This Practice Note is about the VAT domestic reverse charge (DRC) for building and construction work, introduced on 1 March 2021. Why does this matter? The reverse charge has significant accounting and verification implications for building contractors and similar businesses, and potentially for their customers. It has cashflow implications, and there is a very real risk of businesses being charged VAT incorrectly, and being exposed to assessments and penalties if they try to recover it as input tax. Vigilance is needed, and the position will often need to be checked before payments are made. Many points are best addressed upfront, in construction contracts. What is a reverse charge? A reverse charge is a mechanism where the customer, rather than the supplier, accounts for any VAT due. Customers therefore pay only net amounts to their suppliers, and suppliers should not add VAT to their charges. Although the general reverse charge for building work was only introduced in 2021, there were already similar mechanisms for dealings in certain items, such as mobile phones and

THIS PRACTICE NOTE APPLIES IN RELATION TO OCCUPATIONAL PENSION SCHEMES This Practice Note contains references to case law of the Court of Justice of the European Union (CJEU). For guidance on whether EU judgments are binding on UK courts, see Practice Note: Assimilated law—Assimilated case law. VAT basics The Value Added Tax (VAT) system in the UK, which was derived from European law, is mainly set out in the Value Added Tax Act 1994 (VATA 1994). VAT is a tax on customer expenditure. A business that is registered for VAT is liable to pay across VAT to HMRC on the value of supplies of goods and services made by it, and so adds VAT onto the price it charges customers for those supplies. Such a business can claim credit for VAT it pays on goods and services used by it. The VAT that the business adds onto its prices is known as 'output tax' and the VAT it can reclaim on its purchases is known as 'input tax'. VAT only applies to 'taxable

Ireland-Banking & Financial services analysis: This article, was written by the Tax team of A&L Goodbody LLP .

Background On 27 June 2016, the Council of the European Union passed specific rules for the value added tax (VAT) treatment of vouchers in the form of Council Directive 2016/1065 (Vouchers Directive (EU) 2016/1065). Vouchers Directive (EU) 2016/1065 amends the provisions of Council Directive 2006/112/EC. The aim of the rules is to ensure consistency and uniform VAT treatment of vouchers between Member States. The rules apply to vouchers issued after 31 December 2018. Prior to this date, there was no EU-wide definition of a voucher and certain cross border voucher transactions were not taxed or were subject to double taxation. Following a consultation by HMRC that ran from 1 December 2017 to 23 February 2018, Finance Act 2019 (FA 2019) transposed the Vouchers Directive (EU) 2016/1065 into UK law for vouchers issued on and after 1 January 2019. The provisions are contained in FA 2019, s 52 and Sch 17 and form Schedule 10B to the Value Added Tax Act 1994 (VATA 1994). Although the UK ceased to be an EU Member State on 31 January 2020, these provisions

VAT is a self-assessed tax in the sense that VAT registered persons must submit VAT returns and, at the same time, pay any VAT that they owe. In some situations, such as when a person fails to submit a return or submits an incorrect return, this system breaks down. HMRC has the power to collect tax in these circumstances by sending the person an assessment for the outstanding VAT. Unless the assessment is appealed, withdrawn or reduced, VAT that has been assessed to a person is recoverable in the same way as any other amount of VAT due. This Practice Note covers HMRC’s powers to make assessments, and the procedures and time limits it must comply with. For details on how to appeal an assessment, see Practice Note: Appealing an HMRC decision. This Practice Note includes references to EU case law. The UK ceased to be an EU Member State on 31 January 2020. On this date, the UK entered an implementation period (IP), during which it continued to be treated as a Member State for

This Practice Note outlines how a taxable person who has accounted for and paid VAT on a supply, but who is not paid the price for that supply, may claim a refund of the whole or part of the VAT that they have paid. There are different mechanisms depending on the circumstances: • where the supplier agrees to refund or reduce the price after the time at which the supply was made, this is dealt with under the rules on credit notes • where the price has not been paid (in whole or part) and the supplier writes it off as a bad debt, this is dealt with under the rules on bad debt relief This Practice Note is primarily about the VAT bad debt regime, but to set this in context, it includes a brief explanation of the rules on credit notes. EU law Under Council Directive 2006/112/EC (the VAT Directive), VAT on a supply is payable by reference to the taxable amount (or value) of the supply, which comprises

This Checklist is designed to help you focus on the points you need to consider when reviewing a commercial contract (such as an intellectual property licence) for VAT purposes. A detailed analysis of these points is provided in the Practice Note: How to review a contract for VAT purposes. This Checklist is split into the two main steps for reviewing a contract for VAT purposes: • decide whether VAT is due under the contract, and • determine how the contract allocates liability between the parties Decide whether VAT is due under the contract In order to make this determination you will need to have concluded on all of the following questions: Question Context Lawyer's notes Determine the subject matter of the contract, ie what is being supplied? This should be apparent from the contract itself, usually in: • the definitions section of the contract where the subject matter of the contract is a defined term, or • in more complicated contracts in a separate schedule to the contract Even if it seems obvious,

means United Kingdom value added tax[, OR and] any other tax imposed in substitution for it [and any equivalent or similar tax imposed outside the United Kingdom];

A person who is registered for VAT in the UK may be deregistered (ie their VAT registration may be cancelled) on a compulsory or voluntary basis. This Practice Note looks at: • the rules on when a business can, or must, have its VAT registration cancelled • the consequences of deregistration, and • how deregistration interacts with the rules on the option to tax land, transferring a business as a going concern and VAT groups The rules on deregistration will depend on the reason that the person was VAT registered in the first place. A person will be VAT registered because they make: • taxable supplies in the UK (whether or not the business is established in the UK), and/or • certain disposals of assets for which a VAT repayment is claimed (known as relevant supplies) This Practice Note looks at the rules on VAT deregistration for businesses that were originally VAT registered for each of these reasons. This Practice Note includes references to EU directives and case law. The UK ceased to be

POTENTIAL FORTHCOMING CHANGE: HMRC is currently reviewing its guidance on the VAT exemption for financial services. The guidance may be subject to change. The VAT exemption for financial services The UK VAT exemption for financial services is based on the relevant provisions of Council Directive 2006/112/EC (the VAT Directive). These have been enacted into UK law by Schedule 9, group 5 to the Value Added Tax Act 1994 (VATA 1994), which sets out a number of items falling within the exemption. This Practice Note focuses on the exemptions for services falling within the category of fund management (items 9 and 10 of group 5). The practical application of this exemption is considered in detail in: Practical application of the VAT exemption for fund management. This Practice Note includes references to EU Directives and case law. The UK ceased to be an EU Member State on 31 January 2020. On this date, the UK entered an implementation period (IP), during which it continued to be

Graham Drury, formerly jailed for five and a half years’ imprisonment in 2021 for committing VAT fraud against HM Revenue and Customs (HMRC), was told during a hearing in Mold Crown Court on 28 July 2023 that he must pay a £1.2m confiscation order within three months or face an additional seven years in prison. Drury was charged with VAT fraud in 2019 for deceiving HMRC with over £1.8m. Drury used his company Drury Machine Sales Ltd to claim fraudulent VAT repayments from HMRC on machinery that was never purchased and used the stolen money to buy several properties in the UK, Spain, and other assets including cars and watches.

Two or more companies established in the UK, or having a fixed establishment in the UK, are eligible for membership of a VAT group if one of the companies controls each of the others or if one person (being either a company, an individual or two or more individuals carrying on a partnership) controls all of them (Value Added Tax Act 1994 (VATA 1994), s 43A(1)).