Legal Practice Notes

Transfer of a business as a going concern (a TOGC) The sale of a ‘business’ is, in substance, a package of assets sold together. As a rule, VAT would accordingly be levied on the disposal of each asset under the usual rules—i.e. standard-, reduced- or zero-rating, or exemption—depending on the nature of the asset, unless the transaction is treated as a transfer of a business as a going concern (a TOGC). Where a sale qualifies as a TOGC, it counts as neither a supply of goods nor a supply of services, placing it outside the scope of VAT. No VAT is therefore payable on the sale. To qualify as a TOGC, specific conditions must be satisfied, which this Practice Note sets out. Where those conditions are met, there are implications for both buyer and seller, discussed in Practice Note:...

Everyone knows that value added tax ( VAT) is a levy that pushes up the cost of goods and services purchased by UK consumers. For a tax lawyer, before delving into precisely when it bites and the way it is run, it is vital to appreciate more about what it is intended to achieve. Where does VAT come from? There are numerous varieties of value added or sales taxes worldwide. The UK’s VAT regime stems from the European Union ( EU). The EU’s common framework for VAT is contained in Council Directive 2006/112/ EC of 28 November 2006 on the common system of value added tax (the VAT Directive). It is described as common because it requires EU member states to enact domestic laws giving effect to the system. Nevertheless, within that structure there are several areas where member states may choose whether, and in what...

Practice Note: VAT—what is a transfer of a business as a going concern? The criteria for a transfer of a business to be recognised as a transfer of a going concern ( TOGC) are explained in Practice Note: VAT—what is a transfer of a business as a going concern? In broad terms, where a transfer meets the TOGC rules, it is treated as a ‘nothing’ for value added tax ( VAT) because no supply occurs. Nonetheless, there remain a number of implications to keep in mind when giving advice on a TOGC. This Practice Note considers the consequences for the buyer (transferee) and the seller (transferor) of a business transfer that is: correctly treated as a TOGC, and incorrectly treated (or not treated) as a TOGC This Practice Note also cites EU case law. The UK ceased to be an EU Member State on 31...

Why is the exemption for financial services important? VAT is a significant issue for firms in the financial sector because supplies of certain financial services to customers who belong in the UK are exempt from UK VAT. This matters because: businesses do not charge VAT on services that fall within the exemption; and those businesses cannot recover input VAT on costs they incur when making an onward exempt supply Dealing with securities exemption The issue, transfer, receipt of, or any dealing with: any security; or secondary security is exempt from VAT. Throughout this Practice Note, this is described as the 'dealing with securities exemption'. This Practice Note also looks at examples of how the dealing with securities exemption applies in practice. For detailed definitions and the conditions attaching to this exemption, see Practice Note: Exemption from VAT for dealing with securities and underwriting. The supply of...

This Practice Note addresses opting to tax land and buildings. It looks at who may make the election, the breadth of that election, how it is exercised and notified, the consequent effects, when it can be withdrawn, and the pros and cons of opting. For situations where the election is expressly disapplied, see Practice Notes: Option to tax—disapplication for residential and other property and Option to tax—disapplication under anti-avoidance rules. Why does this matter? By default, property dealings are VAT‑exempt (see Practice Note: Exemption from VAT for land and buildings), meaning no VAT is charged and associated input tax is irrecoverable. Electing to opt generally converts supplies into taxable ones and enables input tax recovery. In day‑to‑day practice, the majority of commercial property is covered by an option to tax. As a rule, once a property owner has opted, the election governs all of their...

FORTHCOMING CHANGE : HMRC issued a call for evidence, ‘ Simplifying the VAT Land Exemption’, in May 2021, seeking views and input on bold options for redefining the exemption’s scope and future direction. Among the ideas were bringing all ‘short‑term or minor’ rights over land within the VAT net, or abolishing the existing ‘option to tax’ regime and instead treating every land deal as subject to VAT, with targeted carve‑outs for, for example, residential or charitable property. While these suggestions largely failed to win favour with respondents, they may nevertheless signal narrower and potentially more suitable reforms that HMRC could look to advance in the near term. The evidence‑gathering consultation exercise ran from 12 May 2021 to 3 August 2021. A response summary appeared on Tax Administration and Maintenance Day on 30 November 2021, confirming that the government did not, at that point, plan any...

Single composite supplies vs multiple supplies When a supply consists of several components attracting different VAT treatments, a central issue is whether those components should be taxed separately for VAT purposes (a multiple or mixed supply) or whether the bundle should receive a single VAT treatment (a single or composite supply) and, if so, which one applies. This conundrum has repeatedly perplexed the courts, HMRC and taxpayers, and has frequently and regularly reached both the domestic courts and the EU Court of Justice. This Practice Note outlines the present position in law and administrative practice in this area today. The UK left EU membership on 31 January 2020, and the implementation period—during which, for many purposes, the UK continued to be treated as a Member State—ended at 11pm on 31 December 2020. For guidance on the ongoing significance of EU Directives, and of the Court of...

Why is the exemption for financial services important? VAT is a significant concern for businesses in the financial sector, since the supply of certain financial services to customers who belong in the UK is exempt from UK VAT. This is important because: businesses will not levy VAT on services that fall within the exemption, and such businesses cannot recover input VAT on supplies they receive when making an onward exempt supply The financial services exemption from VAT The UK exemption for financial services is derived from the relevant provisions of Directive 2006/112/ EC (the VAT Directive). These have been enacted into UK law by Schedule 9, Part II, group 5 of the Value Added Tax Act 1994 ( VATA 1994), which sets out a range of items within the exemption. This Practice Note focuses on the exemption for dealing with securities ( VATA 1994, Sch 9, Part II,...

Where is a supply made for VAT purposes? To work out whether a supply is liable to UK VAT or VAT in another jurisdiction, you must apply the place of supply rules. As set out in Practice Note: When does VAT apply? UK VAT is only due on a supply made in the UK. In many instances it seems clear that a supply takes place in the UK and is therefore within UK VAT, but where goods and services are: bought from, or exported to, overseas jurisdictions, or of a particular kind the position is less straightforward and a detailed review of the place of supply rules is required to determine the VAT place of supply. There are separate rules to establish: the place of supply of services, and the place of supply of goods Broadly, these rules are designed to prevent double...

The term ‘business’ is a concept which underpins the operation of VAT because: a person is only liable or entitled to register for VAT (ie is a taxable person) when they make taxable supplies in the course or furtherance of a business VAT can be charged solely by someone who is in business and registered for VAT, and whether a person must register depends on whether they are a taxable person and thus in business a person is entitled to recover VAT only where that VAT was incurred for the purposes of their taxable business Accordingly, establishing whether a person is in business for VAT is of real importance. While in many situations it is clear that a person is in business, this is not always so. This Practice Note contains references to EU Directives and case law. On 31 January 2020, the UK ceased to be an EU...

Background On 27 June 2016, the Council of the European Union adopted targeted rules governing VAT treatment of vouchers via Council Directive 2016/1065 (the Vouchers Directive ( EU) 2016/1065). That directive modifies Council Directive 2006/112/ EC. Its purpose is to secure consistent, harmonised VAT outcomes for vouchers across Member States. The framework applies to vouchers issued after 31 December 2018. Before then, the EU lacked a common definition of a voucher, and some cross-border voucher dealings escaped VAT or suffered double charge. Following an HMRC consultation running from 1 December 2017 to 23 February 2018, the Finance Act 2019 ( FA 2019) implemented the Vouchers Directive into UK law for vouchers issued on and after 1 January 2019. The measures sit in FA 2019, s 52 and Sch 17, constituting Schedule 10B to the Value Added Tax Act 1994 ( VATA 1994). Although the UK left the EU on...

This Practice Note reviews the VAT position where staff are supplied in the course or furtherance of a business. It is essential to determine whether there is a supply of staff, an introduction to staff, or a service delivered using staff, as each is treated differently for VAT. This distinction is particularly important for employment bureaux, whose activities may involve supplying staff and/or providing introductions to staff in different parts of the business... What is a supply of staff for VAT purposes? HMRC indicates that a business makes a supply of staff for VAT purposes when, for consideration, it grants another party the use of an individual who is either: contractually employed or otherwise engaged by the first business; or a director of the company For VAT, it is immaterial whether the individual’s employment or engagement is evidenced by a formal contract, a letter of...

For VAT purposes, it is essential to decide: firstly, whether a supply has occurred secondly, if the supply is of goods or of services thirdly, the moment at which VAT law treats the supply as taking place (the time of supply rules) The time of supply rules are used to determine: when VAT must be accounted for to HMRC the VAT rate that applies For further detail on how these rules operate in relation to property transactions, see Practice Note: VAT—time of supply of land. Has a supply taken place? A transaction must amount to either a supply of goods or a supply of services. For more on assessing whether a supply exists and whether it is one of goods or of services, see Practice Note: When does VAT apply?— A supply of goods or a supply of...

This Practice Note addresses the VAT time of supply rules applying to property transactions. For a summary of the general time of supply framework, see Practice Note: VAT time of supply rules—when is a supply made? Why does this matter? VAT must be accounted for to HMRC on the VAT return covering the period in which the time of supply—often called the ‘tax point’—arises in practice. If that point precedes the customer’s obligation to pay the VAT to the supplier, the supplier will be out of pocket and may need to finance the VAT amount from their own resources. Solicitors should determine when VAT will fall due to HMRC to avoid this outcome or, at the very least, ensure the client knows it will occur and plan accordingly. It can be prudent for the parties to agree when the VAT sum is paid, aligning payment terms with the tax...

As further explained in Practice Note: What is VAT?, ordinarily In typical circumstances: the purchaser pays the supplier an amount matching the VAT due on the supply, in accordance with the agreement between them; and the supplier, in turn, is required to account for that VAT to HMRC. The UK reverse charge is a mechanism that shifts the duty to account for VAT to HMRC away from the supplier and onto the recipient, effectively reversing the obligation......

Even though the end consumer ultimately shoulders VAT, the duty to pay it to HMRC sits with VAT‑registered suppliers of goods and services. For more detail, see below: How is VAT collected? How is VAT collected? This Practice Note sets out the practical steps businesses use when paying VAT to HMRC and also refers to the EU VAT Directive 2006/112/ EC. The UK ceased to be an EU Member State on 31 January 2020 and, from that date, entered an implementation period ( IP) during which it was largely treated as a Member State and remained bound by EU law. The IP ended at 11 pm on 31 December 2020. At that point, EU‑derived rights and legislation—labelled retained EU law ( REUL)—were carried over into domestic UK law. For more on REUL and tax, see Practice Note: Retained EU law and tax. From 1 January 2024, any REUL...

This Practice Note considers the VAT place of supply rules for property transactions and related services. For guidance on where supplies of other services, or of goods, are treated as made, see Practice Notes: VAT place of supply rules—where is a supply made? and VAT place of supply rules—special rules for services. This Practice Note includes references to EU legislation, guidance and case law. For discussion of the continuing effect 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 stated otherwise, all judgments of the EU Court of Justice mentioned in this Practice Note were determined before the end of the Brexit implementation period. Why does this matter? UK VAT is chargeable only when the supply is regarded as made in the UK. If not, it falls...

This Practice Note outlines when someone can become liable to a VAT-related penalty. A person charged with a VAT penalty may have a right of appeal; for guidance on appeal rules, see Practice Note: Appealing an HMRC decision. Civil penalties There are two broad types of civil penalties: those arising from failure to meet basic compliance obligations, and those stemming from more serious conduct or omissions This Practice Note highlights the principal penalties in each group; for a comprehensive list, consult the further reading link to De Voil Indirect Tax Service [ V5.332]. Civil penalties are issued by HMRC through assessment; for general information on assessments, see Practice Note: VAT assessments. Penalties for basic compliance failures Penalties apply where a taxpayer does not meet core VAT compliance duties, including: breach of regulations made under VATA 1994. These regulations set out detailed collection and payment rules, so most...

Businesses are partially exempt for VAT purposes if they make both taxable and exempt supplies. Businesses that make both taxable and exempt supplies are treated as partially exempt for VAT purposes. For a description of the types of supplies that are exempt from VAT, see Practice Note: Exemptions from VAT. This Practice Note sets out: when a partly exempt business may reclaim input tax the standard method for determining recoverable input tax the de minimis limits governing input tax recovery how to perform the annual adjustment the operation of the standard method override an overview of special methods for calculating recoverable input tax the special method override the effect of non-business activities on partial exemption how the partial exemption rules apply to VAT groups For guidance on reclaiming VAT on professional fees (of...

Disapplication of the VAT option to tax for residential and some other property This Practice Note explains when the VAT option to tax is disapplied for residential and certain other property, and refers to the Practice Note on the option to tax land and buildings. It does not address disapplication under the anti-avoidance provisions; for that, see the Practice Note on option to tax—disapplication under anti-avoidance rules. Where the conditions bite, they override an option to tax so that a sale or letting is exempt. In situations where these provisions apply, the purchaser or tenant would be unable to reclaim the VAT, so exemption can be a valuable advantage. However, the vendor or landlord would be unable to recover associated VAT and may face a charge under the capital goods scheme ( CGS); see Practice Note on VAT—capital goods scheme ( CGS). These...