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Tax – VAT

Conveyancing - disbursements

It is important to ensure that conveyancing disbursements (in particular, standard search fees) are disbursements, and thus VAT does not have to be charged on them to the client.

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Salary sacrifice - changes

New rules on salary sacrifice schemes come into force on 1 January 2012.

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'Compensation' - not a supply

A compensation payment will not be VATable (being regarded as damages or liquidated damages). Interestingly, it is possible for ongoing contractual payments to be regarded as 'compensation' (rather than contractual payments for the provision of services).

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New build - planning permission

Zero rating applies to the construction of new dwellings. In practice, it is vital to ensure that the planning consent is properly worded so as to ensure it is a new build - as opposed, for example, to a rebuild of an existing property. Otherwise, there will be arguments over whether it is a genuine new build (and clear evidence of the building being taken down to the foundations or slab will be needed).

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Break clause - penalty payment

Suppose a commercial T has a break clause which allows him to break the lease on payment of a penalty to L (eg three months rent). Will that penalty payment be subject to VAT (or will it be treated in the same way as the rent - and thus be VATable if it is a VAT-elected property)?

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Service charges - VATable?

Are service charges VATable?

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Disbursements - conveyancing

HMRC's view as to what is a disbursement for VAT purposes is different from that of the Law Society. In particular, HMRC puts strong emphasis on its requirement that (i) you must have acted as the agent of your client when you paid the third party, and
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Solicitors – disbursements

In 2008, HMRC argued that personal injury clients should pay VAT on the cost of medical reports obtained by their solicitors. This was against the established principle that the report fees were disbursements, with the solicitors acting as agents for their clients.

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Third-party costs – any benefit?

Recovery of VAT on third-party costs is a difficult and technical area of VAT. The basic principle set out in Redrow [1999] is that the person paying VAT must make business use of the service being supplied, in order to be able to recover the VAT. 


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Employees – bike schemes

Two recent developments have made ‘cycle to work’ schemes less attractive. 


Firstly, the ECJ has held that employers have to pay VAT on the benefit provided to the employees under salary sacrifice schemes (see our separate entry). As far as ‘cycle to work’ arrangements are concerned, those will generally involve the employer buying a bike for the employee to use to commute to work, funded by salary sacrifice.

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