FTT Upholds HMRC’s Disapplication of Option to Tax in Nursery VAT Input Tax Case

The FTT upheld HMRC’s decision to disapply the option to tax election for Nissi N Nissi Ltd, dismissing the appeal against VAT assessments of £606,164.
The appellant’s attempt to recover input tax on a childcare nursery property failed because the anti-avoidance rules in paragraph 12, Schedule 10, VATA 1994 applied.
The tribunal found that even partial funding by an exempt occupier (Smart Start Nursery) made it a “development financier” and “relevant person,” triggering the anti-avoidance provisions.
No de minimis threshold was implied into the legislation, so even small-scale or partial funding arrangements can lead to denial of input tax recovery.
The case highlights that the anti-avoidance rules can apply broadly, denying input tax recovery where statutory conditions are met.

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.