BB/14B/04 VAT—partial exemption—attributing input tax to intended supplies of property
Business Brief, Issue 14. 17 May 2004
This Business Brief article reports a change in policy on evidence of an intention to make taxable supplies of property. It also clarifies policy on attributing input tax to intended supplies of property and when subsequent adjustments need to be made. This takes account of the decision of the VAT and Duties Tribunal in the case of Beaverbank Properties (Beaverbank) and of the House of Lords in the case of Royal and Sun Alliance (RSA).
This Business Brief withdraws VAT Information Sheet 08/01 regarding the attribution of input tax on speculative supplies of property.
A taxpayer can deduct VAT on costs attributed to taxable supplies that it intends to make in future. Equally, if the intention is to make exempt supplies, then attributed VAT cannot normally be deducted.
Where an intention changes before costs are used the original VAT attribution may need to be adjusted. If the intention changes from exempt to taxable, then a taxpayer may be entitled to claim the VAT previously attributed to the exempt supply. This is known as a payback claim. Conversely, if the intention changes from taxable to exempt then VAT previously deducted may need to be repaid. This is known as a clawback adjustment. Further information is