Deliberate VAT Misclassification on Hotel Extension: Extended Time Limit Upheld in Nellstar Properties Case

Nellstar Properties Ltd – FTT – construction of hotel extension – accounted for as residential accommodation – time limits – knowledge of taxpayer – deliberate conduct – taxpayer loss

• The FTT case, Nellstar Properties Ltd, addressed whether HMRC’s VAT assessments for construction services, initially treated as zero-rated new dwellings but later determined to be a standard-rated hotel extension, were within the statutory time limits.
• The Tribunal found that the construction work was indeed a standard-rated hotel extension, not zero-rated dwellings. Crucially, it concluded that the taxpayer’s sole director, Mr. Smith, had deliberately under-declared VAT, thus extending the assessment period to 20 years.
• The assessments were deemed in time because, although HMRC had basic information to calculate the under-declared VAT by August 2022, they only gained sufficient evidence to establish the director’s deliberate conduct—necessary to apply the 20-year rule—in June 2024. The assessments, issued in September 2024, were well within one year of this crucial discovery.

Source KPMG

 

---

• Nellstar Properties Ltd incorrectly zero-rated construction services for VAT, claiming the work was for residential property, when it was actually a hotel extension and should have been standard rated.
• The FTT found that the company’s director, Mr Smith, likely knew the true commercial nature of the construction and deliberately misapplied the zero-rating.
• Because the conduct was deemed deliberate, HMRC was allowed to apply the extended 20-year time limit for VAT assessments.
• The company’s appeal against the VAT assessments was dismissed.

Source: claritaxnews.com

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

---

---