Overage and vat

[jasonpaul40]

Situation : proposed property sale where an opt to tax election been made. Negoatiations have favoured an overage provision being included on the condition planning permission granted and buyer implementing it. Buyer says no VAT on overage but I am inclined to think that VAT will be chargeable and the tax point being the earlier of payment and invoice. Any guidance? Thank you in advance.

[Generix]

Situation : proposed property sale where an opt to tax election been made. Negoatiations have favoured an overage provision being included on the condition planning permission granted and buyer implementing it. Buyer says no VAT on overage but I am inclined to think that VAT will be chargeable and the tax point being the earlier of payment and invoice. Any guidance? Thank you in advance.

I would hazard a guess that the overage payment is an adjustment to original consideration, rather than a supply in itself, and therefore taxable - subject to the OTT being valid etc.

Alternatively if it was an additional service then I can only assume the POS would be either basic rule or where land situated, I would guess that either will give you the same result - UK taxable @ Standard rate.

Be interested to hear a different opinion though.

[section 44]

The overage is consideration for a supply. A supply will be treated as taking place when each overage payment is made or, if earlier, a VAT invoice is issued. The supply would be subject to VAT unless the option to tax is disapplied/ineffective (for example if dwellings had been constructed by the time of an overage payment).

[Generix]

The overage is consideration for a supply. A supply will be treated as taking place when each overage payment is made or, if earlier, a VAT invoice is issued. The supply would be subject to VAT unless the option to tax is disapplied/ineffective (for example if dwellings had been constructed by the time of an overage payment).

For my future reference, what part of Sch9 - G1 does this fall under? (just curious)

[section 44]

It doesn't.

A supply will be treated as taking place when each overage payment is made or, if earlier, a VAT invoice is issued.

Reg 84(2) VAT Regs 1995

The supply would be subject to VAT unless the option to tax is disapplied/ineffective (for example if dwellings had been constructed by the time of an overage payment).

s.96(10A) VATA 1994

[Generix]

The supply would be subject to VAT unless the option to tax is disapplied/ineffective (for example if dwellings had been constructed by the time of an overage payment).

s.96(10A) VATA 1994[/quote]

Many thanks!

[jasonpaul40]

Generix and Section 44 many thanks. Just for clarification if the buyer built new dwellings on the land by the time the overage payments were due then any OTT would be disapplied? Any notice required to HMRC? Do the dwellings have to be complete or can there be the intention to build dwellings or only just started to build allowed for disapply?

[section 44]

The supply would be subject to VAT unless the option to tax is disapplied/ineffective (for example if dwellings had been constructed by the time of an overage payment).