Category Archives: VAT – Input Tax

I have to charge myself VAT?!

By Marcus Ward 22 September 2025

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

account for output tax, calculated on the full value of the supply received, in Box 1;
(subject to partial exemption and non-business rules) include the VAT stated in box 1 as input tax in Box 4; and;
include the full value of the supply in both Boxes 6 and 7.

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!

VAT Land & Property: Who opts to tax? – Authorised signatories

By Marcus Ward 8 September 2025

Who opts to tax?

HMRC has published Public Notice 742A . Changes were made in connection to authorised signatories, in particular; corporate bodies, overseas entities and powers of attorney. It is important to establish who can sign an option to tax (OTT) form VAT1614A as getting it wrong may invalidate an OTT with potentially very expensive consequences.

A guide to the OTT here.

It seems an appropriate time to look at who can sign an OTT form. HMRC guidance states:

“The person responsible for making the decision and notifying the option to tax depends on the type of legal entity holding (or intending to hold) the interest in the land or building, and who within that entity has the authority to make decisions concerning VAT. In most cases it will be the sole proprietor, one or more partners (or trustees), a director or an authorised administrator. If you have appointed a third party to notify an option to tax on your behalf, HMRC requires written confirmation that the third party is authorised to do so.”

Some specific situations:

Beneficial owners

In cases where there is both a beneficial owner and a legal owner of land or buildings for VAT purposes it is the beneficial owner who is making the supply of the land or building. It is therefore the beneficial owner who should OTT. This may not be the case where the beneficiaries are numerous, such as unit trusts and pension funds. In these cases, the person deemed to be making the supply is the trustee who holds the legal interest and receives the immediate benefit of the consideration.

Joint owners

Joint ownership is where two entities purchase land or buildings together, or one party sells a share in property to another party. Usually, a supply may only be made by both entities together. The two entities should OTT together as a single option and register for VAT account for output tax as a single entity (usually a partnership even if it is not a partnership for any other purpose.).

Limited partnerships

Under the Limited Partnership Act 1907 every limited partnership must be registered with Companies House. A limited partnership is made up of one or more general partners, who have unlimited liability, and one or more ‘limited’ partners, who are not liable for debts and obligations of the firm. A limited partner is unable to take part in the management.

If there is only one general partner and one or more limited partners, the general partner is treated as a sole proprietor for VAT registration purposes. If there are two or more general partners and one or more limited partners, the general partners are treated as a partnership. It is the general partners who should OTT.

Limited liability partnerships (LLPs)

An LLP has separate legal status from its members and is able to enter into contracts in its own right. An LLP is a body corporate and is may register for VAT. If the partnership decides to OTT, one or more members, as the authorised signatory must sign the notification.

Authorised persons for particular legal entities

In order for an OTT to be notified effectively, it must be signed and dated by an authorised person who possesses the legal capacity to notify a decision.

List of authorised signatories

Legal entity	Authorised persons
Sole trader (proprietor)	Owner of the business
Trust	Trustee (or partner if VAT2 is completed)
Partnership (UK)	Any partner (on VAT2)
Partnership (Scotland)	Any partner
Limited partnership (UK)	General partner
Limited partnership (Scotland)	General partner
Limited Liability Partnership	Designated member or member
Unincorporated Association	Chairperson, treasurer, trustee or company secretary
Limited company	Company director or company secretary
Community Interest Company (CIC)	Company director or company secretary
Charitable Incorporated Organisation	Director, chairperson, treasurer, trustee, or company secretary
Community Benefit Society	Chairperson, treasurer, trustee or company secretary
Local Authority	Section 151 officer (or Section 95 officer in Scotland), town clerk, head of finance, or treasurer
VAT group	Director or company secretary of the group member that owns the property
Government department	Nominated VAT liaison officer or finance manager (or a person senior to either)
Corporate body acting as a director, trustee or company secretary	Any office holder or employee authorised by the corporate body (as long as the corporate body itself has authorisation from the owner the property)
Overseas entity	Director or manager
Power of attorney	Anyone granted a power of attorney to administer or manage the tax affairs of the owner of a property

Commentary

An invalid OTT may result in, among other things:

Input tax recovery being barred
A potential Transfer of a Going Concern (TOGC) becoming subject to VAT
VAT registration being denied
Unwanted complexity in transactions with the potential for a deal to be aborted
Costs in unwinding the VAT position (if firefighting is possible)
Uncertainty
Delays in transactions
A dispute between two sides to a transaction
Past input tax being the subject of clawback
The Capital Goods Scheme (CGS) being triggered resulting in VAT costs and complexity
HMRC levying penalties and interest

It is important to get the, seemingly simple, process of OTT right, and right first time!

Changes to VAT Notice 700/1 – Voluntary registration

By Marcus Ward 1 August 2025

I have written about the pros and cons of voluntary registration here. HMRC has now updated Notice 700/1 – Who should register for VAT. The main changes are in respect of voluntary registration and the effective date of registration (EDR) and the impact on a business in selecting the date. Furthermore, information on pre-registration activities has been updated .

VAT: Holiday Lets – don’t get caught out

By Marcus Ward 10 July 2025

Further to the usual complexity with VAT and property, I have been increasingly asked about the VAT position of holiday lets, so, with the holiday season in full swing, this is a timely piece on the subject.

All residential letting is exempt… except holiday lets, which are standard rated at 20%. So, what is the difference? After all a house is a house, but the VAT treatment depends on how the property is advertised or “held out”.

If a property is held out for holiday accommodation, then the rental income is taxable.

What is holiday accommodation?

Holiday accommodation includes, but is not restricted to; any house, flat, chalet, villa, beach hut, tent, caravan or houseboat. Accommodation advertised or held out as suitable for holiday or leisure use is always treated as holiday accommodation. Also, increasingly, it is common for farms and estates to have cottages and converted barns within their grounds, which are exploited as furnished holiday lets so this use must be recognised for VAT purposes. Residential accommodation that just happens to be situated at a holiday resort is not necessarily holiday accommodation.

This treats holiday lets the same way as hotels, inns and B&B were VAT applies, which is fair.

Off-season lettings

If holiday accommodation is let during off-season, it should be treated as exempt from VAT provided it is let as residential accommodation for more than 28 days and holiday trade in the area is clearly seasonal.

What does this mean?

If the letting business exceeds the VAT registration threshold, currently £90,000, it must register for VAT. This usually means that either the business would lose a sixth of its income to HMRC or its letting fees would increase by 20% – which is not usually an option in a particularly price sensitive market. The only upside to registration is that VAT incurred on costs relating to the letting (input tax) would be recoverable. This may be on expenditure such as; agents’ fees, maintenance, refurbishments, laundry, websites and advertising etc.

Agents

If a property owner provides a property to a holiday letting agent and the agent itself provides the letting directly to the end users, this does not avoid the standard rating, even if the agent pays a guaranteed rent to the freeholder. This can catch some property owners out.

Sale of the property

When the owner sells the property, although it may have been used for standard rated purposes, the sale is usually treated as exempt. However, zero rating may be available for the first sale or long lease if it is a new dwelling with no occupancy restrictions. The sale of a “pure” holiday property is likely to be standard rated if it is less than three years old. To add to the complexity, it is also possible that the sale may qualify as a VAT free Transfer Of A Going Concern (TOGC). These are important distinctions because they determine, not only if VAT is chargeable, but, if the sale is exempt, there is usually a clawback of input tax previously claimed, potentially visa the Capital Goods Scheme (CGS).

Overseas properties

A final point: please do not forget overseas property lets. My article here sets out the tax risks.

Summary

There are a lot of VAT pitfalls for a business providing holiday lettings. But for a single site business, unless the property is large or very high end, it is likely that the income will below £90,000 and VAT can be ignored. However, it is important to monitor income and costs to establish whether:

registration is required
voluntary registration is beneficial (usually, but not exclusively, for major refurbishment projects).

VAT: Input tax incurred on the management of pension funds

By Marcus Ward 1 July 2025

HMRC has published Revenue and Customs Brief 4 (2025), which provides information about changes to VAT deduction on costs incurred in respect of the management of pension funds.

The Brief explains a further policy change to VAT deduction on the management of pension funds – Employers can now claim all the VAT on investment costs linked to pension funds. HMRC will no longer view investment costs as being subject to dual-use. Instead, all the associated input tax incurred will be seen as the employer’s and deductible by the employer, subject to normal deduction rule

They no longer need to split the costs with pension trustees. This was (prior to the introduction of the changes on 18 June 2025) a dual-use apportionment.

This Brief is relevant to:

businesses and other taxable entities that provide pension funds for their employees
pension administration and asset management service providers
pension fund trustees and pension providers
tax advisers

Impact on partial exemption methods

Businesses may need to propose new partial exemption special method (PESM) to align their VAT recovery with the new policy.

Background

HMRC’s historic policy was that employers could recover input tax they incurred on costs relating to the administration of their occupational pension funds, but not those in relation to the asset management of investments made by the fund.

Subsequently, HMRC changed its policy to allow employers recovery of input tax incurred on investment costs, provided that the employer could show evidence that they contracted and paid for the investment services.

HMRC has said that it will publish additional guidance on the new policy by Autumn 2025.

Commentary

This is very welcome news for managers of pension funds. It provides clarity and simplification in accounting, plus, more significantly; a much-improved VAT position whereby irrecoverable input tax can be avoided.

The HMRC climbdown is originally a result of the Fiscale Eenheid PPG Holdings BV cs te Hoogezand (C-26/12) CJEU case which considered an employer’s entitlement to deduct VAT paid on services relating to the administration of defined benefit pension funds and the management of the assets of the fund..

VAT: Updated Notice – Local authorities and similar bodies

By Marcus Ward 10 June 2025

Notice 749 has been updated. This is guidance for Local authorities, government departments, non-departmental public bodies, NHS bodies, local government bodies, the police and the fire and rescue services.

It sets out:

which activities of local authorities and similar bodies are business or non-business for VAT purposes
the VAT registration requirements for local authorities
when local authorities and certain similar bodies can reclaim VAT incurred on costs that relate to their non-business activities

The changes amend:

Section ‘7.2 Insignificant proportion’ has been updated to remove a reference to VAT attributed and apportioned to exempt supplies.
Section ‘7.5 What to do if you want to opt for a special section 33 VAT recovery method to recover the VAT incurred’ the deadline for using a special section 33 recovery method has been changed from 31 October to 30 September following the end of the financial year.

Section 33 bodies

“Section 33 bodies” per The VAT Act 1994, section 33)

These entities have special VAT treatment which is effectively the opposite of normal VAT rules. To avoid a cost to the taxpayer, these entities are permitted to specifically recover input tax that relates to non-business activities. Nobody said that VAT was straightforward and in these cases, the VAT rules are inverted!

We act for many Local Authorities and Academies. Please contact us should you, or your clients, have any queries on this matter.

VAT Planning: design and build

By Marcus Ward 6 May 2025

Planning

The construction of a new house, and the materials used by the contractor to build it, are zero-rated. However, architect and other building professional fees, eg; surveyors, supervisors, engineers, project or construction management and consultants, are always standard rated; even in respect of a new build.

This will represent an absolute VAT cost to:

individuals
entities which will rent the house(s) after completion
housing associations (in some circumstances)
certain entities which are not in business
any entity which will use the building(s) for other exempt purposes
entities which do not sell the house(s) – so onward zero-rating is not possible
any entity which cannot recover all of its input tax for various reasons

Aims

If it is not possible to structure matters so that these fees can be recovered (there are a number ways to do this, but not all will be available to all parties) then advisers need to consider ways to remove the VAT charge – this may also be preferable for cashflow purposes even if full input tax recovery is possible.

VAT Planning

Design and build – the steps

the housebuilder creates a separately VAT registered design and build company (newco)
newco purchases the professional services and construction services and incurs the VAT on these (the construction element is zero-rated)
these supplies are incorporated into a single onward supply of zero-rated design and build services to the housebuilder (a bundle) – the professional services are a cost component of the construction
zero rating applies to the supply to the housebuilder as the predominant supply of the bundle is the construction of new dwellings
newco recovers the input tax incurred on professional fees etc, as it relates to an onward taxable supply
newco is in a repayment position and HMRC refunds the VAT incurred on the costs – often after a pre-cred query

It is also possible to use an independent design and build company, or engage a contractor to carry out both the design and construction elements of the project with a similar result.

Considerations

It is important to implement the planning correctly. This means that appropriate contracts must be in place, the operation is carried out on sound business principles (actual supplies are made and it is not simply the moving of money).

Arrangements

In order to evidence the proper commerciality of the structure, it is important to bear in mind that:

appropriate contracts are in place
proper invoicing is required
the arrangements are at arm’s length
a profit for newco would emphasise the commercial aspect
all parties’ accounts reflect the transactions
newco combines all of its costs (including overheads/admin etc) and supplies them to the housebuilder as part of a single package of zero-rated design and build services
newco acts as principal and not agent (that the professional services are not disbursements)
the newco and the housebuilder are not in the same VAT group
care should be taken if loans are required (they may compromise arm’s length and genuine commercial contentions)

HMRC’s view

In HMRC’s Internal Guidance Manual VCONST02720 it states that:

“Zero-rating the construction of buildings: services excluded from zero rating: design and build

Architectural or design services supplied as part of a design and build contract can be treated as part of the zero-rated supply of construction services.

A typical design and build contract will require the contractor to complete the design for the works and complete the construction of the works.

In such circumstances HM Revenue & Customs (HMRC) sees the design element as a cost component of the construction and not as a separate supply of architectural services which would be liable to VAT at the standard rate”.

Consequently, this planning is recognised and accepted by HMRC, however, it is important that it is applied effectively so it is difficult for HMRC to challenge.

New VAT road fuel scale charges from 1 May 2025

By Marcus Ward 6 May 2025

HMRC has published new Road Fuel Scale Charges (RFSC) for the period 1 May 2025 to 30 April 2026.

RFSC

A scale charge is a way of accounting for output tax on road fuel bought by a business for cars which is then put to private use. If a business uses the scale charge, it can recover all the VAT charged on road fuel without having to identify specific business and private use. The charge is calculated on a flat rate basis according to the CO2 emissions of the car.

VAT Success Stories

By Marcus Ward 22 April 2025

I often write about how it is important to seek VAT advice at the right time, see triggerpoints. So, I thought that I’d give some practical examples on where we have saved our clients money, time and aggravation.

Investment company

HMRC denied claims for input tax incurred on costs relating to the potential acquisition of an overseas business and threatened to deregister the plc as it was not, currently, making taxable supplies. Additionally, HMRC contended that even if VAT registration was appropriate, the input tax incurred did not relate to taxable supplies and was therefore blocked.

We were able to persuade HMRC that our client had a right to be VAT registered because it intended to make taxable supplies (supplies with a place of supply outside the UK which would have been taxable if made in the UK) and that the input tax was recoverable as it related to these intended taxable supplies (management charges to the acquired business). This is a hot topic at the moment, but we were able to eventually demonstrate, with considerable and detailed evidence that there was a true intention.

This meant that UK VAT registration was correct and input tax running into hundreds of thousands of pounds incurred in the UK was repaid to our client.

Restaurant

We identified and submitted a claim for a West End restaurant for nearly £300,000 overpaid output tax. We finally agreed the repayment with HMRC after dealing with issues such as the quantum of the claim and unjust enrichment.

Developer

Our property developing client specialises in very high-end residential projects in exclusive parts of London. They built a dwelling using an existing façade and part of a side elevation. We contended that it was a new build (zero rated sale and no VAT on construction costs and full input tax recovery on other costs). HMRC took the view that it was work on an existing dwelling so that 5% applied and input tax was not recoverable. After site visits, detailed plans, current and historical photograph evidence HMRC accepted the holy grail of new build. The overall cost of the project was tens of millions.

Charity

A charity client was supplying services to the NHS. The issue was whether they were standard rated supplies of staff or exempt medical services. We argued successfully that, despite previous rulings, the supplies were exempt, which benefited all parties. Our client was able to deregister from VAT, but not only that, we persuaded HMRC that input tax previously claimed could be kept. This was a rather pleasant surprise outcome. We also avoided any penalties and interest so that VAT did not represent a cost to the charity in any way. If the VAT was required to be repaid to HMRC it is likely that the charity would have been wound up.

Shoot

A group of friends met to shoot game as a hobby. They made financial contributions to the syndicate in order to take part. HMRC considered that this was a business activity and threatened to go back over 40 years and assess for output tax on the syndicate’s takings which amounted to many hundreds of thousands of pounds and would have meant the shoot could not continue. We appealed the decision to retrospectively register the syndicate.

After a four-year battle HMRC settled on the steps of the Tribunal. We were able to demonstrate that the syndicate was run on a cost sharing basis and is not “an activity likely to be carried out by a private undertaking on a market, organised within a professional framework and generally performed in the interest of generating a profit.” – A happy client.

Chemist

We assisted a chemist client who, for unfortunate reasons, had not been able to submit proper VAT returns for a number of years. We were able to reconstruct the VAT records which showed a repayment of circa £500,000 of VAT was due. We successfully negotiated with HMRC and assisted with the inspection which was generated by the claim.

The message? Never accept a HMRC decision, and seek good advice!

VAT Returns: A box-by-box guide

By Marcus Ward 10 March 2025

VAT Basics

Return boxes explained – what goes where? A general overview.

Box 1 VAT due in the period on sales and other outputs

The amount of VAT due on all goods and services supplied in the period covered by the return. This is output tax. The value of output tax may be affected by VAT:

on credit notes issued
when refunds are made
on goods taken in part-exchange
underdeclared or overdeclared on previous returns within certain de minimis

VAT may also be due on supplies outside the mainstream of a business, eg:

fuel used for private motoring where VAT is accounted for using a scale charge
the sale of stocks and assets
goods taken out of the business for private use
VAT due under a reverse charge
supplies to staff
gifts of goods that cost more than £50
certain distance sales to Northern
commission received for selling something on behalf of a third-party
VAT shown on self-billed invoices issued by your customer
VAT due on imports accounted for through postponed VAT accounting

Box 2 VAT due in the period on acquisitions of goods made in Northern Ireland from the EU

Since 1 January 2021, a business is only allowed to make acquisitions on goods brought into Northern Ireland from the EU. For acquisitions, the VAT due on all goods and related costs bought from VAT-registered suppliers in the EU should be included.

Box 3 total VAT due

Show the total VAT due, the total of boxes 1 and 2. This is the total output VAT for the period.

Box 4 VAT reclaimed in the period on purchases and other inputs

Show the total amount of deductible VAT charged on business purchases. This is input tax for the period.

This will include:

VAT paid on imports
imports accounted for through postponed VAT accounting.
claims for bad debt relief (BDR)
payments on removals from a warehousing regime or a free zone
VAT shown on self-billed invoices issued by you
acquisitions of goods into Northern Ireland from the EU

Certain VAT paid by a business should not be included in box 4, some examples here.

Adjustments to the amount claimed may be required for

VAT on any credit notes received
certain VAT underdeclared or overdeclared on earlier returns
partial exemption

Box 5 net VAT to pay or reclaim

Deduct the smaller from the larger of values in boxes 3 and 4 and enter the difference in box 5.

If the figure in box 3 is more than the figure in box 4, the difference is the amount payable to HMRC. If the figure in box 3 is less than the figure in box 4, HMRC will repay this.

Box 6 total value of sales and all other outputs excluding any VAT

Show the total VAT exclusive value of all business sales and other specific outputs. These will include:

zero-rated, reduced rate and exempt supplies
fuel scale charges
exports
distance sales to Northern Ireland which are above the distance selling threshold or, if below the threshold the overseas supplier opts to register for VAT in the UK
reverse charge transactions
supplies which are outside the scope of UK VAT (this is debateable, but HMRC require this information)
deposits that an invoice has been issued for
net value of the road fuel scale charge

Box 7 total value of purchases and all other inputs excluding any VAT

Show the total net value of expenditure. This will include:

imports
acquisitions of goods brought into Northern Ireland from the EU
reverse charge transactions
capital assets

Boxes 8 and 9 only need to be completed goods cross the Northern Ireland border.

Box 8 value of supplies of goods to the EU

For supplies of goods and related costs, excluding any VAT, from Northern Ireland the EU made from 1 January 2021.

Box 9 value of acquisitions of goods from the EU

For acquisitions of goods and related costs, excluding any VAT, from the EU into Northern Ireland from 1 January 2021.

NB: If a business uses one of the following schemes there may be different rules for completing some of the boxes on returns.

flat rate scheme
cash accounting
annual accounting
margin schemes for second hand goods, works of art, antiques and collectors’ items
payments on account.