 , but the actual route (or routes) through that part of Schedule 10 was far from obvious. We also considered that it would be fair to the Appellant for there to be a clear indication as to what facts would need to be proven by either side.

16. We had initially assumed, given the scope of their skeleton argument, that HMRC’s case would be based on several different routes through Schedule 10 (particularly given that the hearing bundle contained material that related to different lines of argument). However, it transpired that HMRC’s case was based on a single route through the code. Having checked with HMRC that that was indeed the only case that they were running, we then heard the evidence. That allowed the hearing to be far more streamlined than we had envisaged at the outset (for which we are grateful), although we do note that it rendered a lot of the material in our hearing bundle wholly superfluous. As we heard no argument on the other possible routes through the legislation, we cannot comment on HMRC’s decision to focus solely on this one route.

17. As a result of HMRC’s approach, we can set out the relevant law in summary as follows: (1) The default position is that the supply of land is exempt for VAT purposes ( Value Added Tax Act 1994 , Schedule 9, Part 2, Group 1, item 1). (2) Taxable persons may nevertheless opt to tax supplies of land, the effect of such an option being that the supply of the opted land is treated as a taxable supply (Schedule 10, paragraph 2). (3) There are a number of conditions relating to the option to tax. (4) Paragraph 12(1) of Schedule 10 provides that the supply of land is not a taxable supply (notwithstanding an option having been made) if: (a) the grant giving rise to the supply was made by a person (defined as “the grantor”) was a developer of the land; and (in addition) (b) the exempt land test was met. (5) The exempt land test is defined in paragraph 12(2) and is met if “at the time when the grant was made … the relevant person intended or expected that the land would become exempt land”. (6) The relevant person is defined in paragraph 12(3) to be either the grantor (as defined above) or a development financier. It was HMRC’s case that the relevant person in this case was a company, Smart Start Nursery Ltd (“SSN”), and that that company was a development financier (defined below). (7) Paragraph 13 then defines what is meant by a grant being made by a developer of the land. It requires: (a) the land to be or expected to be a “relevant capital item”; and (b) the grant to be made at an eligible time as respects that capital item. (8) These tests are satisfied if: (a) the land is a capital item in relation to the grantor (paragraph 13(3)); (b) the grantor or a development financier intended or expected the land would become a capital item in relation to the grantor (paragraph 13(4)); and (c) the grant is made before the end of the relevant adjustment period as respects that land (which the parties agreed was the approximately 10-year period provided for under the Capital Goods Scheme) (paragraph 13(6)). (9) Exempt land is defined in paragraph 15. In particular, per paragraph 15(2), land is exempt land if, at any time before the end of the relevant adjustment period as respects that land (i.e. the approximately ten-year period), two conditions are met being that: (a) a relevant person is in occupation of the land, and (b) that occupation is not wholly, or substantially wholly, for eligible purposes. (10) Paragraph 15(3) provides that the following are relevant persons for this purpose: (a) the grantor and any person connected with the grantor; (b) a development financier and any person connected with a development financier. (11) Paragraph 15(5) permits the meaning of “occupation wholly, or substantially wholly” in this context to be provided by a public notice issued by HMRC (see also paragraph 34(3)). (12) VAT Notice 742A, issued by HMRC, provides guidance concerning options to tax; some of that guidance has the force of law (where provided for by legislation). Section 13 of that notice concerns the provisions relevant to this case. (13) In section 13.9.1 of that guidance, it is provided that “wholly, or substantially wholly” means 80% or more. (14) Eligible purposes are themselves defined in Schedule 10, paragraph 16. (15) Broadly (and the exceptions do not apply in this case), a person cannot occupy land for eligible purposes unless that person is taxable (paragraph 16(2)). Once that hurdle is overcome then the person’s occupation has also to be eligible and this, for present purposes at least, equates with occupation for the making of taxable supplies in the course or furtherance of a business carried on by that person (paragraph 16(3), (4)).

18. It was common ground that the Appellant was a licensor of the land in question and, thus, the grantor for the purposes of the legislation. It was further common ground that SSN was not a taxable person (it was in fact not even entitled to be registered for VAT as its sole business is the provision of exempt childcare services (Schedule 9, Part 2, Group 7, item 9, when read with note (6))). Accordingly, the exempt land test in paragraph 12(2) turned on whether or not SSN was a development financier.

19. That is defined in paragraph 14. On HMRC’s case, SSN was a development financier by virtue of paragraph 14(2)(a), i.e. it was a person who “has provided finance for a grantor’s development of the land … with the intention or in the expectation will become exempt land or continue (for a period at least) to be exempt land”.

20. Paragraph 14(3) provides that the provision of finance for the development of the grantor’s development of the land includes “providing funds for meeting the whole or any part of the cost of the grantor’s development of the land”.

21. Paragraph 14(5) and (6), when read together, provides that the grantor’s development of the land covers ( inter alia ): (1) the acquisition of the land or building or a part of a building on the land; and (2) its construction or reconstruction; and (3) the carrying out in relation to it of any other works by reference to which it is, or was intended or expected to be, a capital item in relation to the grantor. Witness evidence

22. We were provided with witness statements from the following two witnesses: (1) Miss Christine Adeosun (director of the Appellant); (2) Mr Stephen Auchterlonie (officer of HMRC).

23. After being sworn in, both witnesses gave further evidence “in chief”, were cross-examined, answered supplementary questions from the Tribunal and gave further evidence in re-examination.

24. We found Mr Auchterlonie to be a very credible witness who, despite his knowledge of the VAT code, properly confined his oral evidence to facts of the case within his knowledge.

25. Miss Adeosun, in contrast, was not in our view a credible witness. Even putting to one side the underlying concerns about the prevalence of fabricated invoices and focusing solely on the evidence that was relevant for the single matter before us, Miss Adeosun’s evidence ranged, in the main, from an understandable inability to recall the events of 2016 to a firm recollection of events at that time that conflicted with the contemporaneous documentation. In all respects on matters concerning events in or around 2016, we have decided to base our decision on the contemporaneous documentation, except where expressly stated below. Findings of fact

26. From the documentary and oral evidence, we make the following findings of fact.

27. In relation to the investigation itself: (1) HMRC’s investigation into the Appellant’s VAT affairs was prompted by a VAT repayment claim for the quarter ended 28 February 2019 which was received by HMRC on 29 March 2019. In that claim, the Appellant sought a repayment of £69,888. (2) Mr Auchterlonie was asked to check the claim and this led him to telephone the Appellant on 25 April 2019. (3) In the course of that telephone call, Mr Auchterlonie spoke with a Mr Samson Adewale Olatunji, who was a director of the Appellant, and arranged to visit Mr Olatunji on 29 April 2019. (4) In the course of the visit, Mr Olatunji introduced Mr Auchterlonie to Miss Adeosun. (5) Mr Auchterlonie asked to see evidence that supported the repayment claim and he was shown invoices, bank statements and a schedule of input tax claimed. At the end of the visit, Mr Auchterlonie asked for copies of the evidence and he was provided with copies of the Appellant’s bank statements for January and February 2019 and a spreadsheet schedule of the input tax claimed for the quarter. (6) Neither Mr Olatunji nor Miss Adeosun was able to locate the invoices that Mr Auchterlonie had been shown earlier in the visit. Mr Auchterlonie asked that these be copied and sent to him once they had been located. Invoices were eventually sent to Mr Auchterlonie and received by HMRC on 6 September 2019. (7) Mr Auchterlonie’s enquiries continued throughout 2020. These extended to looking at earlier VAT periods. On a visit to the Appellant on 13 March 2020, Miss Adeosun gave Mr Auchterlonie revised VAT returns for the periods to August 2018. The net effect of the revisions is as set out at ¶‎28(18) below . The provision of this additional information and what Mr Auchterlonie perceived to be continued mismatches between the Appellant’s VAT returns and its accounts led Mr Auchterlonie to carry out some additional checks. (8) The assessments under appeal were made on 22 February 2021 although Mr Auchterlonie had not, by then, completed his investigation. By way of a separate letter on the same date (but dated 24 February 2021 [ HB371 ] ), Mr Auchterlonie advised the Appellant that he was refusing the Appellant’s claim in relation to the 02/19 quarter and that the input tax for that quarter was being reduced to nil. Mr Auchterlonie explained to us that he prepared the letter on 22 February 2021. However, HMRC’s computer (for reasons that he did not understand) often does not print out and despatch such letters until a few days later: the letter then shows the later date. Whilst we agree that letters should show the date on which they are despatched, we consider that a mismatch between the date of an officer’s actions and the date displayed on a supposedly contemporaneous document which evidences the officer’s action to be unhelpful, especially as such documents can give rise to statutory time limits. (9) Mr Auchterlonie’s investigation continued until 12 April 2022 when Mr Auchterlonie set out his alternative view.

28. In relation to the Appellant: (1) The Appellant’s business is described as the provision of building services. (2) The Appellant was incorporated on 17 March 2016 and prepared its first accounts for the period from 17 March 2016 until 31 March 2017. It then prepared accounts for the year to 31 March 2018. (3) Those first two sets of accounts showed a turnover of £256,302 and £588,634. (4) Mr Olatunji was shown as a proposed director of the Appellant in the incorporation documentation. He was allocated one of the two shares (ordinary shares) initially issued by the company. The other proposed director and shareholder was Miss Adeosun [ HB1122 ]. (5) A confirmation statement sent by the Appellant to Companies House (on 19 June 2017) showed Mr Olatunji as a Person with Significant Control of the Appellant with effect from 10 March 2017 [ HB1147 ]. This was stated to be on the following bases: (a) that Mr Olatunji owned more than 25% but not more than 50% of the shares in the Appellant; (b) that Mr Olatunji held more than 25% but not more than 50% of the votes in the Appellant; and (c) that Mr Olatunji held the right to appoint or remove a majority of the Appellant’s board of directors [ HB1148 ]. (6) Confirmation statements sent by the Appellant to Companies House (20 April 2018 and 21 May 2019) showed no material change. (7) On 8 October 2020, however, Companies House received a notice of a person ceasing to be a Person with Significant Control of the Appellant. That notice stated that Mr Olatunji ceased to be a Person with Significant Control of the Appellant with effect 10 March 2017 [ HB1180 ]. (8) The confirmation statement submitted by the Appellant on 16 October 2020 further asserted that Mr Olatunji’s share had in fact been transferred to Miss Adeosun on 17 March 2016 [ HB1165 ]. (9) On 24 November 2021, Miss Adeosun notified Companies House that she was a Person with Significant Control of the Appellant with effect from that date [ HB1181 ]. (10) On 14 October 2024, Companies House was notified that Mr Olatunji had ceased to be a director of the Appellant with effect from 12 October 2024 [ HB1183 ]. (11) The company applied to be registered for VAT on 7 December 2016 and asked for the VAT registration to be backdated to 20 April 2016. The application was made and signed by Mr Olatunji [ HB718 ]. (12) In the section where the applicant is asked whether it “or any of the partners or directors in this business” is currently involved in any other UK or Isle of Man business, Mr Olatunji referred to himself and supplied a VAT registration number. The natural inference to be drawn from what was provided on the form was that Mr Olatunji was a sole trader carrying on another business, separate from his involvement with the Appellant. (13) The backdated VAT registration was granted by HMRC on or after 12 December 2016 (being the date on which HMRC received the Appellant’s application). (14) On 11 January 2017, HMRC received an application from the Appellant to opt to tax its interest in the Property. This application sought the backdating of the option to 20 April 2016 (which was the effective date of registration for VAT). The application was made and signed by Mr Olatunji [ HB81 ]. (15) In apparent contrast with the position shown on its accounts, the Appellant’s VAT returns for covering the effective date of registration (20 April 2016) until 28 February 2019 showed (individually and collectively) a total of £nil output tax and a total of £nil outputs [ HB1060 ]. (16) The apparent mismatch was raised by Mr Auchterlonie at his visit of 29 April 2019. Miss Adeosun’s explanation was that the Appellant had not signed up for output tax and therefore had not accounted for any output tax. Mr Auchterlonie requested that the Appellant submit revised VAT returns from the effective date of registration until 28 February 2019, specifically requesting the inclusion of all the supplies of building services it had made and which were shown in its accounts as submitted to Companies House. (As noted at ¶‎27(7) above, the amended returns were not provided to Mr Auchterlonie until March 2020.) (17) At a second visit (23 July 2019), Mr Auchterlonie was told that the only customers of the Appellant’s building services were two companies: (a) SSN, which was a company that (through Miss Adeosun) runs a children’s nursery from the Property as well as two other premises; and (b) Eko Food Market Ltd, a company described as “Mr Olatunji’s sole tradership)”. (18) The amended returns (see ¶‎27(7) above ) disclose outputs for some of the periods as follows: VAT quarter ended Revised figure for supplies 31 May 2017 (05/17) £nil (no change) 31 August 2017 (08/17) £nil (no change) 30 November 2017 (11/17) £nil (no change) 28 February 2018 (02/18) £nil (no change) 31 May 2018 (05/18) £3,000 31 August 2018 (08/18) £6,500 30 November 2018 (11/18) £6,490 28 February 2019 (02/19) £6,600 (19) On 19 May 2021, Mr Auchterlonie received an e-mail from Mr Kaney who was by then representing the Appellant. Attached to that e-mail was a copy of a deed of share transfer which stated that: (a) the deed was made on 17 March 2016 [ HB1257 ]; (b) it effected the transfer the one ordinary share of £0.01 in the company[ HB1258 ]; (c) the transferor was stated to be Mr Olatunji [ HB1257 ]; (d) the transferee was stated to be Miss Adeosun [ HB1257 ]; and In the space where one might have expected Miss Adeosun’s address to be shown, the date was shown instead: “Parties: Ms. Christine Adeosun of 17th March 2016 (the “Transferee”)”; the other parties’ addresses were included as 55 Tower Bridge Road. (e) that transfer took effect on the date of the deed [ HB1257 ]. (20) Over and above the oddity about the absence of Miss Adeosun’s address, there was one obvious difficulty with this deed, however. The subject matter of the deed was stated to be Mr Olatunji’s one penny share in the Appellant. The incorporation documentation for the Appellant, however, indicated that the nominal value of each share was £1 (fully paid) [ HB1124 ]. There again, the Appellant’s accounts initially omitted any reference to any issued share capital in the balance sheet. (21) Another potential difficulty with the deed was the fact that Mr Olatunji’s witnessed signature [ HB1262 ]was markedly different from his signature on other documents, such as the VAT registration form [ HB718 ] and the notification of the option to tax [ HB723, 726 ]. Furthermore, it was not clear to us how or why a share transfer would be effected on the same day that the company was incorporated. (22) Given the way HMRC argued the case (leading to a narrowing of the issues requiring our determination), we were not required to resolve any of those queries concerning the deed. Furthermore, we were able to reach our decision (and our concerns about the reliability of Miss Adeosun’s oral evidence) without taking into account these further concerns.

29. In relation to the SSN: (1) SSN was incorporated on 31 October 2007 [ HB1190 ]. (2) Mr Olatunji was identified as an initial director of SSN [ HB1193 ]. (3) The issued share capital of the company was a single £1 ordinary share which was allocated to Mr Olatunji. (4) On 9 December 2015, SSN submitted its annual return to Companies House. That showed Mr Olatunji as the only shareholder and director of the company [ HB1194, 1197 ]. (5) On 8 February 2017, SSN submitted a confirmation statement to Companies House showing Mr Olatunji as a Person with Significant Control [ HB1201 ]. (6) Confirmation statements sent by SSN to Companies House on 10 November 2017, 22 November 2018, 6 November 2019, 16 December 2020, 29 November 2021, 13 January 2023 and 19 January 2024 all stated that there were no relevant updates. (7) In fact, Mr Olatunji was shown on Companies House records to have been a Person with Significant Control of SSN from 31 October 2016 until 10 October 2024 [ HB1230 ]. (8) On the confirmation statement submitted by SSN to Companies House on 15 October 2024, Mr Olatunji’s share was shown to have been transferred to Miss Adeosun [ HB1226 ]. (9) Companies House also records Miss Adeosun having been notified as a Person with Significant Control of SSN on 10 October 2024 and with Mr Olatunji ceasing to be such a person with effect from that date [ HB1230 ]. (10) SSN’s business is the provision of children’s nurseries.

30. Furthermore, it was clear to us that the Appellant and SSN worked closely together. Even without needing to reconcile any disputed matters as to whether Mr Olatunji and Miss Adeosun owned shares in either company at any point in time, the frequent transfers of funds from SSN to the Appellant (even if we focus on those we were shown to have taken place in November 2016) demonstrates that the individuals were treating the two companies as if they were carrying on a single enterprise whereby cash funds could be passed around. Furthermore, the Appellant’s sole clients were SSN and another business in Mr Olatunji’s control. We acknowledge that there is nothing wrong with enterprises allocating different roles to different associated companies (whether or not they are strictly in common ownership). However, in this case, where the intentions or expectations of a company need to be ascertained, we unhesitatingly conclude that the Appellant and SSN were generally “at one” (as were Mr Olatunji and Miss Adeosun) and, in particular, on all matters concerning the Property.

31. In relation to the Property: (1) Before 2016, SSN had carried on its trade from an adjacent property at 55 Tower Bridge Road under the trading name “Smart Start Nursery” of which Miss Adeosun was the manager [ HB1390 ]. (2) Until 2016, the Property was owned and developed by an unrelated company (5153 TBR Ltd). (3) In 2016, an interest in the Property was acquired by the Appellant for £712,000 (plus VAT of £142,400, total £854,400) [ HB99 ]. (The £142,400, we note, constitutes the lion’s share of the input tax claimed in relation to the 02/17 quarter. We also saw copies of invoices that account for £5,814 of the balance.) (4) The acquisition and subsequent works were to enable the future use of the Property by SSN as a nursery either under the Lilies trading name or (as eventually transpired) that of Smart Start Nursery. (5) Miss Adeosun asserted that the acquisition originally took place in April 2016, initially financed mainly by a bridging loan with the Appellant paying off that loan later in that year. To a very limited extent (see further at ‎(8) below), we accepted what Miss Adeosun said as it was consistent with a letter dated 4 May 2017 provided by Mr Olatunji to HMRC which set out the payments in relation to the £854,400 purchase price and also included copies of the bank statements which recorded these payments as follows [ HB97 ]: (a) £35,623 to the Appellant’s lawyers on 26 February 2016; (b) £50,023 to the Appellant’s lawyers on 14 April 2016; (c) £30,023 to the Appellant’s lawyers on 18 April 2016; (d) £25,023 to the Appellant’s lawyers on 19 April 2016; (e) £53,900 to the seller on 2 November 2016; (f) £132,632 to the seller on 12 November 2016; (g) £515,000 to the seller’s lawyers on 15 November 2016; (h) £9,768 to the seller on 23 January 2017. (6) Mr Olatunji described himself as director of the Appellant at the foot of that letter [ HB98 ]. (7) The bank statements showed that, in the first four of those payments, the final £23 represent the CHAPS fee payable on the transfers [ HB102 , 103 , 104 ]. Once that £92 is deducted, the above payments total £851,900 which is precisely £2,500 short of the total amount payable on the acquisition of the Property. We proceed on the assumption that that this missing £2,500 was in fact paid (but just not identified by Mr Olatunji). (8) We thus accept that the agreement to make the purchase did take place in or around April 2016 on the basis that there was a relatively small payment shortly prior to then and then further payments to the Appellant’s lawyers in April 2016. However, we were unable to accept that there was a bridging loan to facilitate the purchase. We say that for two reasons. First, it would not explain why (in November 2016) further significant payments were being made by the Appellant to the seller (moreover, to the person being described as the seller in Mr Olatunji’s correspondence to HMRC in May 2017) and/or the seller’s solicitors. Secondly, the VAT invoice issued by 5153 TBR Ltd dated 30 November 2016 was stated to be for the purchase of the Property. We considered it unlikely that such an invoice would have been issued then, and in that form, had the purchase taken place more than six months earlier and fully paid for by a bridging loan. The fact that the payments were made in two instalments we believe relates to the fact that 5153 TBR Ltd also carried out development works on the Property during 2016 which contributed in part to the overall cost of the Property. Unlike another invoice purportedly issued by 5153 TBR Ltd which we examined during the hearing, this was not an invoice that Mr Kaney conceded had been fabricated. We therefore proceed on the basis that it was a genuine invoice. (9) Miss Adeosun’s assertion about the bridging loan (and other matters – see below) was not supported by any documentary evidence that we were taken to. Miss Adeosun maintained that she could have brought some documentation along had she known, but she was unaware of the need to do so. However, this was not a case where, in our view, fairness dictated us giving Miss Adeosun or the Appellant a further opportunity to provide any further evidence. Even leaving aside the maxim “The trial is not a dress rehearsal … it is the first and last night of the show”, Miss Adeosun’s assertions could not be said to have been in response to any surprise attack by HMRC. Instead, she was being cross-examined on the point that SSN had made a number of transfers to the Appellant between November 2016 and January 2017, a point that was expressly addressed in Mr Auchterlonie’s witness statement at paragraph 74 under the heading “Development Financier”. Miss Adeosun’s oral evidence to us was that those payments (and others from related entities) were simply a case of monies flying around between the associated bank accounts to finance the Appellant’s funding of the building works that were being carried out at different premises rather than towards the Appellant’s purchase of the Property. We could not accept that proposition. First, we could not see why payments would be made to one bank account being run by the Appellant to cover the outgoings purportedly made by the Appellant from another of its bank accounts. Secondly, those payments into the Appellant’s bank account were made shortly before key payments out to 5153 TBR Ltd (or its lawyers) as identified at ‎(5) above. Thirdly, there was no documentary evidence before us to support Miss Adeosun’s assertion in this regard, either to support the nature of the receipts or, if relevant, the nature of any corresponding payments. (10) In particular, we noted from the Appellant’s bank statement [ HB1296 ] that: (a) SSN made payments totalling £20,000 on 1 November 2016; (b) SSN made a further payment of £10,000 on 2 November 2016; (c) the Appellant received a further £13,500 from “Lillies Nurs New Nursery” on 2 November 2016 – Miss Adeosun told us (and we accept) that SSN did previously carry on a nursery business called “Lilies”. We saw different spellings of “Lilies” in our bundle. (d) The Appellant made a payment of £53,900 to 5153 TBR Ltd on 2 November 2016. (e) There were further receipts from SSN on 2 and 7 November 2016 (totalling £18,000) – these being the ones specifically identified by Mr Auchterlonie – followed by the large outpayment to the seller’s solicitors on 15 November 2016. (11) We were not taken to the full suite of the Appellant’s bank statements for the period. However, what we have seen tells us that (at the very least) a significant proportion of the funds with which the Appellant paid for the acquisition and/or development of the Property came from SSN. The Appellant’s submissions

32. Mr Kaney’s closing submissions (as did his cross-examination of Mr Auchterlonie) focused on the fact that HMRC had identified only £22,500 payments from SSN (being those two payments on 2 and 7 November 2016 and two further payments in January 2017) compared with a gross payment price of £854,400. He argued that, whilst the legislation, read literally, would seem to treat anyone making a mere £1 contribution as falling within the definition of development financier, common sense required the exclusion of de minimis contributions. He also argued that the legislation required us (in this case) to look at the Appellant’s purposes behind the use of the funds rather than SSN’s.

33. He also argued that the anti-avoidance legislation was directed at larger businesses (such as banks and other financial institutions) and did not apply, for example, to local nursery businesses. Discussion

34. In relation to the scope of the anti-avoidance legislation, we reject Mr Kaney’s suggestion. Leaving aside the point that no authority was put forward in support of the proposition, there is no way that such a limitation could be read into the legislation. The rules are self-evidently there to prevent the abuse of the option to tax in cases where the underlying business is primarily or significantly carrying on exempt activities. Whilst it is undoubtedly the case that banks and other financial institutions make up a significant proportion of exempt businesses, the anti-avoidance rule does not discriminate.

35. Our preliminary view in relation to Mr Kaney’s other arguments is that: (1) We do not consider that there is any exclusion for de minimis contributions: the legislation expressly says “or any part”. However, we consider that quantum is a fact that will be relevant to determining the parties’ intentions and expectations within paragraph 14(2). (2) We consider that the legislation is looking at the intention or expectation of the putative development financier (“a person who has provided finance … with the intention or in the expectation”).

36. However, we do not need to resolve either of those issues in this case for the following two reasons. (1) The £22,500 identified by Mr Auchterlonie is, in our view, more than de minimis , and the additional payments on 1 and 2 November make that conclusion even more compelling. (2) In addition, it is our firm conclusion that (a) SSN made the payments to the Appellant and (b) the Appellant received those payments, both with the intention that the funds would be used towards the Appellant’s obligations in relation to the acquisition and/or development of the Property. See ¶‎31(9) above . See also ¶‎30 above .

37. Furthermore, it was clear to us (and we do not believe it was ever in doubt) that the Property was being acquired and developed by the Appellant for SSN to use it for the provision of a children’s nursery. It was not in dispute that SSN was not carrying on a taxable business, the nursery provision being exempt.

38. Similarly, it was clear to us (and we do not believe it was ever in doubt) that SSN was in occupation of the Property under a licence to occupy granted by the Appellant (so that the Appellant is considered “the grantor” and was the developer of the Property under paragraph 12).

39. And again, it was clear to us (and we do not believe it was ever in doubt) that the Property was a capital item in relation to the Appellant in that (principally, it being land and its cost being at least £250,000) it would be treated as such under the Capital Goods Scheme . The Value Added Tax Regulations 1995 (SI 1995/2518), regulation 113

40. Thus, turning to the wording of the test in paragraph 14(2) of Schedule 10, it is our conclusion that: (1) SSN provided finance (being, at the very least, the not insignificant sums identified); (2) both the purpose and effect of that finance was to fund the grantor’s (i.e. the Appellant’s) acquisition and/or development of the Property; (3) furthermore, it would have been both the Appellant’s and SSN’s intention and expectation that the Property would be used as a children’s nursery upon completion of the building works. This was evident from a letter from SSN (signed by Miss Adeosun as manager) sent to Southwark Planning Department in November 2015 dealing with the continuation of the nursery previously located at 55 Tower Bridge Road at the Property [ HB1390 ]. The letter also discussed the change in the planning use categorisation to permit the Property to be used as a nursery. If one took into account the prior occupation at 55 Tower Bridge Road then this would amount to a continuation of use as a nursery; if one considered there to be a break (during the development works) then this would amount to the Property coming into use as a nursery.

41. Accordingly, the only remaining aspect of paragraph 14 that needs to be addressed is whether this intention or expectation concerning the use of the Property as a nursery translates to the Property becoming or continuing to be exempt land (as defined in paragraph 15).

42. It was clear that SSN’s occupation of the Property to use it as a nursery was intended to take place as soon as the development was complete and that that was due to take place within a matter of months rather than the approximately 10-year period under the Capital Goods Scheme. Furthermore, SSN (as a development financier) falls within the definition of relevant person for paragraph 15(2). One could take the view that the legislation is circular insofar as the paragraph 14 definition of development financier turns on the definition of exempt land, but the paragraph 15 definition of exempt land turns (in some cases) on being able to identify the development financier. Our view is that the Gordian knot can be cut by noting that paragraph 14 is looking prospectively, unlike paragraph 15 which is asking a question about the actual state of play at a particular time. In any event, the purpose of the legislation is clear and, in the context of paragraph 15, requires the reference to development financier to be read as “the putative development financier”.

43. Accordingly, in order to decide whether the Property constitutes exempt land, it is necessary only to decide whether SSN’s occupation is at least 80% for eligible purposes. If the answer to this question is no, then the Property is exempt land under paragraph 15(2).

44. However, as SSN is not registered for VAT (nor entitled to be), it cannot occupy land for eligible purposes (paragraph 16(2)). In any event, its occupation of the Property would undoubtedly be for the purposes of non-taxable supplies (i.e. the provision of a children’s nursery) and thus wholly outside the meaning of eligible services in paragraph 16(3).

45. As a result, the Property falls squarely within the definition of exempt land for the purposes of paragraph 15(2).

46. Reading paragraphs 14 and 15 together, therefore, we find that SSN was a development financier in relation to the Property. Accordingly, by virtue of paragraph 12(3), SSN was a relevant person for the purposes of paragraph 12(2).

47. Given that SSN both intended and expected the Property to be used as a children’s nursery when it received the licence to occupy the Property from the Appellant, SSN must have both intended and expected (and only one of those is required) the Property to be exempt land. Thus the exempt land test in paragraph 12(2) is met (thereby satisfying the condition in paragraph 12(1)(b)).

48. Finally, that then requires that the test paragraph 12(1)(a) to be met, being that the grant giving rise to the supply was made by a person who was a developer of the land. See ¶‎17(7) above . However, that requirement is met in this case as: (1) the Property is a relevant capital item (paragraphs 13(8) and (9) (i.e. in accordance with regulations granted under section 26(3) and (4) VATA 1994 )) in relation to the Appellant who was the grantor; (2) both the Appellant and SSN (and again only one is required) intended or expected the Property would become a capital item in relation to the grantor); and (3) the grant was made immediately on or shortly after the Appellant’s acquisition of the Property in 2016 (but in any event in 2018 at the latest as indicated on behalf of the Appellant [ HB735 ]), thus long before the end of the approximately 10-year period provided for under the Capital Goods Scheme.

49. For the foregoing reasons, the Appellant’s supply of the Property to SSN is thus excluded by paragraph 12(1) from being a taxable supply.

50. As there were no other taxable supplies made by the Appellant, it could not validly claim any input tax in relation to any of the periods for which assessments were made.

51. Finally, and for the avoidance of doubt, there was no suggestion by Mr Kaney that the assessments were procedurally invalid. Looking at the timing of the assessments (within a year of Mr Auchterlonie receiving the information that led to the assessments and within four years of the periods being assessed), we saw no reason to conclude that there were any procedural defects in the assessment process. We duly find that all of the assessments were validly made.

52. Accordingly, we uphold HMRC’s preferred view and, therefore, dismiss the Appellant’s appeal. Right to apply for permission to appeal

53. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. Release date: 06 th FEBRUARY 2026