UK: VAT Focus - A Round-Up Of Recent VAT-Related Developments, November 2008 Edition

Last Updated: 20 November 2008
Article by Martin Sharratt

'Place of supply' rules to change

From 1 January 2010, new 'place of supply' rules will apply to business-to-business transactions. This new 'VAT package' is likely to have a significant impact on VAT recovery and reporting requirements for all businesses in the EU.

Current rules

At present, the default place of supply of services is where the supplier is situated. However, many services fall within the exceptions, which include:

  • supplies of consultancy, accountancy, legal, financial and advertising services (treated as supplied where the recipient of the service is situated)
  • supplies of land (treated as supplied where the land is located)
  • exhibition, cultural and transport services (generally supplied where they are physically carried out).

New rules

From 1 January 2010, the default place of supply of services will be where the customer is located. UK VAT registered businesses which receive services from outside the UK will be required to account for VAT under the reverse charge rules; for unregistered businesses, this may form part of their taxable supplies for VAT registration purposes. Potentially, all businesses will be affected by these new rules and arrangements; plans should be put in place now, as it could involve changes to the way in which VAT is recorded and accounted for.

Implications of the new rules

  • Suppliers will need to change their invoicing procedures.
  • There will be new reporting requirements, including a European Commission (EC) Sales List for services supplied to other EU member countries. This is in addition to the existing EC Sales Lists for goods.
  • Monthly electronic reporting may be required for VAT reporting.

Partially exempt businesses, which have outsourced administrative operations overseas, should review the VAT cost and contract terms of their arrangements to identify whether they will still be VAT efficient.

What next?

To discuss how you can prepare your business for the changes, please speak to your usual Smith & Williamson contact.

Applying the zero rating provisions to residential developments

A recent Tribunal case considered whether the conversion of roof space in an existing block of flats to new dwellings constituted a zero-rated supply, enabling the company to register for VAT.

The company argued that it was converting a non-residential part of a building into new dwellings. It applied for VAT registration on the basis that it would be making zero-rated supplies of the first grants of a major interest in the new dwellings. It owned the freehold of the existing block of flats and the leaseholders had no right of access to the roof space.

HM Revenue & Customs (HMRC) rejected the application on the grounds that the company would only be making exempt supplies. It argued that zero rating could not apply as it would be artificial to separate the roof space from the rest of the building, thus the roof space could not be considered a non-residential part of the building.

The Tribunal agreed with the company, and held that the new dwellings in the roof space would qualify for zero rating, and that HMRC should have allowed the company to register for VAT. However, the Tribunal made it clear that this would not apply to the conversion of roof space in a single dwelling house.

What next?

This case highlights the difficulties in applying the zero rating provisions to residential developments and the advantage of planning for VAT from the outset. If you are involved in any residential developments, it may be worth discussing the arrangements with your usual Smith & Williamson contact to ensure VAT planning has been carried out correctly.

[Merlewood Estates Ltd (VTD 20810)]

Extension of VAT exemption to special investment funds – update

In the September edition of VAT Focus, we reported on the changes to the legislation for special investment funds, which came into force on 1 October 2008. HMRC has now issued guidance on some of the practical aspects of applying this exemption.

Key points

HMRC has acknowledged that sub-funds listed on the Financial Services Authority Register do not necessarily correspond to sub-funds that are actually marketed in the UK. It has provided a list of other factors (such as 'distributor status') which should be considered when deciding whether the sub-fund is marketed in the UK, and whether, therefore, the management of that sub-fund falls within the exemption.

There is now a de minimis provision which allows for a fund or sub-fund to fall outside of the exemption, if it is not 'for the time being' marketed to UK investors, and either has never been marketed in the UK, or less than 5% of its shares or units are held by UK investors (or on behalf of UK investors).

What next?

Investment fund managers should review whether funds that are expected to qualify as special investment funds fall within the de minimis provision, or are not actually marketed in the UK. If you have any queries in relation to this exemption, please speak to your usual Smith & Williamson contact.

[Revenue and Customs Brief 48/08]

Can anti-avoidance legislation be used to gain an advantage?

HMRC issued an assessment for £875,000 to a company which did not account for VAT on the transfer of business assets (storage units) to another company. The transfer did not qualify as a transfer of going concern (TOGC) for VAT purposes and, as the storage units were opted to tax, the sale was a taxable supply.

The recipient company did not plan to opt to tax the storage units, and intended to make exempt supplies of the leasing of the storage units. As a result, the transfer could not constitute a TOGC. Also, the company did not wish to incur VAT on the purchase of the storage units as this would be irrecoverable, and tried to take advantage of anti-avoidance provisions in the option to tax legislation.

The company sought to rely on a special provision whereby the option to tax is disapplied if the vendor of the opted land or building sells a capital item to a connected person, or to a person providing financing for the development of the land or buildings, and the purchaser then uses the land or buildings for exempt use.

The recipient company funded the refurbishment of the storage units while they were owned by the vendor company, with a view to triggering the anti-avoidance provisions, so that the option would be disapplied.

The Tribunal held that the option should not be disapplied. The refurbishment cost did not constitute a capital item, as the sole purpose of the expenditure was to sell the storage units. Therefore, the vendor company did not incur the cost in the course of business.

What next?

This case highlights the complexities of the anti-avoidance legislation. Businesses should ensure they review all relevant conditions and rules when considering transactions involving an option to tax. If your business is unsure of the anti-avoidance provisions and how they apply, please speak to your usual Smith & Williamson contact.

[Shurgard Storage Centres UK Limited (VTD 20797)]

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.