Category Archives: Planning

VAT: Definition of insurance

By   5 September 2023
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Further to my article on insurance and partial exemption, HMRC has published a new definition of what insurance means for VAT as a consequence of the CJEU United Biscuits (Pension Trustees) Ltd and another v HMRC [2020] STC 2169 case.

It is set out in para 2.2 of Public Notice 701/36

What insurance is

There is no statutory definition of insurance, although guidance can be gained from previous legal decisions in which the essential nature of insurance has been considered.

The Court of Justice of the European Union , in the case of United Biscuits (Pension Trustees) Ltd & Anor v R & C Commrs (Case C235-19) [2020], upheld the definition given in the case of Card Protection Plan Ltd v C & E Commrs (Case C-349/96) [1999] which concluded that:

“…the essentials of an insurance transaction are… that the insurer undertakes, in return for prior payment of a premium, to provide the insured, in the event of materialisation of the risk covered, with the service agreed when the contract was concluded”.

HMRC also accept that certain funeral plan contracts are insurance (and therefore exempt from VAT), even though they are not regulated as such under the FSMA insurance regulatory provisions.

Vehicle breakdown insurance is also seen as insurance even though providers are given a specific exclusion under the FSMA from the requirement to be authorised.

VAT: Late payment interest rates rise to 5.25%

By   5 September 2023
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HMRC late payment interest rates for late payments will increase following the Bank of England interest rate rise to 5.25%. These changes will come into effect on:

  • 14 August 2023 for quarterly instalment payments
  • 22 August 2023 for non-quarterly instalments payments

VAT: Powers of HMRC – The Impact Contracting Solutions Limited UT case

By   5 September 2023
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Latest from the courts

In the Impact Contracting Solutions Limited (ICS) Upper Tribunal (UT) case the issue was whether HMRC had the power to cancel the VAT registration where that person has facilitated the VAT fraud of another ie; the scope of the “Ablessio” principle. It also illustrates the impact of EU cases on UK courts.

Background

ICS’s customers were temporary work agencies, and its suppliers were approximately 3,000 mini-umbrella companies (“MUCs”) which supplied labour. HMRC decided to cancel ICS’s VAT registration number with reliance on the principle in the decision of the Court of Justice of the European Union (CJEU) in Valsts ienemumu dienests v Ablessio SIA (C-527/11) (“Ablessio”). HMRC considered that ICS was registered for VAT principally or solely to abuse the VAT system by facilitating VAT fraud, and that, in such circumstances, they were empowered by the principle in Ablessio to cancel the registration. In particular, HMRC considered that the arrangements between ICSL and the MUCs were contrived, with the effect that the MUCs failed properly to account for VAT on their supplies to ICS.

ICS appealed against HMRC’s decision to cancel its registration.

The Issues

Does the principle in Ablessio apply only to a party that has itself fraudulently defaulted on its VAT obligations, or does it similarly apply to a party who has facilitated the VAT fraud of another party?

If the Ablessio principle does apply to a party who has facilitated the VAT fraud of another party, is simple facilitation sufficient, or must it additionally be proved that:

(a) the facilitating party was itself dishonest, or

(b) the facilitating party knew that it was facilitating the fraud, and/or

(c) the facilitating party should have known that it was facilitating the fraud?

The First Tier Tribunal (FTT) decided that Ablessio applies both to a party that has fraudulently defaulted on its VAT obligations and to a party who has facilitated the VAT fraud of another party. Further that simple facilitation by a party of the VAT fraud of another is not sufficient to apply the Ablessio principle. However, it is not necessary to prove that the facilitating party was itself dishonest. It must, however, be proved that the facilitating party knew or should have known that it was facilitating the VAT fraud of another party.

Decision

The appeal was rejected an the FTT’s decision was upheld. HMRC powers are not contrary to UK VAT legislation.

The application by HMRC of Ablessio is not contra legem or otherwise prohibited by the VAT legislation where it is applied to deregister a taxpayer who has either fraudulently defaulted on its VAT obligations or facilitated the VAT fraud of another party and at the relevant time has also made taxable supplies unconnected with such fraud or facilitation of fraud and which would result in a liability to be registered.

Ablessio applies to the deregistration by HMRC of a person as well as to a refusal by HMRC to register a person. It also provides for the deregistration of a person who has facilitated the VAT fraud of another, where the person to be deregistered knew or should have known that it was facilitating the VAT fraud of another.

Commentary

This decision was released this month and illustrates the ongoing influence of EU legislation and cases, “despite” Brexit

EU legislation does not, by itself, fall within the scope of retained EU law (see below). However, domestic legislation implementing EU rules forms part of EU-derived domestic legislation and is preserved in domestic law.

The VAT Act 1994 is not affected by Brexit because it is an Act of Parliament and, therefore, remains effective unless it is changed by Parliament.

Overview of the impact of EU legislation

Post-Brexit, the UK could have decided that UK courts should not be bound by EU case law. However, this would have resulted in a situation where the UK courts effectively had to begin with a blank piece of paper in deciding how a piece of retained EU law should be interpreted or applied. This approach would have resulted in considerable uncertainty for business over how retained EU law would operate. In order avoid this, section 6 of the European Union (Withdrawal) Act 2018 provides that:

  • CJEU judgments made on or before 31 December 2020 are binding on UK courts
  • CJEU judgments made after that date are not binding, but the UK courts are free to have regard to them, so far as they are relevant to the matter before the court.

Going forward

Helpful guidance is provided in the e-Accounting Solutions vs Global Infosys case (not a VAT case).

The Retained EU Law (Revocation and Reform) Act 2023 means that the principle of EU-law conforming construction is a corollary of the supremacy of EU law (which is abolished under Section 3 of the Act) and will therefore no longer apply from 2024.

The principles of statutory construction under English Law require a purposive interpretation of legislation, whether or not EU law principles are engaged. This involves considering the context in which the legislation was made. Depending on the legislation concerned, this process may be guided by “external aids”. External aids referred to in the judgment include Explanatory Notes and Government White Papers, and could also presumably include references to Hansard where seen as appropriate by the courts. To the extent that domestic enactments were made for the purpose of implementing EU law, the EU law position is such an “external aid” and the UK law should be construed accordingly.

Where Parliament used the same language as the Directive, one may assume that it intended to mean the same – accordingly, the CJEU interpretation of Directive-terms informs the interpretation of the UK statute.

However, the statutory language remains paramount – “external aids”, to which EU law instruments are effectively downgraded in UK law from 2024, cannot displace unambiguous statutory language in UK enactments that is inconsistent with EU law.

VAT: eInvoicing Glossary

By   1 September 2023
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Further to my article on eInvoicing, I thought it may be helpful if I compiled a Glossary of terms used in connection with the subject. These definitions have been compiled from various sources and I have tried to keep them as “non-techy” as possible.

Accounts Payable Automation (APA)

An automated management of accounts payable by dealing with invoices received and payments sent. It requires integration of the invoicing process with accounting software.

Accounts Receivable Automation (ARA)

As APA but for accounts receivable (dealing with invoices sent and payments received).

Acknowledgement Of Receipt

The acknowledgement of receipt of an EDI message – the syntax and semantics are checked, and a corresponding acknowledgement is sent by the receiver.

Advanced Electronic Signature

A digital signature based on an advanced certificate uniquely identifying the signer. The signature keys are used with a high level of confidence by the signatory, who has sole control of the signing key.

Agreed Format

The electronic data format that businesses have agreed to treat as the data format of the original electronic invoice for tax purposes. 

Audit Trail

The system which traces the detailed transactions relating to any item in an accounting record.

Authentication

The process of verifying a claim that a system entity or system resource has a certain attribute value.

Authenticity Of Origin

Assurance of the identity of the supplier or issuer of the invoice and that the document is the true original.

B2B

Business to business.

B2C

Business to consumer

Biller Portal

Invoice providers’ web portal where invoice receivers can log on with a username/password to check and manage their invoices.

Billing Service Provider

A provider offering services to senders and receivers which involves the sending, collection and administrative processing of eInvoices.

Certification Service Provider

An entity which issues digital certificates or provides services related to electronic signatures.

Clearance

A tax authority approval being a precondition for the validity of a document.

Clearance Model

A tax authority is involved in the invoice data exchange between the vendor and the customer as a third party. It allows the tax authorities a real-time insight into the business transactions. The eInvoice must be approved by the tax authority before being sent to the recipient.

Continuous Transaction Controls (CTC Reporting)

Obligations requiring a taxpayer to submit relevant data to the relevant tax authority before, or shortly after, a transaction.

Data Integrity

Checks that data has not been changed, destroyed, or lost in an unauthorised or accidental manner.

Digital Certificate

A file or electronic password that proves the authenticity of a device, server, or user via cryptography and the public key infrastructure.

Digital Reporting Requirements (DRR)

The obligation for a taxable person to submit digital data on their transactions to HMRC.

Digital Signature

A technique used to validate the authenticity and integrity of a digital document, message or software.

eAccounting

The requirement for a taxable person to submit digital business records to a tax authority platform.

eArchiving

Storing electronic documents as evidence for a prescribed period of time according to the relevant HMRC regulations.

Electronic Data Interchange (EDI)

An intercompany communication of business documents in a standard format. EDI is a standard electronic format that replaces paper-based documents such as purchase orders or invoices.

eInvoice

Details here.

eReceipt

Electronically issued customer receipts.

EU eInvoicing

Details/how to here.

Format

The method of presentation of electronic data in an electronic document.

Four Corner Model

A process where suppliers and customers have one or several service providers that ensure the correct processing between them.

Invoicing Directive

The eInvoicing Directive which requires EU entities to receive and process all electronic invoices – compliant with the European standard.

Mandatory eInvoicing

The obligatory use of eInvoicing by business which is imposed by the country’s authorities. Around 80 countries mandate eInvoicing.

Pan-European Public Procurement On-Line (Peppol)

An EDI protocol, designed to simplify the purchase-to-pay process between government bodies and suppliers. It facilitates electronic ordering, invoicing and shipping between government organisations and businesses.

Periodical Transaction Reporting

An obligation for a taxpayer to submit transactional data on a monthly, quarterly or annual basis.

QR Code

eInvoice verification which allows users to verify the authenticity of an eInvoice based on the QR code appearing on it. The QR code is used to provide information related to a particular invoice.

Qualified Electronic Signature

An electronic signature which is compliant with EU Regulation 910/2014 for electronic transactions within the internal European market. It enables verification of the authorship of a declaration in electronic data exchange over long periods of time.

Post Audit eInvoicing

An invoice is sent to the tax authorities only after the transaction has been completed. The business must guarantee the authenticity and integrity of the invoice and archive the document to satisfy audit requirements. This is being overtaken by the Clearance Model (above). 

Readability

The ability of a tax administration to interpret the content of an eInvoice.

Real-time reporting

An obligation for a taxpayer to submit fiscal data to a tax authority platform immediately, or shortly after, a transaction.

Transactional Data

Information that is captured from transactions. It records the time of the transaction, the place of supply, the value of the supply, the payment method, discounts if any, and other quantities and qualities associated with the transaction.

Three Corner Model

A process where invoice senders and receivers are connected via a single service provider for the sending and receiving of messages.

Two Corner Model

A process where invoice senders and receivers are connected directly for the sending and receiving of messages.

UN/CEFACT

The United Nations’ Centre for Trade Facilitation and Electronic Business has a global remit to secure the interoperability for the exchange of information between private and public sector entities.

Unstructured Invoice Document

An invoice that is created manually or automatically from a system and is not in a database. An Unstructured Document may contain data, but the data is not organised in a fixed format. Consequently, it is difficult to find and capture the data for use.

VAT Listing

An obligation for a business to submit VAT transactional data according to a domestic format. The data includes: information on values and recipients, as well as data which is required to be included on an invoice. The data are submitted on a periodic basis, often jointly with the VAT return.

Web Payment

An online service that manages the transfer of funds from a customer to the merchant of an e-commerce website.

Web Publication

A method of exchanging invoices with a buyer by placing an original electronic invoice on an agreed web site, in a secure closed environment operated by the supplier.

A VAT Did you know?

By   29 August 2023
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Hard or soft? Stiff or floppy?

Sssh at the back, this is important…

Whether cakes and biscuits go hard or soft when stale helps to determine whether they are indeed cakes or biscuits (cakes go hard, biscuits go soft). This is the difference between VAT at 20% and zero rating for some products – yes… Jaffa Cakes!.

Whether printed matter is stiff or floppy can also result in either 20% or zero rated treatment. In this case, for single sheet products, eg; leaflets, limp is good and hard can result in the VAT hit.

What did you think I was talking about? Stop making up your own jokes…

VAT – Tour Operators’ Margin Scheme (TOMS) A Brief Guide

By   24 August 2023
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VAT and TOMS: Complex and costly

Introduction

The tour operators’ margin scheme (TOMS) is a special scheme for businesses that buy in and re-sell travel, accommodation and certain other services as principals or undisclosed agents (ie; that act in their own name). In many cases, it enables VAT to be accounted for on travel supplies without businesses having to register and account for VAT in every country in which the services and goods are enjoyed. It does, however, apply to travel/accommodation services enjoyed within the UK and wholly outside the UK.

Under the scheme:

  • VAT cannot be reclaimed on margin scheme supplies bought in for resale. VAT on overheads outside the TOMS can be reclaimed in the normal way.
  • A UK-based tour operator need only account for VAT on the margin, ie; the difference between the amount received from customers and the amount paid to suppliers.
  • There are special rules for determining the place, liability and time of margin scheme supplies.
  • VAT invoices cannot be issued for margin scheme supplies.
  • In-house supplies supplied on their own are not subject to the TOMS and are taxed under the normal VAT rules. But a mixture of in-house supplies and bought-in margin scheme supplies must all be accounted for within the TOMS.
  • No UK VAT is due via TOMS on travel/accommodation/tours enjoyed outside the UK.

Who must use the TOMS?

TOMS does not only apply to ‘traditional’ tour operators. It applies to any business which is making the type of supplies set out below even if this is not its main business activity. For example, it must be used by

  • Hoteliers who buy in coach passenger transport to collect their guests at the start and end of their stay
  • Coach operators who buy in hotel accommodation in order to put together a package
  • Companies that arrange conferences, including providing hotel accommodation for delegates
  • Schools arranging school trips
  • Clubs and associations
  • Charities.

The CJEC has confirmed that to make the application of the TOMS depend upon whether a trader was formally classified as a travel agent or tour operator would create distortion of competition. Ancillary travel services which constitute ‘a small proportion of the package price compared to accommodation’ would not lead to a hotelier falling within the provisions, but where, in return for a package price, a hotelier habitually offers his customers travel to the hotel from distant pick-up points in addition to accommodation, such services cannot be treated as purely ancillary.

Supplies covered by the TOMS

The TOMS must be used by a person acting as a principal or undisclosed agent for

  • ‘margin scheme supplies’; and
  • ‘margin scheme packages’ ie single transactions which include one or more margin scheme supplies possibly with other types of supplies (eg in-house supplies).

‘Margin scheme supplies’ are those supplies which are

  • bought in for the purpose of the business, and
  • supplied for the benefit of a ‘traveller’ without material alteration or further processing

by a tour operator in an EU country in which he has established his business or has a fixed establishment.

A ‘traveller’ is a person, including a business or local authority, who receives supplies of transport and/or accommodation, other than for the purpose of re-supply.

Examples

If meeting the above conditions, the following are always treated as margin scheme supplies.

  • Accommodation
  • Passenger transport
  • Hire of means of transport
  • Use of special lounges at airports
  • Trips or excursions
  • Services of tour guides

Other supplies meeting the above conditions may be treated as margin scheme supplies but only if provided as part of a package with one or more of the supplies listed above. These include

  • Catering
  • Theatre tickets
  • Sports facilities

This scheme is complex and specialist advice should always be sought before advising clients.

VAT: Electronic Invoicing (eInvoicing)

By   21 August 2023
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The rules for sending, receiving and storing VAT invoices in an electronic format.

What is an eInvoicing?

eInvoicing is the transmission and storage of invoices in an electronic format without duplicate paper documents. The format may be a structured format such as XML or an unstructured format such as PDF.

The benefits of eInvoicing

eInvoicing offers significant advantages over paper invoices. The electronic transmission of documents in a secure environment usually provides for:

  • structured data for auditing
  • improved traceability of orders
  • decreased reliance on paper reducing storage and handling costs
  • rapid access and retrieval
  • improved cash flow
  • security and easier dispute handling

Currently, a business does not have to use eInvoicing, but if it does, in conjunction with paper invoices, (a so-called dual system) it can only do this for a short period, ie; if eInvoicing is being trialled.

It is not necessary to inform HMRC that a business is using eInvoicing.

Requirements

eInvoices must contain the same information as paper invoices.

A business may eInvoice where the “authenticity of the origin”, “integrity of invoice data”, and “legibility” can be ensured, and the customer agrees to receive eInvoices

  • authenticity of the origin means the assurance of the identity of the supplier or issuer of the invoice
  • integrity of content means that the invoice content has not been altered
  • legibility of an invoice means that the invoice can be easily read

A business is free to select a method of ensuring the above requirements. Examples of ensuring authenticity and integrity include:

Formats

HMRC accepts a variety of eInvoice message formats, including:

  • traditional EDI standards such as UN/EDIFACT, EANCOM and ODETTE
  • XML-based standards
  • comma-delimited ASCII, PDF

The eInvoices must be transmitted in a secure environment, using industry-accepted authenticity and security technologies, including, but not limited to: http-s, SSL, S-MIME and FTP.

Internal controls required

A business will need to demonstrate that it has control over:

  • completeness and accuracy of the invoice data
  • timeliness of processing
  • prevention, or detection of, the possible corruption of data during transmission
  • prevention of duplication of processing (by the person who receives the invoice)
  • prevention of the automatic processing, by the person who receives the invoice, of certain types of invoice on which VAT may not be recoverable – for example, margin scheme invoices
  • a recovery plan in case of a system failure or loss of data
  • an audit trail between eInvoicing systems and the internal application systems which are used to process the eInvoices

Storage

The same rules apply to storage of eInvoices as to paper invoices. A business must normally keep copies of all invoices for six years.

HMRC Access

HMRC may request access to:

  • the operations of any computer systems which produce or receive VAT invoices, and to the data stored on them
  • supporting documentation including; file structures, audit trail, controls, safe keeping, and information about how the accounting system is organised
  • information about the system’s interrogation facilities

HMRC must be able to take copies of information from the system.

If a business cannot meet the conditions for transmission and storage of eInvoicing, it will have to issue paper invoices.

VAT: Land related services

By   21 August 2023
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Whether a service is “related to land” is important because there are distinct rules for this type of supply compared to the General Rule. The place of supply (POS) of land related services is where the land is located, regardless of where the supplier or recipient belong.

The rule applies only to services which relate directly to a specific site of land. This means a service where the land is a central and essential part of the service or where the service is intended to legally or physically alter a property.

It does not apply if a supply of services has only an indirect connection with land, or if the land related service is only an incidental component of a more comprehensive supply of services.

What is land?

For the purpose of determining the POS, land (also called immoveable property in legislation) means:

  • a specific part of the earth, on, above or below its surface
  • a building or structure fixed to, or in, the ground above or below sea level which cannot be easily dismantled or moved
  • an item making up part of a building without which it is incomplete (such as doors, windows, roofs, staircases and lifts)
  • items of equipment or machinery permanently installed in a building which cannot be moved without destroying or altering the building

What services directly relate to land?

HMRC provide the following examples:

  • construction or demolition of a building or permanent structure
  • surveying and assessing property
  • valuing property
  • providing accommodation in hotels, holiday camps, camping sites or timeshare accommodation
  • maintenance, renovation and repair of a building
  • property management services carried out on behalf of the owner
  • arranging the sale or lease of land or property
  • drawing up of plans for a building or part of a building designated for a particular site
  • services relating to the obtaining of planning consent for a specific site
  • on-site security services
  • agricultural work on land
  • installation and assembly of machines which, when installed, will form a fixture of the property that cannot be easily dismantled or moved
  • the granting of rights to use all or part of a property (such as fishing or hunting rights and access to airport lounges)
  • legal services such as conveyancing and drawing up of contracts of sale or leases, including title searches and other due diligence on a specific property
  • bridge or tunnel toll fees
  • the supply of space for the use of advertising billboards
  • the supply of plant and equipment together with an operator
  • the supply of specific stand space at an exhibition or fair without any related services

What services are only indirectly related to land?

The following HMRC examples are not deemed to be land related services:

  • management of a property investment portfolio
  • drawing up of plans for a building that do not relate to a particular site
  • arranging the supply of hotel accommodation or similar services
  • installation, assembly, repair or maintenance of machines or equipment which are not, and do not become, part of the building
  • accountancy or tax advice, even when that relates to tax on rental income
  • the supply of storage of goods in property without a right to a specific area for the exclusive use of the customer
  • advertising services including those that involve the use of a billboard
  • marketing, photography and public relations
  • the supply of equipment with an operator, where it can be shown that the supplier has no responsibility for the performance of the work
  • general legal advice on contractual terms
  • legal services connected with fund raising for property acquisitions or in connection with the sale of shares in a company or units in a unit trust which owns land
  • stand space at an exhibition or conference when supplied as part of a package with related services, eg; design, security, power, telecommunications, etc.

These examples are mainly derived from case law and the department’s understanding of the legislation and they are not exhaustive.

The Reverse Charge

If an overseas supplier provides land related services in GB, the POS is GB and the reverse charge applies if the recipient is GB VAT registered.

If a GB supplier provides services directly related to land where the land is located outside GB, the POS is not GB. This means that there is a supply in another country. VAT rules in different countries vary (even across the EU) – some countries use the reverse charge mechanism, but others require the GB supplier to VAT register in the country of the POS (where the land is physically located).

VAT: How to use HMRC advice and information

By   8 August 2023
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HMRC have updated information (on 30 June 2023) on how to use its guidance. This includes when a taxpayer can rely on information and/or advice provided by HMRC. This is the first update since the original publication in March 2009.

The document covers; how to check the advice and information given give applies to a business, what a taxpayer can expect from HMRC, and what to do if you think you have incorrect information.

This covers enquiries made via:

  • letters
  • telephone calls
  • pages on gov.uk
  • webchat
  • posts on social media

HMRC publishes information and guidance that can address common issues, but this does not always provide a definitive answer in every situation. If this is the case, a business can:

Reliance on incorrect information

HMRC says:

“You may be able to rely on incorrect advice and information from HMRC, if it’s both:

  • reasonable for you to expect this
  • very unfair for HMRC to act in a different way from the advice and information given.”

HMRC will take a number of things into account when considering this. In some cases, there may be a strong reason for HMRC to act in a different way from the advice and information given.

Where relevant, HMRC will generally consider whether:

  • you told HMRC about all the relevant facts
  • HMRC’s advice and information was clear and certain
  • you already relied on the advice and information and would be worse off if HMRC did not act in line with it

Once it is clear HMRC’s advice and/or information was incorrect, a taxpayer must make sure to use the correct advice and information going forward.

Right of appeal

There is no general right of appeal against the advice and information HMRC provides, except where rights of appeal are set out in statute.

NB: It is always worth considering the HMRC Charter which sets out what a taxpayer can expect from HMRC and what HMRC expects from a taxpayer.

That is all well and good, but I have written about this: VAT – Do as HMRC say…. and if you do… they may still penalise you!

 

Overages – what are they and what is the VAT treatment?

By   4 August 2023
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Land and property transactions are often complex and high value for VAT purposes. One area which we have been increasingly involved with is overages.

What is an overage?

An overage is an agreement whereby a purchaser of land agrees to pay the vendor an additional sum of money, in addition to the purchase price, following the occurrence of a future specified event that enhances the value of the land. This entitles the seller to a proportion of the enhanced value following the initial sale. Overages may also be called clawbacks, or uplifts.

Overages are popular with landowners who sell with the benefit of development potential and with buyers who may be able to purchase land at an initial low price with a condition that further payment will be made contingent on land increasing in value in the future – this may be as a result, of, say, obtaining Planning Permission.

VAT Treatment

This is not free from doubt. HMRC’s current view is that the VAT treatment of the overage follows the VAT treatment of the initial supply. This means that it is deemed to be additional consideration for the original supply, so if the land was subject to an Option To Tax (OTT) when originally disposed of  the overage payment would be subject to VAT at 20%. Conversely, if the land was sold on an exempt basis, the overage is similarly VAT free and it is important to recognise this and not to charge VAT unnecessarily which would create difficulties for the buyer (because it would not be a VAT-able supply, HMRC would disallow a claim for input tax).

It is crucial to identify this VAT outcome, especially as there could be a long period between the original sale and the overage and there may be a succession of overage payments. Comprehensive records should be made and retained on the VAT status of land sold.

Uncertainty

Uncertainty arises because HMRC have changed its view on overages. The original interpretation was that there were two separate supplies, each with distinct VAT treatments. As there was no link to the original supply, the overage was mandatorily standard rated, even if the initial supply was exempt.

Additionally, take the position where the original sale was standard rated due to an OTT on the land, and the buyer subsequently built and sold new dwellings (which effectively disapplies the OTT via para 3, Notice 742A) it could be argued that the overage should be exempt as it is linked to the sale of the new houses.

We understand that HMRC’s analysis is that VAT treatment of overages is determined at the time of the original supply such that it cannot be affected by subsequent events.

In our view, the “new” HMRC view may be open to challenge – We await updated published guidance on this.