October 2009

VAT'S YOUR LOT!

CONNELLS have won a landmark VAT tribunal ruling which they feel could have significant implications for all estate agents.

The issue was whether Connells, the second biggest estate agency group in he country, could reclaim the full amount of VAT on their local press advertising or not.

Connells group chief executive David Livesey explained: “HM Revenue and Customs were trying to establish that our property ads were actually general in nature, and therefore were also aimed at trying to sell Mortgage Services, which is a VAT exempt supply, as well as properties.

“If this principle had been established we would not be able to reclaim the full amount of VAT on the cost of the advert. For instance, on a £200 local press ad, we would not have been able to reclaim the full £30 of VAT.

“ Multiply this by the number of pages in local press taken across the country by all estate agents, and the HMRC’s argument could have cost our profession millions of pounds!”

Connells’ argument was that the local press ad is simply a block of properties for sale and is no more designed to sell mortgages than a ‘For Sale’ board. The Tribunal Judge agreed.

Mr Livesey added, however, that they had also obtained some important guidance and clarification.

“Where our press ad refers to mortgages either in the margins or by use of a drop-in ad, then the whole page will be deemed ‘residual’ for VAT purposes and we would not be able to claim all of the VAT back,” he said. “On the basis that no-one has ever responded to a press ad by walking into your office and asking for a mortgage, agents might want to recheck their ads and remove any reference to the M-word!

“Even though we use local press advertising much less nowadays, because of the sheer number of branches within the Connells Group this was financially a very important ruling for us.

“In the first instance, HMRC were even going to apply their basis of understanding retrospectively, with a VAT cost to us running into millions of pounds.

“However, this positive result for Connells pales into insignificance in the context of the value this test case could have to the estate agency profession.

“This is the reason why I wanted to broadcast the message ‘high, wide and handsome’ to our colleagues both independent and corporate alike.”