Connells win VAT case over advertising

Connells have successfully fought a case on tax allowances which has implications – and savings – for all estate agents.

The ruling, by a tribunal, means that all of VAT can be reclaimed on press advertisements for properties for sale.

But if the advert also pushes mortgages, even if just in the margins, the tribunal says that at least some VAT is payable.

According to Connells, the ruling suggests that all estate agents should remove references to mortgages if they want their property advertising to be VAT-exempt.

At the tribunal, the taxman lost the argument that adverts by Connells were really trying to sell mortgage products when they advertised properties.

David Livesey, Connells Group chief executive, said: “The issue was whether we could reclaim the full amount of VAT on our local press advertising or not.

“HMRC were trying to establish that our property ads were actually general in nature, and hence were also aimed at trying to sell mortgage services (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 – eg 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.”

Connells successfully argued that one of their local press adverts is simply a block of 24 properties for sale and no more designed to sell mortgages than a ‘For Sale’ board.

The tribunal judge agreed. But Livesey said that important principles had been set by the case.

“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 to do a mortgage, you might want to re-check your ads and remove any reference to the M-word!

 “We use local press advertising much less nowadays, but because of the sheer number of branches within Connells, 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.

“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 as a whole."