Legal Practice Notes

There is no blanket relief for charities from VAT on the supplies they make. Likewise, they get no relief on supplies they receive. Nevertheless, zero rating can apply in some circumstances, and certain exemptions and concessions may attach to supplies made by charities. Charities may undertake both primary and non‑primary purpose trading. In the former, trading occurs in furtherance of their charitable aims; in the latter, activities are used as an ancillary means of generating funds. Charities are not allowed to conduct non‑primary trading on any significant scale unless they establish subsidiary trading companies. If they proceed in that way, they will forfeit any VAT benefits available to the charity unless both the charity and the subsidiaries register for VAT and can be included within a VAT group. It is crucial to distinguish between ‘trading’ and ‘business’. A charity’s trading will...

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...

POTENTIAL FORTHCOMING CHANGE : HMRC is reviewing its guidance on the VAT exemption for financial services, and updates may follow... The VAT exemption for financial services The UK’s VAT exemption for financial services derives from Council Directive 2006/112/ EC (the VAT Directive). It has been implemented in domestic law through the Value Added Tax Act 1994 ( VATA 1994), Schedule 9, Group 5, which lists a range of exempt items. This Practice Note concentrates on the aspects covering fund management services (items 9 and 10 of Group 5). The practical operation of this exemption is explored in depth in: Practical application of the . This Practice Note cites EU Directives and case law. The UK left EU membership on 31 January 2020. From that date, the UK entered an implementation period ( IP) during which, for many purposes, it continued to be treated as an EU Member State and...

A person registered for VAT in the UK can have their registration cancelled, either on a mandatory basis or by choice. The following sets out the scope of this Practice Note and how deregistration operates in different contexts... This Practice Note looks at: the circumstances in which a business may, or must, have its VAT registration cancelled the implications that follow from deregistration the interaction between deregistration and the option to tax land, transferring a business as a going concern, and VAT groups The applicable rules depend on why the person became VAT registered in the first instance. A person will be registered because they make: taxable supplies in the UK (whether or not the business is established in the UK), and/or particular disposals of assets for which a VAT repayment is claimed (referred to as relevant...

Why is a cost sharing exemption needed? The cost sharing exemption ( CSE) has appeared in Directive 2006/112/ EC (the VAT Directive) since 1977. Yet the UK did not introduce it into domestic VAT legislation until 17 July 2012. In the interim, doubts persisted within the UK regarding both the scope and the purpose of the pertinent provision in the VAT Directive. This lack of clarity created an uneven playing field across the EU, as Member States applied the exemption in divergent ways. As a consequence, comparability between Member States was weakened. It also triggered EU litigation, the outcomes of which assist practitioners when construing the exemption and its limits. Historically, HMRC maintained that the UK’s VAT grouping provisions were sufficient to accommodate the CSE as envisaged by the VAT Directive. However, the European Commission initiated proceedings against various Member States for...

FORTHCOMING CHANGE : HMRC issued a call for evidence in 2019 on ‘simplifying’ the VAT partial exemption rules and the capital goods scheme ( CGS). In March 2021 this was followed by a summary of responses that set out adjustments to partial exemption processes and confirmed HMRC would continue to engage with stakeholders on other matters. No timetable was provided for any subsequent steps, yet it appears probable that, in due course, the CGS threshold for land and property will be lifted, perhaps to £1m, with other assets removed from the scheme altogether. Why does this matter? This Practice Note examines the principles of the VAT capital goods scheme. The CGS can give rise to a significant liability for property owners, especially on a disposal. That exposure is usually avoidable, but only where it is identified and appropriate measures are taken. This does not...

This Practice Note explains how a taxable person who has declared and remitted VAT on a supply, yet does not receive the price for that supply, can seek a repayment, in full or in part, of the VAT paid. This covers cases where consideration is not in fact received. There are separate routes depending on the facts: where, after the time of supply, the supplier agrees to repay or reduce the price charged, the adjustment is dealt with under the credit note rules where the price remains unpaid (in whole or in part) and the supplier ultimately writes it off as irrecoverable, the claim is addressed under the rules on bad debt relief This Practice Note focuses mainly on the VAT bad debt framework, but, to set matters in context, it also gives a short outline of the credit note provisions explained above. EU law Under Council...

ARCHIVED This Practice Note is archived and no longer maintained. It outlines the rules for disclosing arrangements designed to avoid value added tax ( VAT) that were implemented or promoted before 1 January 2018. For rules in force after that date, see Practice Note: Disclosure of tax avoidance schemes— VAT and other indirect taxes ( DASVOIT). For the rules on disclosing: avoidance of income tax, corporation tax, capital gains tax ( CGT) and national insurance contributions ( NICs), see Practice Note: Disclosure of tax avoidance schemes—income tax, corporation tax, CGT and NICs stamp duty land tax ( SDLT) avoidance, see Practice Note: Disclosure of tax avoidance schemes— SDLT inheritance tax ( IHT) avoidance, see Practice Note: Disclosure of tax avoidance schemes— IHT For the separate (but related) rules imposing sanctions on promoters of tax avoidance schemes ( POTAS), see Practice Note:...

VAT operates on self‑assessment, meaning that those registered for VAT must file VAT returns and, at the same time, settle any VAT they owe. In certain circumstances, for example where a person fails to file a return or files an inaccurate return, that framework can fail. In these situations, HMRC is empowered to recover the tax by issuing the person with an assessment for the unpaid VAT. If the assessment is not appealed, withdrawn or reduced, VAT assessed on a person is recoverable in the same manner as any other amount of VAT payable. This Practice Note sets out HMRC’s powers to raise assessments, together with the procedures and time limits it must follow. For guidance on appealing an assessment, see Practice Note: Appealing an HMRC decision. This Practice Note contains references to EU case law. The UK ceased to be a Member State of the EU on...

This Practice Note explores VAT matters encountered in the private equity fund arena. It proceeds on the basis of a standard UK private equity fund arrangement, with the vehicle established as a limited partnership. ( For a deeper look at how a typical UK private equity fund is put together, see Practice Note: Tax and private equity funds—fund structure.) This Practice Note reviews the VAT position for: investing in a limited partnership fund transferring interests in a limited partnership fund the general partner’s priority profit share whether VAT is payable on supplies of advisory and management services to a private equity fund For broader VAT background, see Practice Note: VAT basic principles—overview. Relevance of EU law This Practice Note refers to EU Directives and Court of Justice of the European Union ( CJEU) decisions. For guidance on the extent to which EU jurisprudence remains relevant for UK taxpayers after Brexit, see...

This Practice Note explores the EU doctrine of abuse of rights (also called abuse of law) in the VAT context, widely known as the Halifax principle. Although the doctrine can address both avoidance and fraudulent or evasive behaviour, this Note concentrates on its use in avoidance scenarios. EU law and Brexit VAT was historically a European tax shaped by EU law principles; therefore, any anti-avoidance measures needed to originate from, and be consistent with, those principles. Consequently, the UK’s domestic Ramsay principle has generally not been applied to VAT. ( For more on Ramsay, see Practice Notes: Ramsay as a guide to statutory construction and Ramsay—reality and legal form). Following the UK’s exit from the EU, certain EU-derived rights and legislation were preserved in UK law by the European Union ( Withdrawal) Act 2018 ( EU( W) A 2018) as retained EU law ( REUL). In...

Vertical agreements Under section 2(1) of the Competition Act 1998 ( CA 98), vertical agreements are banned. The Digital Markets, Competition and Consumers Act 2024 ( DMCC Act) has revised the language in section 2 so that, in specified situations, it captures arrangements carried out beyond the UK. The prohibition covers agreements between undertakings, concerted practices, and decisions of associations of undertakings that have as their object or effect the prevention, restriction or distortion of competition within the UK, or any part of it, and which may influence trade in the UK or a part of it where such agreements, decisions or practices are implemented, or intended to be implemented, in the UK. In all other instances, the ban extends to conduct likely to have an immediate, substantial and foreseeable impact on trade within the UK or a part of the UK. In...

FORTHCOMING CHANGES : At Budget 2025, the government confirmed that, when the energy profits levy ends, it will be succeeded by a permanent regime known as the oil and gas profits mechanism ( OGPM). The principal elements of the OGPM will be as follows: it will constitute a turnover-based tax applying to upstream oil and gas companies operating in the UK or on the UK continental shelf a company will be within scope where it disposes of oil or gas and the consideration received (ie the realised sale price) for that disposal exceeds the relevant threshold. For the financial year 2026–27, the thresholds will be US$90 per barrel for oil and 90p per therm for gas. In subsequent years, those thresholds will be adjusted by reference to the preceding year’s CPI the OGPM tax rate will be 35% The government has stated it will continue to work with the...

Unilateral relief Unilateral relief, akin to double tax relief, seeks to alleviate double taxation. Provided particular conditions are met and within specified limits, unilateral relief: is usually granted as a credit set against, and thus reduces, UK income tax, corporation tax or capital gains tax for overseas tax borne on the same income or gain is available where relief cannot be obtained under a double tax treaty (or a treaty exists but does not extend to the relevant category of income or foreign tax, such as local or provincial taxes) and is available to: UK tax resident persons, and foreign resident persons whose UK branch or agency or, for a company, UK permanent establishment, suffers third country tax (that is, foreign tax imposed by a...

FORTHCOMING CHANGE After a 2021 call for evidence and a 2023 consultation, the Autumn Budget 2024 confirmed that the government will bring forward new legislation to tackle non-compliance in the umbrella company market. Draft clauses were released on Legislation Day, 21 July 2025, with the provisions to be included in Finance Bill 2026. The reform, commencing in April 2026, will reallocate responsibility for accounting for Pay As You Earn ( PAYE) from employing umbrella companies to the recruitment agencies that place workers with end clients. If no employment agency features in the supply chain, the PAYE obligation will pass to the end client. For further detail on the announcement and the draft provisions, see News Analyses: Autumn Budget 2024— Tackling tax non-compliance in the umbrella company market and Legislation Day: Draft Finance Bill 2026—tackling non-compliance in the umbrella company market,...

This Practice Note examines key aspects of the UK UCITS regulatory regime, covering the authorisation process, UK UCITS management companies, master–feeder structures, depositaries, remuneration, investment information, and UK implementation and areas of UK divergence following the UK’s withdrawal from the EU. What is the UCITS Directive and what is a UCITS fund? Within the EU, the UCITS Directive—also known as UCITS IV ( Directive 2009/65/ EC)—replaced the original UCITS Directive in 2011 ( Directive ( EEC) 85/611). The objective of the initial UCITS Directive was to build a single market for open-ended retail investment funds, offering improved investor protection. The final text of UCITS IV was published in the Official Journal of the EU (the OJ) on 17 November 2009, with EU Member States required to implement it by 1 July 2011. UCITS funds are authorised open-ended investment funds that may be marketed to retail...

What are the remuneration codes? The FCA Handbook currently sets out four distinct remuneration codes (the Codes) in total: Alternative Investment Fund Managers ( AIFM) Remuneration Code ( SYSC 19B), which applies to Alternative Investment Fund Managers—see the relevant Practice Note: UK AIFM Remuneration Code Dual- Regulated Firms Remuneration Code ( SYSC 19D)—see the related Practice Note: Remuneration Code for Dual Regulated Firms MIFIDPRU Remuneration Code ( SYSC 19G)—see the related Practice Note: MIFIDPRU— Remuneration Code Undertakings for Collective Investment in Transferable Securities ( UCITS) Remuneration Code, located in the FCA Handbook SYSC 19E In addition, the CRR Remuneration Code is set out in the Remuneration Part of the PRA Rulebook and applies to CRR firms ( UK banks, building societies and designated investment firms). For further information, see Practice Note: PRA remuneration requirements for UK banks, building societies and systemically important investment firms. Rules on the...

Scope of this Practice Note This Practice Note sets out the investor disclosures that must be provided for UK UCITS funds, as that term is used in section 237 of the Financial Services and Markets Act 2000 ( FSMA 2000)—covering ‘authorised unit trust schemes’, ‘authorised contractual scheme’ and ‘authorised open-ended investment companies’. It additionally reviews the pertinent rules in the Financial Conduct Authority ( FCA) Handbook. In particular, it addresses the Collective Investment Schemes sourcebook ( COLL) and its relevant provisions. The scope includes obligations around the prospectus, reports, pricing information, and the key investor information document ( KIID). UK implementation of UCITS Undertakings for collective investment in transferable securities ( UCITS) are open‑ended collective investment schemes that adhere to the European framework co‑ordinating laws, regulations, and administrative provisions under the UCITS Directive ( Directive 2009/65/ EC, known as UCITS IV), as later amended by...

This Practice Note reviews the obligation on trustees to file a Trust and Estate Tax Return (form SA900) where a trust is chargeable to income tax and/or capital gains tax ( CGT). For guidance on the rules governing trust income, expenses and capital gains, and the computation of tax liabilities, see the Trusts—income tax and capital gains tax subtopic. For commentary on completing the Trust and Estate Tax Return for estates by personal representatives, see Practice Note: Estate tax returns and informal procedures. All UK express trusts (not solely those with a UK tax liability in a given tax year) must be registered with the Trust Registration Service ( TRS) unless an exemption applies. See Online registration and beneficial ownership information reporting requirements for trustees below for further guidance. Requirement to submit a tax return The income and gains of trusts fall within the Self...