Legal Practice Notes

In the UK, VAT is generally imposed on the supply of goods or services made (or treated as made) in the UK, usually at 20% of the value of the supply. Although the person supplying the goods or services must account to HMRC for the VAT, the economic cost is commonly passed on to the recipient of that supply. A VAT-registered recipient of a supply can therefore typically claim (or recover) the amount of VAT it has paid provided, broadly, that the supply is directly linked to its VATable business, ie the VAT is a cost incurred by the recipient in providing (or attributable to the making of) its own VATable supplies of goods or services. Ordinarily, a supply of goods or services involves two parties—the supplier and the customer. However, it is also a familiar feature of commercial...

This Practice Note This Practice Note summarises the UK VAT position generally on the issuance of a sakk by an issuer to an investor (ie, the sakk holder) in this context. A sakk is a certificate granting the holder specified rights to receive payments periodically, from time to time. Its principal features broadly mirror those of a bond (or comparable financial instrument). ‘ Sukuk’ is the plural of ‘sakk’. A sukuk issue is a type of Islamic financing arrangement. For broader guidance on Islamic finance, see Practice Note: Key principles of Islamic finance. For details on other, non- VAT, tax considerations for sukuk, see Practice Notes: Sukuk—investment bond arrangements and their UK direct tax treatment, Sukuk—investment bond arrangements and stamp duty and SDRT, and Sukuk al ijara—tax reliefs for sale and leaseback arrangements. This Practice Note proceeds on the basis that: the issuer is a...

This Practice Note concerns the . Why does this matter? From 1 October 2012, supplying storage facilities has broadly fallen within the scope of VAT; yet many organisations impacted failed to appreciate this, as HMRC and the government continued for a long time to characterise the reform as concerning ‘self‑storage’ alone. In reality, the point is still frequently missed, and HMRC seems largely uninterested except where dealing with genuine self‑storage providers and operators. Because HMRC considers liability to turn on how premises are actually used rather than the intended use, landlords should carefully track what their tenants do and/or add further terms to leases and licences to identify precisely where VAT bites. What do landlords need to do? No steps are required where the grant is already taxable, for instance due to an option to tax being in place. Otherwise, where lettings are being treated as exempt, they...

This Practice Note concerns the . It includes references to EU legislation and case law. For guidance on the continuing effect of EU law in the UK after the close of the Brexit implementation period on 31 December 2020, see Practice Note: Retained EU law and tax. Unless indicated otherwise, all rulings of the EU Court of Justice cited here were delivered prior to the end of that implementation period. Accordingly, references to EU case law in this Note should be read in that temporal context. Why does this matter? Parking fees are generally liable to VAT; this also covers leases and licences for whole car parks or blocks of garages, meaning the amounts at stake can be significant and VAT must be factored into sale and lease documentation. VAT can, in some circumstances, arise where parking is supplied alongside other...

This Practice Note explores the VAT consequences of overage payments. Why is this important? In simple terms, where the underlying sale attracting the overage was taxable for VAT, the overage will itself carry VAT, ordinarily becoming chargeable only when the overage is actually paid; however, there are significant exceptions. Accordingly, sellers may encounter unforeseen liabilities, and at unexpected points in time, so sale contracts must reflect the correct VAT position. Moreover, HMRC offers no comment in guidance, and there have been instances of it misunderstanding overage arrangements, or their VAT analysis, leading it to dispute a position even where VAT has been correctly accounted for. It is therefore prudent to record, at the time, the rationale for the approach adopted, together with any professional advice obtained. What is overage? Overage refers to a scenario in which a seller—often, though not exclusively, of...

THIS PRACTICE NOTE RELATES TO OCCUPATIONAL PENSION SCHEMES This Practice Note cites decisions of the Court of Justice of the European Union ( CJEU). For direction on whether EU judgments bind courts in the UK, see Practice Note: Assimilated law— Assimilated case law. VAT basics The United Kingdom’s Value Added Tax ( VAT) regime, originating in European law, is principally set out in the Value Added Tax Act 1994. VAT is a levy on consumer spending. A VAT-registered business must account to HMRC for VAT on the value of supplies of goods and services it makes, and therefore adds VAT to the amount it charges its customers for those supplies. That business may obtain credit for VAT it incurs on goods and services it uses. The VAT added to its prices is termed ‘output tax’, while VAT recoverable on its purchases is termed ‘input tax’. VAT only...

This Practice Note addresses the VAT treatment of supplies of land and buildings where the consideration is non‑monetary (barter arrangements). Why does this matter? Barter dealings can trigger unexpected VAT charges, and may have other unwelcome VAT effects, of which the parties should be mindful. VAT clauses in agreements concerning transactions of this nature may call for careful drafting. What to look for The issues arise where the consideration for a supply is not, or not wholly, in money; thus any cash consideration (if any) is liable to be less than one would expect to obtain for such a supply. In commercial settings, arrangements described as gifts, or agreed at a low price or low rent, will usually amount to a barter, whether or not the parties have viewed them that way. Some barter dealings, such as swapping one plot of land for another, are easy to...

What are management charges? Management charges typically describe situations in which companies within a group provide management services to one another and levy a fee for those services. Commonly, a single group entity settles the bill for services used across the group and then reclaims an appropriately apportioned share of the overall expenditure from its fellow group companies. These arrangements often relate to overheads, for example rent, office equipment, rates, heating, stationery, telephone and similar overhead items. Such charging mechanisms are most frequently encountered in corporate group structures (ie holding companies with subsidiaries), though they can also arise where independent businesses and organisations collaborate through cost sharing groups. Intra-group management charges may likewise stem from transfer pricing adjustments that are intended to ensure arm’s length consideration is paid between connected parties for supplies within the group. For detailed information on transfer pricing, see:...

This Practice Note examines VAT points to address when a lease is assigned or brought to an end. In this Practice Note, unless indicated otherwise, termination covers any form of ending a lease, including surrender, use of a break option, forfeiture, and a disclaimer in insolvency. Must the seller account for VAT?......

This Practice Note sets out the exclusions from the VAT exemption for property transactions, together with other interacting provisions. The exclusions relating to parking and to storage are dealt with in full in Practice Notes: VAT treatment of parking facilities and VAT treatment of storage facilities. It includes references to EU legislation and case law. For guidance on the continuing relevance of EU law in the UK after the end of the Brexit implementation period on 31 December 2020, see Practice Note: Retained EU law and tax. Unless indicated otherwise, references to judgments of the EU Court of Justice in this Practice Note are to decisions handed down before that implementation period ended. Why does this matter? As a rule, supplies involving property are within the scope of VAT only where the seller or landlord has opted to tax (see Practice Note: The option to tax land and...

This Practice Note sets out the VAT matters to address when granting a lease and during an ongoing lease. whether VAT is payable when it becomes due the tenant’s position on recovering VAT inducements payment of rent the tenant paying the landlord’s costs changes to the lease tenant default which VAT provisions ought to be included in the lease For the VAT points to consider where a lease is assigned or brought to an end (including by surrender), see Practice Note: VAT issues for lease assignments and terminations. Is VAT chargeable?......

POTENTIAL FORTHCOMING CHANGE HMRC is in the process of reassessing its guidance on the VAT exemption for financial services. That guidance could therefore change. The VAT exemption for financial services remains the focus of this overview and the associated practical considerations. UK relief from VAT for financial services derives from Council Directive 2006/112/ EC (the VAT Directive). It is implemented domestically by Schedule 9, group 5 to the Value Added Tax Act 1994 ( VATA 1994), which lists several categories that qualify for exemption. This Practice Note outlines key practical issues concerning the exemption from VAT for managing special investment funds, as described in items 9 and 10 of group 5. For fuller information on the precise definitions and conditions attached to this exemption, consult Practice Note: VAT exemption for fund management. References to EU Directives and relevant case law are included in this Practice Note. The UK left the EU on 31...

This Practice Note is about the . More specifically, it considers which categories of building work qualify for VAT relief, either through zero rating or by applying the reduced VAT rate. To benefit from relief, there must be both an appropriate kind of building and an appropriate scope of work. Why is that important? This is, naturally, significant to those undertaking it, but it also feeds into project appraisals, and influences whether development and investment prospects are viable. If the VAT is ultimately recoverable, it might appear unimportant whether the contractor charges it. However, even then it is crucial to ensure the correct reliefs are used, as HMRC will not reimburse VAT that should never have been paid. A final consideration is that businesses commissioning construction may, in some cases, need to account for VAT themselves under a ‘reverse charge’......

FORTHCOMING CHANGE At Budget 2025, the government confirmed that, from April 2029, all VAT invoices must be issued electronically. It has also stated it will work with stakeholders to devise an implementation roadmap, which will be published at Budget 2026. Ordinarily, when a VAT‑registered person supplies goods or services to another VAT‑registered person, a VAT invoice must be provided. A VAT invoice is a document that sets out specified information about the supply. VAT invoices are significant not only for administrative and record‑keeping purposes, but also because they can influence the amount and timing of VAT payments. In particular: Issuing a VAT invoice may create a tax point under the VAT time of supply rules (triggering liability to account for output tax)—for more details, see Practice Note: VAT time of supply rules—when is a supply made? The recipient of a supply will...

This Practice Note addresses the VAT considerations that arise in commercial development projects. It first outlines a simple, uncontentious scenario, then explores: when and whether the developer should opt to tax input tax recovery and circumstances in which that option could be disapplied whether a sale to an investor qualifies as a transfer of a going concern ( TOGC) alternative development structures, such as forward funding and forward sales planning obligations and other payments towards local infrastructure tenant incentives disposals of surplus land and incomplete schemes, and rights to light For VAT issues in residential developments, see Practice Note: Residential development— VAT issues. Basic scenario There can be a variety of VAT considerations with commercial schemes, yet in practice most projects do not create major difficulties. It is helpful to begin with a clear, uneventful example...

VAT grouping Numerous businesses function within corporate groups, essentially indicating they share common economic ownership. The presence of company groups is generally acknowledged across a broad range of different provisions in tax law. For a summary of the relevant rules, see: Tax groupings—overview. Under a VAT grouping arrangement, all companies in the group are regarded as one taxable person for VAT purposes as a whole. Any supplies made by, or to, a member of a VAT group are treated, for VAT purposes, as made by or to a single designated member of that group, nominated for this role and known as the 'representative member'. Transactions between entities within the same VAT group are normally disregarded for VAT purposes. Furthermore, members of a VAT group are jointly and severally responsible for each other’s VAT debts......

This Practice Note explains the VAT rules applying to online sales of goods to UK consumers, whether the transaction occurs through an online marketplace or directly from the seller. It covers: the circumstances in which online marketplaces or non- UK sellers are directly liable for UK domestic VAT (rather than import VAT) on sales to UK customers—relevant where the goods are either: valued at no more than £135, or already located in the UK when the sale takes place, and the circumstances in which HMRC may impose joint and several liability on online marketplace operators for VAT that should have been accounted for by sellers using those marketplaces This Practice Note does not address the position for goods imported into Northern Ireland from the EU....

For VAT purposes, an intermediary is a person who makes arrangements for, or facilitates, a supply (being the main, or underlying, supply) between two other people. An intermediary can equally be called an agent or a broker, and, particularly in an EU context, a commissionaire. HMRC defines an agent as a person who organises supplies of goods or services between the agent’s customer (that is, the principal) and a third party by: procuring goods or services for the principal (acting as a buying agent), or identifying customers for the principal to sell to (acting as a selling agent) Accordingly, agents are invariably connected with two distinct supplies: the supply of goods or services between their principal and the third party, and the provision of their own agency services to the principal, for which a fee or commission is normally...

What are the key VAT issues for banks and financial institutions? For most businesses, the central VAT questions are: whether VAT ought to be applied to their supplies of goods and/or services; and whether any input VAT is recoverable. For banks and other financial institutions, these remain the core matters to resolve. However, further VAT considerations arise due to: the particular categories of supply they provide, namely the provision of financial services; and their diverse customer base, both by geographical location and by whether customers are businesses or consumers. For ease of reference, banks and financial institutions are collectively described as ‘banks’ in this Practice Note. Should banks charge VAT on their supplies?......

In the UK, VAT applies to supplies of goods and services made by a taxable person in the course of business activity, save where those supplies are exempt (or zero‑rated—see Practice Note: VAT—zero‑rated and reduced rate supplies). A VAT exemption carries three principal effects, namely: the supplier does not need to charge VAT on the transaction the value of the supply is ignored when determining whether the supplier must register for VAT purposes input tax attributable to exempt supplies cannot be reclaimed—so for a business making exempt supplies, that input VAT represents an absolute (and not merely a timing) cost For a fuller explanation of the rules on input tax recovery, see Practice Note: When can a person recover VAT? The Value Added Tax Act 1994 ( VATA 1994) sets out 16 groups of exempt supplies. Those groups were derived from EU...