Intention versus Contract terms - an important VAT decision for high value contracts
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16th October 2014
recent decision in the Court of Appeal case for CLP Holding Company v
Singh and others challenges the generally accepted position for
the price is stated to be exclusive of VAT and means that anyone
contracts should be extra vigilant in respect of VAT.
because it has been generally accepted that where a contract is silent
the contract price is taken to be VAT inclusive so £1,000,000 would
£166,666 VAT. Whereas if the contract states the contract price
the price would be £1,000,000 plus £200,000 VAT.
important especially where there may be uncertainty of VAT treatment of
transaction as the supplier will want to pass the VAT cost to the
where possible rather than it being deducted from the contract price.
example in the case of sales of properties as a VAT free transfer of a
concern where the sale could become VATable if the purchaser does not
case for CLP Holding Company the sale price was agreed at £130,000
VAT and the contract contained an obligation for any VAT chargeable to
by the purchaser. The property was sold VAT free and HMRC subsequently
assessed for VAT which the purchaser sought from the buyer. The
refused to pay the VAT and the matter could only be resolved by legal
Court of Appeal ruled that the correct approach was to consider what
parties intended with regards to the contract price in the light of the
two parties circumstances relationship and all relevant facts. As the
intended that nothing would be payable in addition to the agreed
purchase price the VAT could not be passed on by the vendor to the
highlights the fact that it is vital to ensure that the VAT
VAT treatment of a transaction are correctly understood before a
completed rather than after the event as contract terms allowing VAT to
added if due may not offer full protection to the vendor. This could
significant exposures where high value contracts such as property
or your client are entering into any form of agreement for a supply of
property, or for any other supplies it would be worth giving our free
helpine a call to ensure that the VAT implications are understood pre
completion or the contract being signed.
About the Author
VAT People are leading VAT and Customs Duty
consultants based in the
North West of England. We work with a wide range of businesses
throughout the UK as well as assisting our accountancy colleagues to
unravel the thorny VAT issues for their clients. We are one of the UK's
largest and most comprehensive sources of VAT and Customs advice, our
consultancy team having over 140
years of experience in VAT and Customs
gained in either HMRC or a Big 4 accountancy practice environment.
Call us on our VAT helpline 0800 077 4604 to discuss. All initial discussions are free with no-obligation.
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Article Published/Sorted/Amended on Scopulus 2014-10-27 08:21:55 in Tax Articles