In Mr and Mrs E Kelly v HMRC [2017] UKUT 326 (10 August 2017) the UT found that input tax incurred by a company before its business was taken over by its directors was not recoverable by the directors.
Mr and Mrs Kelly provided financial advice as a partnership which was not registered for VAT (as its supplies were exempt). They purchased Ludbrook Manor a substantial house with an annex formerly used as stables. They lived in the house while a company Happy Holidays Limited (HHL) of which Mr and Mrs Kelly were the only directors and shareholders carried on the business of letting parts of the former stables to holidaymakers. Those supplies were standard-rated and HHL was registered for VAT. It was subsequently decided that the house itself should be let to holidaymakers and an extensive programme of renovation was carried...
