This Practice Note is about the VAT issues to consider on the assignment or termination of a lease. In this Practice Note, unless stated otherwise, termination means any form of termination of a lease, including surrender, exercising an option to break, forfeiture and disclaimer on insolvency. Must the seller account for VAT? VAT will be chargeable on a payment to a departing tenant (the seller) on an assignment or termination of a lease for consideration if the seller has opted to tax, unless: • the option is disapplied because of the type of property or its intended use (see Practice Note: Option to tax—disapplication for residential and other property) • the option is disapplied under anti-avoidance rules (see Practice Note: Option to tax—disapplication under anti-avoidance rules), or • it is a VAT-free transfer of a going concern (TOGC) (see Practice Note: Transfers of a going concern involving land and buildings) If the seller has not opted to tax, an assignment or termination for consideration will be exempt unless: • the property is such that

This Practice Note is about the VAT issues to consider on the grant of a lease or in respect of an ongoing lease. These include: • whether VAT is chargeable • when it is chargeable • the tenant’s VAT recovery position • inducements • payment of rent • payment of landlord’s costs by the tenant • variations to the lease • tenant default, and • what VAT provisions should be included in the lease For the VAT issues to be considered when a lease is assigned or terminated (including by surrender), see Practice Note: VAT issues for lease assignments and terminations. Is VAT chargeable? If the landlord has opted to tax, VAT will be chargeable unless: • the option is disapplied because of the type of property or its intended use (see Practice Note: Option to tax—disapplication for residential and other property) • the option is disapplied under anti-avoidance rules (see Practice Note: Option to tax—disapplication under anti-avoidance rules), or • the lease can be treated as a VAT-free transfer of a going

This Practice Note considers the VAT treatment of a supply of staff in the course or furtherance of a business. It is important to correctly identify where a supply of staff has been made, as opposed to a supply of an introduction to staff or a supply of services that involves the use of staff, as the VAT treatment of the supplies will be different in each case. The distinction is especially crucial to an employment bureaux whose business may be carrying out supplies of staff or the supplies of introductions to staff (or possibly both in different areas of the business). What is a supply of staff for VAT purposes? HMRC states that a business makes a supply of staff for VAT purposes if, for a consideration, it provides another person with the use of an individual who is either: • contractually employed or engaged by the first business, or • a director of the company It is irrelevant for VAT purposes whether the employment or engagement of the individual who is supplied

Single composite supplies vs multiple supplies Where a supply comprises a number of different elements with varying VAT treatments, the question arises as to whether each element of the supply should be treated individually for VAT purposes (a multiple or mixed supply) or whether all of the elements of the supply should assume the same VAT treatment (a single or composite supply) and, if so, which treatment. This question has consistently troubled the courts, HMRC and taxpayers, and has regularly been considered by both the domestic courts and the EU Court of Justice. This Practice Note considers the current state of the law and practice in this area. The UK ceased to be an EU Member State on 31 January 2020, and the implementation period, during which the UK continued to be treated as a Member State for many purposes, ended at 11pm on 31 December 2020. For information on the ongoing significance of EU Directives, and of judgments of the Court of Justice, for the UK’s

This Practice Note explains the special provisions that pertain to VAT in relation to costs that are the subject of either summary or detailed assessment before the High Court. The relevant provisions are in CPR PD 44. Entitlement to VAT on costs This is addressed at CPR PD 44, para 2.3–CPR PD 44, para 2.6. The party seeking to recover its costs is responsible for ensuring that VAT is only claimed if, and to the extent that, it is unable to recover from HMRC the VAT that it has incurred (CPR PD 44, para 2.4). Where the party can: • recover the VAT from HMRC, it should not be included in a claim for costs • recover a proportion of the VAT from HMRC, only that proportion which is not recoverable from HMRC should be included in the claim for costs The VAT registration number of the legal adviser must appear in a prominent place at the head of every statement, bill of costs, fee sheet, account or voucher on which VAT is included

Tax analysis: On 21 May 2024, the Court of Appeal (CA) held in HMRC v Hotel La Tour Ltd that input VAT which Hotel La Tour Ltd (HLT) had incurred in connection with professional fees related to the sale of shares in a subsidiary was irrecoverable. This decision reverses the decisions of the First-tier Tax Tribunal (FTT) and the Upper Tribunal (UT), both of which found that the input VAT was deductible as the ultimate purpose of the share sale was to raise funds for HLT's VATable business of developing a new hotel. The CA, reversing the FTT and the UT judgments, has decided that the various professional fees, including marketing and legal costs, incurred by HLT, had a direct and immediate link to the exempt sale of the shares and were therefore not recoverable. Written by Nina Basra, Chartered Tax adviser, DWF Law LLP and Alex Tolcher, senior associate, DWF Law LLP.

This Checklist sets out the key VAT issues to be considered on property transactions. The issues listed under ‘all property transactions’ should be considered in every case, followed by the issues that are listed under the particular transaction in question (grant of a lease, assignment or surrender of a lease, freehold sale, commercial development, or residential development). The issues listed under the grant of a lease, the surrender or assignment of a lease and the sale of freehold land may also be relevant to any development transaction. This Checklist was produced in partnership with Martin Scammell. For detailed commentary on the VAT issues highlighted in this Checklist, see the VAT on property subtopic and in particular, the Practice Notes referred to in this Checklist. Type of property transaction Key VAT considerations All property transactions Is the transaction a transfer of a going concern (TOGC)? If so, there is no supply for VAT purposes so no VAT is due. For more detail, see Practice Note: VAT—transfers of a going concern involving land and buildings. If the transaction

This Practice Note describes the circumstances in which a person may become liable to pay a penalty relating to VAT. A person who is charged with a VAT penalty may be able to appeal. For information on the rules about appeals, see Practice Note: Appealing an HMRC decision. Civil penalties There are broadly two categories of civil penalties: • those for failing to comply with basic compliance obligations, and • those for more serious conduct or omissions This Practice Note focuses on the main penalties in each category. For a full list, see the further reading link to De Voil Indirect Tax Service [V5.332]. Civil penalties are issued by HMRC by way of assessment. For general information on the rules about assessments, see Practice Note: VAT assessments. Penalties for basic compliance failures Penalties apply if a taxpayer fails to meet basic VAT compliance obligations, including the following: • breach of regulations made under VATA 1994. The regulations contain detailed collection and payment rules meaning that most administrative errors are covered. Failure to perform a number of specific duties

Determining the place where a service is supplied is important because this will establish the country, if any, in which it is subject to VAT: • a service that is supplied in the UK will be subject to VAT, if at all, in the UK (for VAT purposes, the UK includes the Isle of Man, but not the Channel Islands) • a service that is supplied in the EU will be outside the scope of UK VAT but possibly subject to VAT in the Member State in which the supply takes place—a UK business making supplies in an EU Member State may need to register and account for VAT in that Member State, unless the customer accounts for the VAT under the local reverse charge rules, and • a service that is supplied outside the EU is outside the scope of all VAT. The supplier would, however, need to consider any obligations in relation to local turnover taxes It is therefore crucial to establish where a service

Where is a supply made for VAT purposes? In order to determine whether a supply is subject to UK VAT or VAT in another jurisdiction it is necessary to consider the place of supply rules. As explained in Practice Note: When does VAT apply? UK VAT is only chargeable on a supply made in the UK. In some situations it may seem obvious that a supply is made in the UK and therefore subject to UK VAT, but where goods and services are: • bought from, or exported to, overseas jurisdictions, or • of a particular nature the answer is not so obvious and a detailed consideration of the place of supply rules is required in order to establish where the place of supply is for VAT purposes. There are different rules to determine: • the place of supply of services, and • the place of supply of goods Generally speaking, the rules have been implemented to ensure that there is no double taxation in respect

Tax analysis: In Newell v HMRC the First-tier Tax Tribunal (FTT) upheld a taxpayer’s appeal against HMRC’s decision to restrict his VAT recovery due to the receipt of outside the scope income in the form of payments under the renewable heat incentive (RHI) scheme for Northern Ireland.

VAT is recoverable by a taxable person if it is attributable to taxable supplies made in the course or furtherance of a business. For an explanation of the rules on VAT recovery generally, see Practice Note: When can a person recover VAT? VAT paid on costs incurred in corporate transactions, including on the professional fees of accountants, lawyers and other advisers, may be recoverable depending upon the circumstances of the transaction. This Practice Note looks at the recovery of VAT on the costs of business sales and acquisitions, share sales and acquisitions, corporate restructurings, and share issues. It also covers VAT recovery by holding companies. For information on the recovery of VAT by a UK acquisition group in a private equity-backed buyout, see Practice Note: Tax and buyouts—deductibility and VAT recovery of acquisition group deal costs. This Practice Note contains references to judgments of the EU Court of Justice. For information on the ongoing significance of EU law in the UK following the end of the Brexit implementation period on 31 December 2020, see Practice