BB/12C/05 VAT—landlord inducements to tenants entering leases

Part V16 Forms and other HMRC material

BB/12C/05 VAT—landlord inducements to tenants entering leases

BB/12C/05 VAT—landlord inducements to tenants entering leases

Business Brief, Issue 12. 15 June 2005

This Business Brief article provides revised guidance on the VAT status of inducement payments by landlords to tenants. It replaces earlier guidance in Business Brief 4/03, dated 27 May 2003.

Business Brief 4/03

Business Brief 4/03 set out Customs' policy following the European Court of Justice (ECJ) and High Court decisions in the case of Trinity Mirror plc (formerly Mirror Group plc).

In paragraph 26 of the ECJ's judgment, it was held that a “tenant who undertakes, even in return for a payment from the landlord, solely to become a tenant and pay the rent does not, so far as that action is concerned, make a supply of services to the landlord”. The High Court subsequently held that paragraph 26 of the ECJ judgment is narrowly drawn, and Business Brief 4/03 sought to give guidance on that.

In line with the High Court ruling, Business Brief 4/03 advised that “a prospective tenant receiving an inducement payment would make a taxable supply by affording the landlord the advantage of being bound by the lease obligations the tenant has to fulfil.” In effect, this meant any such obligations other than to pay the rent (eg to redecorate the demised area every five years) would be sufficient to make the inducement payment consideration for a taxable supply.

Change of policy

Following representations from and

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