Repayment interest and commercial restitution for VAT Autumn Budget 2025 representation by the Chartered Institute of Taxation.
This joint representation by the CIOT and the ATT covers the blatant unfairness of the amount of interest HMRC charges taxpayers when a business pays VAT late and the amount that HMRC pays a taxpayer when there are delays in making repayments to a business when they are due. Unsurprisingly, taxpayers have to pay a higher rate of interest; for reasons unknown!
Details here.
HMRC has issued new internal guidance on overages.
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
HMRC consider that the VAT liability of overage should be considered separately from the VAT liability of the initial sale. HMRC’s policy is that the VAT liability of an overage payment will generally be determined at the time of supply of the overage payment, rather than when the original land sale completed.
Overage payments where an option to tax is made after the initial grant – where an option to tax is made after the property has been sold to the buyer, any subsequent overage payment may be liable to the standard rate of VAT as a result of VAT Act 1994, Schedule 10, Paragraph 31 (unless the option to tax has been disapplied, eg; where a property intended for use as a dwelling). In such situations, where the overage payment is made after the dwellings are constructed on the land, and the original grant was taxable by virtue of the option to tax, the option can be excluded in relation to the overage payment.
New commercial buildings – overage payments:
This means that the VAT liability of the overage is determined by reference to the description of the land at the time that the original sale of the land takes place.
More on overages here. This covers HMRC’s previous views on overages .
HMRC has updated VAT Notice 700/18 – Bad Debt Relief (BDR). The update covers how and when a claim may be made.
The Notice explains when a business is entitled to BDR and how to claim it.
If a business makes supplies of goods or services to a customer but it is not paid it may be able to claim relief from VAT on bad debts that it has incurred.
The conditions for claiming BDR are:
These rules have varied over the years, so it is worth checking on supplies made before 1 April 1989.
To claim BDR a business includes the amount of the VAT being claimed in box 4 of its VAT return which covers the date when the conditions to make a claim are fulfilled.
If BDR has been claimed and subsequently a payment is received for the supply, a business must repay HMRC the VAT element included in the payment.
VAT Basics
I have to charge myself VAT? How comes?!
Well, normally, the supplier is the person who must account to the tax authorities for any VAT due on the supply. However, in certain situations, the position is reversed and it is the customer who must account for any VAT due. Don’t get caught out!
Here are just some of the situations when you have to charge yourself VAT:
Purchasing services from abroad
These will be obtained free of VAT from an overseas supplier. What is known as the ‘reverse charge’ procedure must be applied. Where the reverse charge procedure applies, the recipient of the services must act as both the supplier and the recipient of the services. On the same VAT return, the recipient must account for output tax, calculated on the full value of the supply received, and (subject to partial exemption and non-business rules) include the VAT charged as input tax. The effect of the provisions is that the reverse charge has no net cost to the recipient if he can attribute the input tax to taxable supplies and can therefore reclaim it in full. If he cannot, the effect is to put him in the same position as if had received the supply from a UK supplier rather than from one outside the UK. Thus creating a level playing field between purchasing from the UK and overseas.
Accounting for VAT and recovery of input tax.
Where the reverse charge procedure applies, the recipient of the services must act as both the supplier and the recipient of the services. On the same VAT return, the recipient must
Value of supply: The value of the deemed supply is to be taken to be the consideration in money for which the services were in fact supplied or, where the consideration did not consist or not wholly consist of money, such amount in money as is equivalent to that consideration. The consideration payable to the overseas supplier for the services excludes UK VAT but includes any taxes levied abroad.
Time of supply: The time of supply of such services is the date the supplies are paid for or, if the consideration is not in money, the last day of the VAT period in which the services are performed.
Deregistration
Any goods on hand at deregistration with a total value of over £1,000 on which input tax has been claimed are subject to a self supply. This is a similar mechanism to a reverse charge in that the goods are deemed to be supplied to the business by the business and output tax is due. However, in these circumstances it is not possible to recover any input tax on the self supply.
Flat Rate Scheme
There is a self supply of capital items on which input tax has been claimed when a business leaves the flat rate scheme (and remains VAT registered).
Domestic Reverse Charge (DRC)
The DRC makes supplies of standard or reduced rated construction services between construction or building businesses subject to the domestic DRC, which means that the recipient of the supply will be liable to account for VAT due, instead of the supplier. Consequently, the customer in the construction industry receiving the supply of construction services will be required to pay the VAT directly to HMRC rather than paying it to the supplier. It will be able to reclaim this VAT subject to the normal VAT rules. The RC will apply throughout the supply chain up to the point where the customer receiving the supply is no longer a business that makes supplies of construction services (a so-called end user, see below). More here.
Mobile telephones and computer chips
In order to counter missing trader intra-community fraud (‘MTIC’), supplies of mobile telephones and computer chips which are made by one VAT registered business to another and valued at £5,000 and over are subject to the reverse charge. This means that the purchaser rather than the seller is responsible for accounting for VAT due.
Road fuel and power for private use
When business fuel is used privately, self-supply charges apply based on HMRC’s published road fuel scale charges, applied per vehicle per quarter.
Alternatively, businesses can maintain detailed mileage records for actual business use percentage calculations.
Land and buildings…. and motor cars
There are certain circumstances where land and buildings must be treated as a self supply… but that is a whole new subject in itself… as is supplies in the motor trade.
Even if the result of a self-supply or reverse charge is VAT neutral HMRC is within its rights to assess and levy penalties and interest in cases where the charge has not been applied; which always seems unfair. However, more often than not simple accounting entries will deal with the matter…. if the circumstances are recognised and it is remembered to actually make the entries!
HMRC has updated its Guidance on How to claim a repayment of import duty and VAT if you have overpaid
It sets out how to check time limits and how to claim for importers, agents, freight forwarders or express operators. It also explains how to use the Customs Declaration Service or form C285 as an individual.
It covers:
Normally the sale of the assets of a VAT registered business will be subject to VAT at the appropriate rate. A TOGC, however is the sale of a business including assets which must be treated as a matter of law, as “neither a supply of goods nor a supply of services” by virtue of meeting certain conditions. It is always the seller who is responsible for applying the correct VAT treatment and will be required to support their decision.
Where the sale meets the conditions, the supply is outside the scope of VAT and therefore VAT is not chargeable.
The word ‘business’ has the meaning set out in The VAT Act 1994, section 94 and ‘going concern’ has the meaning that at the point in time to which the description applies, the business is live or operating and has all parts and features necessary to keep it in operation, as distinct from its being only an inert aggregation of assets.
TOGC Conditions
The conditions for VAT free treatment of a TOGC:
Please note that the above list has been compiled for this article from; the legislation, HMRC guidance and case law. Specific advice must be sought.
Property transfer
The sale of a property may qualify for TOGC if the above tests are met. Usually, but not exclusively, a TOGC sale is the sale of a tenanted building when the sale is with the benefit of the existing lease(s) – (the sale of a property rental business rather than of the property itself). Another example of a property TOGC is where a property under construction is sold (a development business). As may be seen, timing with a property TOGC is of utmost importance. For example, an option to tax one day late will invalidate TOGC treatment. A guide to land and property.
What purpose do the TOGC rules serve?
The TOGC provisions are intended to simplify accounting for VAT when a business changes hands. The main purposes are to:
What if it goes wrong?
TOGC treatment is not optional. A sale is either a TOGC or it isn’t. It is a rare situation in that the VAT treatment depends on; what the purchaser’s intentions are, what the seller is told, and what the purchaser actually does. All this being outside the seller’s control.
Add VAT when TOGC treatment applies:
Often, the TOGC point can be missed, especially in complex property transactions.
The addition of VAT is sometimes considered a “safe” VAT position. However, output tax will have been charged incorrectly, which means that when the buyer claims VAT shown on the relevant invoice, this will be disallowed. This can lead to;
Sale treated as a TOGC when it is a taxable supply:
When VAT free TOGC treatment is applied to a taxable supply (possibly as one, or more of the TOGC conditions are not met) then there is a tax underdeclaration. The seller will be assessed by HMRC and penalties and interest are likely to be levied. There is then the seller’s requirement to attempt to obtain the VAT payment from the buyer. Similarly to above, this is not always straightforward or possible and it may be that the contract prohibits additional payment. There is likely to be unexpected funding issues for the buyer if (s)he does decide to make the payment.
Considering the usually high value of sales of businesses, the VAT cost of getting it wrong can be significant.
Summary
This is a complex area of the tax and an easy issue to miss when there are a considerable number of other factors to consider when a business is sold. Extensive case law (example here and changes to HMRC policy here) insists that there is often a dichotomy between a commercial interpretation of a going concern and HMRC’s view. I sometimes find that the buyer’s intentions change such that the TOGC initially applied becomes invalid when the change in the use of assets (from what was notified to the seller) actually takes place. HMRC is not always sympathetic in these situations. One of the questions I am often asked is: “How long does the buyer have to operate the business after purchase so that TOGC treatment applies?” Unsurprisingly, there is no set answer to this and HMRC do not set a specific period. My view, and it is just my view, is that an absolute minimum time is one VAT quarter.
Contracts are important in most TOGC cases, so it really pays to review them from a VAT perspective.
I very strongly advise that specialist advice is obtained in cases where a business, or property is sold. And yes, I know I would say that!
Latest from the courts
Yet more on composite or separate supplies. As a background to the issue please see previous relevant cases here here here and here. This is the latest the seemingly endless and conflicting series of cases on whether certain supplies are multiple or single.
In the First-Tier Tribunal case (FTT) of United Carpets (Franchisor) Limited (UC) the issue was whether the appellant made a single supply of flooring and fitting or whether there were two separate supplies
Background
UC is a retailer of flooring (including carpets, underlay, vinyl and wood flooring), as well as beds. A customer who purchased flooring from the appellant was given the option to have an independent, self-employed, fitter to carry out the fitting of the purchased flooring. Each store has a pool of fitters who take on fitting work referred to them by the appellant. If the customer chooses, the fitter will attend the customer’s home to fit the flooring, as directed by the customer. The fitter is then paid by the customer for that work, with the money being received and retained, in full, by the fitter.
The fitters are self-employed and they use their own tools, and drive their own vehicles. They also have their own public liability insurance and are not covered by any of the appellant’s insurance policies. They are not paid by the UC and are not on the UC’s payroll. Since they are self-employed, the fitters have no ongoing obligations to the appellant (or vice versa) and can take on referrals as they please. The appellant does not hold any formal records for the fitters and is not aware of how much the fitters earn by way of the referrals. The rates charged by the fitters are determined by the fitters themselves.
The appellant’s Terms and Conditions of Sale included the following statements:
“The carpet fitting and delivery services provided by the Installer are supplied under a separate contract from the supply of goods to the Customer by the Company (UC). The Company is not responsible for the delivery or fitting of the Goods to the Customer.
“Full payment for the fitting services is due upon fitting payable by cash or cheque directly to the Installer. As detailed on the invoice, payment for the carpet fitting is made directly to the Installer under a separate contractual agreement between the Customer and the Installer…”
The issue
Whether the supplies of fitting services made to customers following the referral to the fitter by UC were supplies made by the self-employed carpet fitters who performed the services, or by UC as a single supply of flooring and fitting such that output tax was due from UC on both the retail sales and the fitting fees.
Contentions
HMRC determined that the appellant had incorrectly treated the supply of carpet fitting and contended that it supplied fitting services via sub-contractors and assessed the appellant for output tax on the fitting fees. HMRC further contend that the appellant made those supplies as part of a single supply, comprising both the flooring and the fitting services. Assessments were raised to recover the deemed underdeclared output tax.
UC’s position is that the self-employed fitters were completely independent, and that the fitting services do not form a single supply. Consequently, VAT was only due on the retail sales and not the fitting income.
Decision
The FTT concluded that there were two separate supplies:
After a review of the contractual documentation and the economic and commercial reality, the court was satisfied that there were three agreements:
The fitter provided services to the end consumer who was liable to pay the fitter.
Consequently, the appeal was allowed, and the assessments were set aside.
A significant amount of case law was cited (a list too long to reproduce here) but included were the cases of: Secret Hotels 2 Limited v HMRC; All Answers Ltd v HMRC and Tolsma v Inspecteur der Omzetbelasting Leeuwarden which were considered and applied.
Commentary
Yet another case on the perennial composite/single supply issue. This case was more straightforward than many on this subject and the outcome was no surprise. It is essential that businesses that potentially deal with agent/principal matters or make supplies at different VAT rates consider their position. Both contracts, other documentation and the commercial reality need to be considered. We recommend that in such circumstances a review is carried out specifically to establish the proper VAT position .
What is cryptocurrency?
Cryptocurrency is a line of computer code that holds monetary value. Cryptocurrency is also known as digital currency and it is a form of money that is created by mathematical computations. In order for a Bitcoin transaction to take place, a verification process is needed, this is provided by millions of computer users called miners and the monitoring is called mining. Transactions are recorded in the blockchain which is public and contains records of each and every transaction that takes place. Cryptocurrency is not tangible, although they may be exchanged for traditional cash. It is a decentralised digital currency without a central bank or single administrator (which initially made it attractive) and can be sent from user to user on the peer-to-peer network without the need for intermediaries.
What is Bitcoin?
Bitcoin was the first popular cryptocurrency and it first appeared in 2009. The advantage of bitcoin is that it can be stored offline on the owner’s local hardware (a process called cold storage) which protects the currency from being taken by others. If a person loses access to the hardware that contains the bitcoins, the currency is lost forever, and it is estimated that as much as 23% of bitcoin has been mislaid by miners and/or investors.
Exchange between currencies and bitcoin
The VAT treatment of transactions exchanging traditional currencies for Bitcoin, or Bitcoin for currencies carried out for consideration (added by the supplier) are exempt services in a similar way to any other currency transactions via The VAT Act 1994, Schedule 9, group 5, item 1.
Paying for goods or services using Bitcoin
Similar to any other payment method, simply using Bitcoin to obtain goods or services is outside the scope of VAT and no VAT is due on the value the Bitcoin represents. That is to say that the authorities do not consider that such a transaction is a barter.
Provision of goods or services in return for Bitcoin payment
The provision of goods or services paid for in Bitcoin are treated in a similar way as any supplied for consideration consisting of
and the value is; anything received by the supplier in consideration of that supply.
Should the consideration be in Bitcoin, there two alternatives for the conversion of foreign currencies into a main currency (although these were drafted before the introduction of Bitcoin and originally relate simply to foreign currencies)
However, as above, because Bitcoin is not administered by any bank, this may make valuation difficult. The VAT Committee of the European Commission (EC) has indicated that a potential resolution is to use Open Market Rate (OMR*) as the exchange of the virtual currency. This would be the responsibility of the supplier. This is likely to be commercially available information from the websites of the likes of; coindesk, Cryptocompare or Cointelegraph for eg.
All of the above seems logical, although confirmation provided by the VAT Committee is welcome.
* OMR is the amount for which an asset is transferred between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.
I hope that the VAT position is helpfully summarised here. I thought it may be useful if the VAT treatment of various business promotion schemes is set out in one place.
I recall a statement from an old mentor of mine; “if you have a marketing department you have a VAT issue!”
Summary
| Offer | How to charge VAT |
| Discounts | Charged on the discounted price (not the full price) |
| Gifts | Charged on the gift’s full value – there are some exceptions listed below |
| Multi-buys | Charged on the combined price if all the items have the same VAT rate. If not, VAT is ‘apportioned’ as mixed-rate goods |
| Money-off coupons, vouchers etc | No VAT due if given away free at time of a purchase. If not, VAT due on the price charged |
| Face value vouchers that can be used for more than one type of good or service (multi-purpose) | No VAT due, if sold at or below their monetary value |
| Face value vouchers that can only be used for one type of good or service (single-purpose) | VAT due on the value of the voucher when issued |
| Redeemed face value vouchers | Charged on the full value of the transaction at the appropriate rate of the goods provided in return for the voucher |
Exceptions for gifts
There’s no VAT due on gifts given to the same person if their total value in a 12 month period is less than £50.
Free goods and services
A business is not required to account for VAT on things like free samples if they meet certain conditions.
| Supplies | Condition to meet so no VAT due |
| Free samples | Used for marketing purposes and provided in a quantity that lets potential customers test the product |
| Free loans of business assets | The cost of hiring the asset is included in something else you sell to the customer |
| Free gifts | The total cost of all gifts to the same person is less than £50 in a 12 month period |
| Free services | You don’t get any payment or goods or services in return |
Background
Face value vouchers
Quite recent changes, radically alter the UK rules for face value vouchers (FVV). FVVs are; vouchers, tokens, stamps (physical or electronic) which entitle the holder to certain goods or services up to the value on the face of the vouchers from the supplier of those goods or services.
Examples of FVVs would include vouchers sold by popular group discount websites, vouchers sold by high street retailers, book tokens, stamps and various high street vouchers.
Single or multi-purpose
The most important distinction for FFVs is whether a voucher is a single purpose voucher or multi-purpose voucher. If it is a multi-purpose voucher then little has changed. If it is a single purpose voucher, however, HMRC will now required output tax to be accounted for at the date it is issued.
Single purpose vouchers are vouchers which carry the right to receive only one type of goods or services which are all subject to a single rate of VAT. Multi-purpose vouchers are anything else. The differences can be quite subtle.
For example:
The above means that for single purpose vouchers VAT is due whether the voucher is actually redeemed or not; which seems an unfair result. There is no way to reduce output tax previously accounted for if the voucher is not used.
Please contact us if you, or your clients use this type of business promotion. of course, get it wrong, and there is likely to be a financial penalty…