Keep your records straight

Sarabande, a charity for emerging artists, had claimed VAT recovery on a property acquisition and subsequent refurbishment costs. HMRC disallowed the claim on the basis it understood that Sarabande had made exempt supplies of land, meaning that this VAT would be irrecoverable. Sarabande successfully appealed to the First Tier Tribunal (FTT) safeguarding its VAT repayments.

HMRC argument was that there was an exempt land supply by Sarabande to its subsidiary, Suture Inc Limited (SIL),with SIL then supplying the artists. The FTT concluded there was no exempt supply to SIL, as there was no written documentation and SIL was established after the leases began. The lack of evidence worked in the business’ favour and weakened HMRC’s case in this instance - making this an unusual and fortunate case for the taxpayer.

The FTT's decision to uphold Sarabande's appeal underscores the importance of clear documentation and accurate record-keeping in tax matters. In this case HMRC had to deal with unclear information and an evolving fact pattern which worked out well, but would never be recommended as a good defence. Whilst the focus will be on the FTT’s decision, it should be noted that it is possible the matter would have been dealt with differently and efficiently –perhaps not reaching the FTT – if Sarabande had shared clear information with HMRC earlier.