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The UK Capital Goods Scheme is a UK HMRC mechanism that impacts the amount of VAT you maybe able to recover on high value assets such as buildings. Find out more. Introduction The Capital Goods Scheme ensures that where businesses acquire or create assets and recover the input VAT from HMRC on the initial purchase upfront, any subsequent change in the entities Taxable sales compared to its total sales (partial exemption recovery rate) is reflected in adjustments to the input VAT initially recovered. If for example you purchase a computer for £250,000 and recover the VAT in full as your business is only making taxable sales, then the following year your business makes 50% exempt and 50% taxable sales then you will only be able to recover 50% of the VAT as the computer is not being used exclusively to make taxable sales. So in effect the VAT recoverable on the asset can increase or decrease over the adjustment period depending on the extent of the use of the asset to make taxable sales. Assets Covered by the Scheme You’ll have to use the Capital Goods Scheme if you spend £250,000 (excluding VAT) or more on: buying land, a building or part of a building or civil engineering work constructing a building or civil engineering work refurbishing, fitting out, altering or extending a building or civil engineering work Civil engineering work includes things like roads, bridges, golf courses, running tracks and the installation of pipes for connecting to mains services. Computers and computer equipment The scheme only applies to individual computers, or items of computer equipment, that cost £50,000 (excluding VAT) or more. It doesn’t cover something like a network where the total cost of the server and all the computers and printers is £50,000 or more but each individual item is less than £50,000. Nor does it cover computerised equipment (for example, a computerised telephone exchange or computer-controlled blast furnace) or computer software. Aircraft, ships, boats and other vessels The scheme applies if you spend £50,000 or more (excluding VAT) on purchasing, constructing, refurbishing, fitting out, altering or extending an aircraft, ship, boat or other vessel. The adjustment periods These are: 5 intervals for computers 5 intervals for ships and aircraft 10 intervals for all other capital items Record Keeping You’re not required to keep VAT records for longer than 6 years. But the CGS requires you to make adjustments up to 10 years later. You should keep records long enough to show us how you calculated each adjustment. Values and definitions What does HMRC mean by ‘capital expenditure This is normally expenditure capitalised for accounting purposes. We’ll not normally challenge your capitalisation policy for the purposes of the CGS, except in cases of avoidance or abuse. In some cases charities may incur expenditure of a capital nature on land and property which is not capitalised in their accounts (for example certain heritage buildings or churches). This is generally because the charity does not have unfettered freedom to exploit or dispose of the land or property concerned. This will not prevent expenditure that’s essentially capital in nature from being adjusted under the CGS. The value of a capital item This is the VAT exclusive value of the item. Only the value of standard or reduced-rated taxable supplies is considered. Before 1 January 2011, the value of a capital item was determined by reference to the business-related expenditure. With effect from 1 January 2011, the value is determined by reference to total expenditure on an asset. This includes both business and non-business expenditure on an asset. Example A business purchases a building for £1 million and incurs £200,000 VAT. The building is to be used for 60% business purposes and 40% non-business purposes (for example, charitable use). Before 1 January 2011, £600,000 (60% of £1 million) determined the value for CGS purposes. Under the new rules that took effect from 1 January 2011, all of the expenditure on the building (£1 million) is the value for CGS purposes. As the CGS threshold for buildings remains at £250,000, the building is a capital item in both scenarios. Expenditure incurred on a capital item before and after 1 January 2011 It will be necessary to determine the amount of business-related expenditure incurred on the asset up to 31 December 2010 and the total amount of expenditure (business and non-business) incurred on or after 1 January 2011. If the sum of these amounts exceeds the relevant CGS threshold, the asset falls within the CGS. The adjustable amount of VAT Prior to 1 January 2011, only VAT on the business-related expenditure on an asset (input tax) fell within the CGS. With effect from 1 January 2011, all of the VAT on an asset (in this instance input tax and non-business VAT) falls within the CGS. Example Following on from the example , prior to 1 January 2011, input tax of £105,000 (17.5% of £600,000) fell within the CGS. With effect from 1 January 2011, VAT of £175,000 (17.5% of £1 million) falls within the CGS (£200,000 after the increase in the standard rate of VAT to 20% on 4 January 2011). If expenditure is incurred both before and after 1 January 2011, the VAT on the business-related expenditure incurred up to 31 December 2010 and the total VAT incurred on the asset on or after 1 January 2011 fall within the CGS. Estimate the value If you do not know if a project exceeds the value threshold for the CGS until all invoices have been received you’ll need to estimate the value of the supplies you’ve received. This may happen with construction projects and refurbishments where VAT is incurred over a period of time and also with contracts that include a retention clause. A retention clause involves a proportion of the contract price being held back and only paid when the work has been satisfactorily completed. If, when you start the CGS, you estimate that the value of relevant supplies will exceed the value threshold, the item will become a capital item. Even if you find later on that the value does not reach the threshold, the item remains in the scheme and you should continue to make adjustments as necessary. If you do estimate the value of a capital item you’ll need to keep all the documents you based your estimation on, such as a contract, as our officer may ask to see it. What you should include in the value of land or buildings that you acquire Only include the value of the interest in the land or building supplied to you, if the supply was taxable and not zero-rated. Do not include any associated costs such as legal or estate agency fees. In calculating the value of the interest supplied to you in the land or building, you do not need to include the value of any rent or service charges unless it’s: been paid or is payable more than 12 months in advance invoiced by the supplier for a period of more than 12 months – in that case, you should include the value of rent or service charges when calculating the value of the capital item What you should include in the value of a constructed building or civil engineering work You should include the total VAT exclusive cost of any of the following supplies made to you: the interest in the land, if the supply to you was taxable (other than zero-rated) taxable (other than zero-rated) goods and services supplied for, or in connection with, the construction of the building or civil engineering work You should include all the costs involved in making the building ready, such as: professional and managerial services including architects, surveyors and site management demolition and site clearance building and civil engineering contractors’ services materials used in the construction security equipment hire haulage landscaping fitting out, including the value of any fixtures 4.8 If you’ve purchased land and constructed a building on it If you’ve purchased land and constructed a building on it, this is treated as one capital item. What to include in the value of an alteration, extension or annex where the value of the Goods and services received is £250,000 or more You should include the total value of all taxable (other than zero-rated) goods or services supplied to you for, or in connection with, the alteration, extension or annex. You should include all the costs involved in making the building or civil engineering work ready. See examples at paragraph 4.7 . What you should include in the value if a capital item is refurbished or fitted out You should only include the value of capital expenditure on the taxable (other than zero-rated) supply of services and of goods affixed to the building or civil engineering work supplied to you for or in connection with the refurbishment or fit out. However, for capital items where the costs are incurred on or after 1 January 2011 there is no longer a requirement for goods used for the refurbishment to be affixed to the building. You should include all the costs involved in making the refurbished or fitted out building ready. See examples at paragraph 4.7 . Goods affix ed’ to the building These are goods which become part of the fabric of the building. Generally these are items that are sold with the property and are not portable or easily removed. ‘Goods affixed’ does not include items secured for safety or security reasons or computers or computer equipment. These may be subject to the CGS in their own right. The following lists will help you to decide if an item is ‘affixed’. This list is not exhaustive and the deciding factor is usually if the item becomes part of the fabric of the building. Common inclusions are: materials to build internal and external walls roofs and ceilings floors and hard flooring permanent partitioning windows lifts ‘built in’ storage such as cupboards or shelving air conditioning lighting decorative features Common exclusions are: office furniture storage unless it’s ‘built in’ carpets computers and computer equipment factory and office machinery Again, this list is not exhaustive. For capital items where the capital costs are incurred on or after 1 January 2011 there is no longer a requirement for goods used for a refurbishment to be affixed to a building. For capital items where the capital costs were incurred before 1 January 2011, this treatment is already allowed in relation to the ‘goods affixed’ condition by concession and is adopted by most businesses. If the refurbishment is in phases If you do this you’ll need to decide if the work should be treated as a whole for CGS purposes or if there’s more than one refurbishment. If you think that each phase is really a separate refurbishment then they should be treated separately for CGS purposes. Normally there’s more than one refurbishment when either: there are separate contracts for each phase of the work a contract where each phase is a separate option which can be selected, and each phase of work is completed before work on the next phase starts A refurbishment which is only undertaken in phases because the building is occupied and where the contractors work on 1 floor at a time is normally considered to be only one refurbishment. Regular refurbishments These are sometimes referred to as ‘rolling refurbishments’. Problems may occur if successive refurbishments begin before each adjustment period has expired. If this happens you should either: treat the original refurbishment as ‘destroyed’ (see paragraph 9.8 ) if there is nothing left of the earlier refurbishment or this earlier work is stripped out or replaced – the effect of this is that no further adjustments would be required to the input tax on the previous refurbishment continue to make adjustments for the remainder of the adjustment period if elements of the earlier refurbishment are retained What to include in the value of computers You should include any delivery and installation costs, unless these are supplied separately. If you import a computer you should use the value for VAT at importation. This will include any import duty payable. 2025 - Tax Spring Statement - UK Gov - Capital Goods Scheme Simplification In its's April 2025 Spring Statement, the government announced that it will simplify the Capital Goods Scheme by introducing the removal of computers from the assets covered by the scheme and increasing the capital expenditure value of land, buildings and civil engineering work to £600,000 (exclusive of VAT) For more information on the Capital Good Scheme please see VAT Notice Capital Goods Scheme (VAT Notice 706/2) Capital Goods Scheme

VAT Guide for the Netherlands including VAT rates, VAT registrtaion, imports and exports and much more. Introduction There are 3 different rates of VAT in the Netherlands: 0% Zero Rate = Exports of Goods or Services 9% Reduced Rate = Food & Drink, Newspapers, Magazines, Agricultural Products and Services, medicines 21% Standard Rate = Applies to goods and services that do not fall under above or are not exempt. Click on the button below for more information about VAT in the Netherlands. How VAT Works in the Netherlands netherlands - Vat

Making Tax Digital is a UK Govenment initiative to digitalise tax reporting and filing. In the UK it is mandatory and requires VAT registered businesses to file their VAT returns digitally using third party software. Introduction Ma king Tax Digital is a UK Government initiative to become the most Digitalised Tax Administrator in the world by introducing legislation which requires all VAT registered businesses to sign up to HMRC's M aking Tax Digital and record and maintain records digitally. (Note as of 1 April 2022 all VAT registered businesses must use MTD compatible software or spreadsheets to record VAT related transactions and submit VAT returns to HMRC via Application Program Interface (API). Prior to 1st April 2022, the rules only applied to VAT registered business that were above the £85,000 VAT registration threshold. The aim here is to make the administration of tax (VAT) more efficient and accurate and eliminate manual intervention as far as possible. To achieve this, businesses will either have to obtain accounting software from a software vendor or use a spreadsheet (such as Excel) to record transactions. Note: If you choose to use spreadsheets to maintain records digitally then you will need to obtain compatible bridging software to be able to link and file the VAT figures you wish to report in your spreadsheet records to HMRC. Search for record keeping software and bridging software . Once you have compatible software or bridging software, you can then register with HMRC for Making Tax Digital or ask your agent to do you on you're behalf. Exempt from Making Tax Digital HMRC will allow individuals to be exempt from submitting returns under MTD and using compatible software or bridging software for the following reasons: Disability - prevents an individual from using compatible MTD software Location - You business is located in an area that does not have great internet access Age Business is subject to Insolvency proceedings Religion Note: HMRC will consider each request for exemption on an individual basis and will make an decision based on individual circumstances. To make a claim for exemption, contact VAT: General Enquiries . Maintaining Records Digitally HMRC requires that all VAT Registered businesses keep the following records in digital format either within their MTD compatible software or in spreadsheets they are using to record their transactions. General Data Your business name The address of your principal place of business Your VAT registration number Any VAT accounting schemes that you use Supplies Made to Customers For each supply you must record: Time of supply – the tax point ( Invoice Date or date cash received if earlier) Value of the supply – the net value excluding VAT Rate of VAT charged (seperate records for Std Rated, Reduced Rate, Exempt and Zero Rated supplies) Supplies Received from Vendors For each supply received record: Time of supply (tax point) Value of the supply Amount of input tax that you’ll claim Note: HMRC will allow you to record a number of transactions as a single VAT record in a number of different circumstances such: Petty Cash Transactions Supplier Statement where multiple transactions are consolidated into single VAT categories - Std Rated, Reduced Rate, Exempt, Zero Supplies made by Agents Charity Fund Raising Events For More information on these items please refer to HMRC VAT Notice 700 / 22 Making Tax Digital VAT Return Summary Data For Each VAT Return your MTD compatible Software or Spreadsheets should contain: The total output tax you owe on sales The total tax you owe on acquisitions from EU member states The total tax you’re required to pay on behalf of your supplier under a reverse charge procedure The total input tax you’re entitled to claim on business purchases The total input tax allowable on acquisitions from EU member states The total tax that needs to be paid or you’re entitled to reclaim following a correction or error adjustment Any other adjustment allowed or required by VAT rules Adjustments Where adjustments are required to amend or correct data, these must be: Made within the Software or system itself or spreadsheets The totals of each adjustment should be included Digital Links - Mandatory under Making Tax Digital Digital links are the transfer of data electronically within or between different applications or software Formulas linking different cells or workbooks in a a spreadsheet Electronic links between different pieces of software used by businesses. Transferring data onto a memory stick, external hard drive etc for upload onto a different system. XML, CSV import and export, and download and upload of files Transfer by Application Program Interface (API) Other automated electronic transfers Emails Containing Data Files which are the uploaded onto other electronic systems The aim here is to ensure that a digital journey (audit trail) is maintained for the VAT returns submitted to HMRC. What are not Digital Links : Copy and pasting between spreadsheets and workbooks Written notes being copied from one system and entered in another Emails Containing Data Files which are the uploaded onto other electronic systems Sign up for Making Tax Digital for VAT Sole Trader, Partnership or Company HMRC: Sign up now Data and information you require to sign up: Your business email address Your Government Gateway user ID and password - if you do not have a user ID, you can create one when you use the service Your VAT registration number and latest VAT return Your National Insurance number if you’re a sole trader Your company registration number and Unique Taxpayer Reference if you’re a limited company or registered society Your Unique Taxpayer Reference and the postcode where you’re registered for Self Assessment if you’re a general partnership Your Unique Taxpayer Reference, the postcode where you’re registered for Self Assessment and your company’s registration number if you’re a limited partnership Agents signing up on behalf of their clients: What you need to do as an Agent to File VAT returns for your Clients Obtain / Create MTD Compatible Software or Spreadsheets. Create an Agent Services Account (note this is a separate account from your existing online agent account) For your existing clients that are already on your online agent account you will need to copy them across to your new Agent Service Account. Your clients VAT certificate Contact details and Business email For Sole Traders their NI Number For Companies their UTR for Corporation Tax HMRC : Sign up now Making Tax Digital For Small and Medium Sized Businesses Typically, these businesses will either maintain digital records using: Off the shelf MTD compatible Software ( including API based link to submit returns to HMRC themselves) Excel workbooks and spreadsheets and separate Bridging software used to submit Returns to HMRC) Use own accounting software or Spreadsheets to produce summary data and email or download onto a memory stick and pass to their agent who will then upload onto their own software for processing and filing to HMRC. Use an agent to record their Digital records using the agents own MTD compatible software or spreadsheets. The key challenge here is making sure all the relevant records for the VAT return are manually entered or uploaded into the software or spreadsheet workbooks and that there is the required digital linking within the software and more importantly within the spreadsheets being used. Whichever method is used, all VAT return data must be submitted using API's to HMRC. Making Tax Digital For Large Businesses For Large Businesses such as Banks or Manufacturing Companies, MTD can be much more complex and complicated in that: These organisations will have multiple systems that contain data required for VAT reporting Multiple VAT returns that feed into a main Group VAT Return Some of those systems will be supplied by external Vendors and digitalisation will require extensive liaison and possible development costs A lot of the data and processes used to support VAT reporting will be contained in excel workbooks which may or may not have adequate digital links There is usually a lot of manual processing which will have to be documented and eliminated It may require specific IT and Project management staff to implement an robust MTD solution It may need to build Tax Engines, Data Warehouses and internal API's to inter connect systems and for filing VAT returns with HMRC Key Things to Consider When Implementing MTD Successfully in a Large Organisation Will need to Identify and document all sources of Income and Expenses and the associated systems used to record and account for VAT. Will require the Identification and documentation of all manually processes and figures used to prepare the VAT returns Work should focus on eliminating manual processes and adjustments early on in the project Ensure you have staff with the right knowledge and skill set in place to build a robust MTD VAT reporting process Ensure there is a common set of mandatory fields to extract data from each system to ensure there is efficiency and completeness Decide on the structure and architecture of the MTD process. Will it be a purely internally developed or will it require the assistance of an external partner or software provider Its imperative to ensure that all requirements are documented and presented to the internal IT Teams or external IT teams to ensure there are no bottlenecks in the later stages of development. Build a data and Transformation warehouse specifically to store and process VAT information, static data tables and to transform the data into your VAT return. Ensure there is a project plan complete with overview of MTD, stages, timelines, budgets and costing, key personnel, any external vendor requirements and timelines, systems in scope, out of scope, manual adjustments that will require automation etc. Ensure controls are in place to maintain customer data integrity and confidentiality Use API's as much as possible to maintain and fully automate digital links If you have clients in multiple jurisdictions, you will need to link your static client data to your Tax Engine to ensure VAT is applied and calculated accurately based on client country of operation or location. If you are a complex partially exempt business and have a Partial Exemption Special Method , then consideration needs to be made as to how input VAT allocation and VAT recovery will work with the new MTD system. In larger more complex businesses such as Banks, there are likely to be multiple service companies and trading companies where service company incurred VAT is allocated to the different trading entities, product and service areas within these trading entities. (Basically allocating VAT incurred on general Back Office Costs to Front Office Areas). This can be a complex process and there will usually be an automated system or manual allocation process that manages this process. Making Tax Digital - VAT Guide on HMRC Rules for MTD

Discover the Key VAT implications and risks associated with Mergers and Acquistions including Consideration, Balance Sheet Completion Statements, Due Diligence, VAT Risks and much more. Introduction The term Mergers and Acquisitions refers to the activity of two or more companies combining to form one entity or one company acqu i ring the assets or shares of another company. The are a number of VAT issues associated with Mergers and Acquisitions some of which are listed below: The Recovery of VAT on Deal Costs The recovery of VAT on deal costs largely depend s on whether the costs are incurred to acquire or create a business that will be used to make taxable supplies going forwa rd (direct attribution). In other words the costs incurred must have a direct and immediate link to taxable supplies that will be made by the business being acquired. In such cases, the VAT is recoverable from HMRC on cost such as those listed below; Legal Fees Consultancy Fees Accountancy Fees Project Management Fees SPA Drafting Fees Corporate Finance Advisory Fees Due Diligence Fees Tax Advice Post Completion Structuring If on the other hand the target business was only making exempt supplies and this was going to continue post acquisition, then the VAT on the deal costs would be irrecoverable. However with many M&A deals the target is often acquired by purchasing shares which in itself is an exempt activity and as such means the associated deal costs can be irrecoverable. When a shareholding is used as part of an economic activity VAT may only be recovered if incurred in the course of an economic activity. Simply holding shares in order to receive dividends and perhaps to sell them for a capital gain is an investment activity and not an economic activity for VAT purposes. Therefore the VAT on the costs of acquiring and holding shares for either of these purposes is not recoverable. For the VAT to be potentially recoverable the entity acquiring the shares must do so, for some other purpose which is economic. For example Shares may be acquired and held temporarily as part of an activity of trading in securities. Trading in securities differs from investment in securities because the aim is to profit from short term movements in the price rather than the long term growth. A profit can be made regardless of whether the shares are increasing or decreasing in price. Trading in securities is an economic activity. A company may acquire and hold shares in subsidiaries to which it intends to provide management services for consideration. The provision of services for consideration is an economic activity. Following the CJEU decision in the joint cases Larentia +Minerva and Marenave (L+M) HMRC r eviewed its existing policy in respect of holding companies and deduction of VAT incurred on acquisition costs. Prior to L+M our policy was that VAT incurred on costs of acquiring shares by a holding company was only deductible where it was directly attributable to the provision of taxable management or technical services. VAT incurred had to be apportioned between non-economic activity of shareholdings and economic activity. Additionally, VAT on costs incurred by a holding company was only recoverable if the intention was to recoup the expenditure from the income resulting from taxable services provided to subsidiaries within a reasonable time. In L+M the CJEU held that VAT incurred by a holding company on the costs of acquiring shareholdings in subsidiaries, to which it also intends to provide taxable management services, must be regarded as belonging to the Holding company’s general expenditure and is deductible subject to any Partial Exemption restriction in place. In order to be able to deduct VAT incurred on costs of acquiring shareholdings in subsidiaries the following conditions must be satisfied: the holding company making the claim must be the recipient of the supply the holding company must be undertaking economic activity for VAT purposes that economic activity must involve the making of taxable supplies. If the holding company is VAT grouped with its subsidiaries, it makes taxable supplies or loans for which it earns interest and the loans support the making of taxable supplies by the VAT group. If the holding company is not the recipient of the supp ly, or is not undertaking economic activity, it will not be able to recover VAT. Is the Holding Company the recipient of the su pply HMRC consider that a holding company is the recipient of the supply where it has contracted for the supply, including by novation and it has made use of the supply, been invoiced and paid for the supply. Is the Holding Company undertaking economic activity for VAT Purposes In addition to an activity which any other business may undertake (supplies of goods and services more generally), the holding company is undertaking economic activity for VAT purposes where it makes or intends to make supplies of management services for consideration, to its subsidiaries. It is important to note that the management services must be genuine and provided for consideration which is more than nominal. Where the Holding company is passive with no economic activity of its own, any VAT incurred on the costs of acquiring subsidiaries is not recoverable, and this will still be the case if the holding company joins a VAT group with the acquired companies. For VAT to be recoverable, the costs on which it is incurred (including acquisition costs) must have a direct and immediate link to taxable supplies conducted as part of the economic activity. VAT will only be recoverable to the extent that those costs are used for the taxable activity. For more on the meaning of the term direct and immediate link see VIT21000 If a holding company provides taxable management services, to all its subsidiaries, then any VAT incurred on acquisition costs relating to the holding in those subsidiaries will be deductible. The receipt of dividends does not affect the deduction. However, if a holding company incurs costs on acquiring shares in subsidiaries intending to make taxable supplies to some of them, but not others, the acquisition of the latter subsidiaries is an investment activity and not an economic activity for VAT Purposes. Accordingly, the VAT incurred should be apportioned between the economic activities and the investment activities. Alternatively a holding company may incur costs on acquiring shares in a subsidiary to which it both provides management services and makes a loan in respect of which it earns exempt interest. In those circumstances any VAT incurred on costs relating to the holding must be apportioned between the taxable and exempt supplies in line with the company’s partial exemption method. Shareholding acquired as a direct, continuous and necessary extension If the shareholding is acquired as a direct, continuous and necessary extension of a taxable economic activity of the holding company, the VAT incurred may also have a direct and immediate link to taxable supplies and be recoverable. For example A retail company incurs costs acquiring a subsidiary whose main asset is a property from which the retail company intends to trade. In these circumstances the acquisition of the shares may be an extension of the retail business rather than an investment. If this is the case, the costs of acquisition are likely to be cost components of the retail supplies to be made from the property. The shares were acquired in order to obtain the property for the retail business. The VAT incurred will be recoverable to the extent that the retail supplies are taxable. A business acquires a direct competitor, a similar and complementary business or a key supplier/customer with a view (as the case may be) to increasing market share, achieving economies of scale, or achieving efficiencies through greater integration of its supply chain. In the above examples the shareholding is a direct, continuous and necessary extension of the existing business activity. There is no need for a specific supply (e.g. management services provided to the acquired business) to link the VAT costs to the existing economic activity. This is to be contrasted with: A company which purchases a business as a free-standing enterprise with a view to making money on dividends or an eventual sale. In the first two examples the buyer is buying to strengthen its business, but by contrast in the above example there is no direct link between the acquisition and its own business and the acquired business does not itself benefit by being part of a larger, similar operation. The VAT on costs incurred by the target of an acquisition, such as vendor due diligence costs, may also be deductible provided it can be shown that the target is the recipient of the supplies in question and those supplies were received for the purposes of the business carried out by the target. Intention to make taxable supplies If a holding company recovers VAT on acquisition costs because it intends to make taxable supplies to the subsidiary, it should retain evidence to demonstrate that this was the intended business model. Where a holding company can evidence a genuine intention to make taxable supplies to its subsidiaries but those services are not actually made then the normal input tax rules regarding intention to make supplies will apply. See VIT22000 Contingent consideration for management services Where a holding company incurs input tax on costs in providing or intending to provide management services to subsidiaries on terms whereby any payment will be contingent upon the profitability of those subsidiaries, then the holding company is not engaged in economic activity. This is because where services are supplied for no consideration or there is no contractual expectation that consideration will be received there is no supply for VAT purposes. The supplies in question are not being provided for a consideration because the essential direct link and reciprocity between the obligations on the one hand of the holding company to provide the management services and the obligations on the other of the subsidiaries to make a payment for those services, is absent. The issue of what constitutes a supply for a consideration has been the subject of a substantial body of case law. Most recently we have the decision of the Upper Tribunal in the case of Norseman Gold see VIT64050 Both the FTT and the Upper Tribunal on appeal considered the adequacy for the purpose of making taxable supplies of an intention to charge at some time in the future for services being provided. The FTT concluded that this would be insufficient in the absence of evidence of any agreement about the amount to be charged, the frequency with which invoices would be sent and the details of the services to be provided in exchange for the charge. It decided that it was important that the price or consideration is stipulated rather than there being ‘a rather vague intention to levy an unspecified charge, at some undefined time in the future’. The effect of a holding company joining a VAT Group Joining a VAT group does not, of itself give rise automatically to an entitlement to recover VAT. It cannot change a non-economic (i.e. out of the scope) activity into an economic activity. Nor does it automatically create a direct and immediate link between all input costs of a holding company and the taxable outputs of other VAT group members unless such a link can be traced through the intra group supplies, or the input costs are such that they are properly and naturally attributable to the VAT group’s taxable outputs. VAT grouping has the effect that all supplies are treated for VAT purposes as made to and by the representative member and imposes joint and several liability on all the members. It doesn’t have any other effect. If a member of a VAT group incurs costs which it uses for non-economic activities, then the VAT on those costs still relates to the non-economic activities and VAT grouping does not change that. The supplies are treated as being used by the representative member for non-economic purposes. If the holding company provides management services or loans in respect of which it earns interest (see VIT64050 EDM C-77/01) to the companies acquired in the VAT group and these can be seen to support the making of taxable supplies by the VAT group (identifiable by ‘looking through’ the supply chain within the group), the related VAT will be recoverable to the extent that the costs support taxable supplies made. This is the case whether the transactions within the group would be taxable or exempt supplies, were they not disregarded because of the VAT grouping. It is use that determines whether input tax is deductible and the existence of a direct and immediate link between the cost and the taxable supply. The question to ask is ‘has the VAT group incurred the costs for use in its economic activity?’ Th e Sale of Shares In a Subsidiary to Fund Business Expansion As illustrated in the case HMRC vs Hotel la tour , it is possible to recover input VAT on costs related to the sale of shares in a subsidiary which will be used to fund expansion of a taxable business. Basically the VAT was recoverable because: The costs were incurred to fund the businesses expansion providing ta xable supplies and as such the associated VAT was recoverable The costs were not incorporated into a component of the share price Sale and Purchase Agreement (SPA's) The sale or acquisition of a business will normally involve the drafting of a SPA which will set out the responsibility of each party under the agreement including the price of the deal, the assets and liabilities (Including Tax and VAT). Its important from a VAT perspective to ensure that all VAT receivable and payable is clearly identified and included in the SPA as an asset and liability respectively. Both of these elements will affect the final agreed deal price. Getting these amounts wrong can lead to future problems and disputes so its also important that the VAT cl auses within the SPA cover how to resolve such issues when they arise. For example The VAT receivable maybe based on invoices from suppliers which include VAT but have not been recovered from HMRC yet. If the invoices are issued to the existing busin ess owner under its VAT registration, then the new owners will not be entitled to VAT recovery under a new VAT registration number for the newly purchased entity. The VAT on such invoices will normally have to be recovered by the former owners of the business by submitting an Error Correction Notice (ECN) to HMRC. Acquisitions that Straddle VAT Return Periods. It is often the case that the date of acquisition occurs on a day that is in between the usual VAT reporting period of the business being sold or acquired. Where this happens, it can present a number of issues that need to be addressed to ensure accurate reporting of VAT to HMRC. Some examples are listed below: Output VAT payable and Input VAT recoverable reporting will need to align to the date up to the sale date Data extracted from systems used to provide information for the VAT return will need to be changed to reflect the new cut off date. Accounts Payable and Receivable teams will need to be informed of the deal date so invoices are issued and paid within the appropriate period. VAT payable and receivable post deal date will need to be settled by the new owners or transferred across from the existing owners respectively. The mechanism to effect this will need to be included in the VAT clauses of the SPA. VAT Recovery Forecasts Some businesses being sold maybe partially exempt and as such can only recover a percentage of the VAT they incur on their costs. VAT recovery will either be based on using the standard partial exemption method or by using a HMRC Agreed Special Method . In any cas e, where the business uses the gross method of VAT accounting by posting the cost and VAT to P&L based on invoices received from suppliers, it may forecast its VAT recovery credit on a monthly basis and annual basis. VAT recovery can have a significant impact on profitability especially for large businesses where irrecoverable VAT can be high. It is therefore important that the current owners of the business being sold ensure that VAT recovery forecasts are amended to reflect the shorter period of VAT / Financial Reporting. Due Diligence for VAT Risks Due diligence is the process that is carried out by a prospective buyer of a business to understand the business and assess any inherent and future risks to the business. It also involves a review and appraisal of the business to identify its assets and liabilities and evaluate its commercial viability as a going concern. There are many areas and aspects of the business that a potential buyer will want to review and assess before going ahead with the purchase or to ensure that any material issues identified are reflected in the final purchase price. Some of the main due diligence areas for review from a VAT perspective are listed below: Intercompany recharging agreements and recharges to identify any VAT liabilities including reverse charges applicable Controls in existence around intercompany invoicing and recharging The VAT accounting process and any existing input VAT receivables and output VAT payables The systems used to prepare the VAT returns including billing and accounts payable systems VAT registration periods are these monthly or quarterly / mixture of both Entities where payments on account are made to HMRC and the scheduled payment dates Systems used to extract values data, transaction counts, sales credits for Partial Exemption calculations External third party systems used to prepare the VAT returns and partial exemption calculations such as VAT consolidation systems, e filers, VAT allocation and analysis systems. Internal VAT preparation procedures and any VAT bibles Review and understand any Partial Exemption Special Methods agreed with HMRC. Is it up to date or due to be reviewed Any assessments issued by HMRC, penalties or interest due Overall relationship score with HMRC Existing staff and levels in the VAT team and who will be assisting with providing the necessary data to support the business sale List of existing VAT reliefs and agreements with HMRC that are in use in preparing the VAT returns Review of branch and subsidiary structures to ensure they are compliant from a fixed establishment perspective both locally and overseas. (See Skandia and Danske cases under the VAT News section. Any overseas entities and the existing tax authority relationships Pending and recent HMRC audits and also overseas tax authority audits Recent internal audit outcomes. Barter Transactions and Arrangements - How VAT is accounted for Existing property portfolio and who manages the billing for rent and service charges where these are sublet. (External management or internal) Options to Tax on properties in place with HMRC Level of client entertaining and whether the recovery is being blocked per HMRC rules Error Correction Notices (ECN) review for any potential future VAT risk Understand the business structure and transaction types VAT group members Understand the supply chain / product procurement process and existing contracts both local and global New product and changes to existing product signoff process by VAT Team VAT Coding used for transactions Tax Technology support. (Internal / external) Completion Accounts T he acquisition or disposal of a VAT registered business or a business that is part of a VAT group will require a due diligence review of the financial records f rom both the buyer and sellers perspective. As part of that review, a set of completion accounts will be drafted and agreed which will list all the assets and liabilities of the business being sold in order to make adjustments to the initially agreed purchase / sales price for the business. As part of this exercise, the seller will be required to declare / include all VAT a ssets (recoverable VAT debtors) and outstanding / pending VAT liabilities in the completion statement. Failure to do this can result in: The incorrect valuation of the business leading to under or over consideration payments for the business Unexpected liabilities for the buyer Irrecoverable input VAT for the buyer Post acquisition disputes / litigation As such, it is imperative that clear and specific VAT clauses are included within the sale and purchase agreements (SPA) by the tax / legal team to ensure that where lapses occur within the due diligence process, there are mechanisms to settle any losses and resolve any disputes post sale completion. Seller - Pre - Completion Date Responsibilities (List not Exhaustive) Ensure all recoverable input VAT is Identify and included within the completion statement Ensure all VAT payable amounts are identified and included within the completion statement De register the business for VAT or remove from VAT group as at date of completion Include the relevant VAT clauses as agreed with buyer Run all the necessary reports required for pre sale VAT reporting prior to the completion date Inform HMRC of the sale and change to the business or VAT group structure Amend the partial exemption method calculations and process notes where necessary. Inform HMRC of any required changes to the PESM Buyer - Pre - Completion Date Responsibilities (List not Exhaustive) Ensure adequate due diligence is undertaken by tax and legal teams and the necessary VAT clauses are incorporated in the SPA Register the acquired business for VAT or as a member of the VAT Group from date of completion Inform HMRC of any required changes to the agreed group partial exemption special method (PESM) Update the internal process notes for the acquired entity's VAT return preparation and compliance Ensure there are trained staff to oversee the acquired entities VAT compliance and reporting process MTD requirements for acquired entity Transitional Service Agreements (TSA) Normally as part of the sale of a business, the buyer and seller will come to an agreement known as a TSA to ensure there is a smooth transition of the business after the deal has been signed. This will ensure that there is continuity of the business post sale and these TSA's can normally be in place for between 1 to 2 years. They can cover areas such as: Ongoing IT Support by the seller Use of Sellers systems for a period Supply of sellers staff to maintain BAU Use of Buildings where the leases are still in the name of the seller Logistical support etc TSA's need to be drafted and operated correctly from a VAT perspective. Some of the key points are listed below: TSA invoices issued to the new owner need to show the correct VAT liability depending on the service being provided Costs associated with the TSA will normally need to be ringfenced in a specific cost centre to segregate them from the sellers existing BAU costs. VAT incurred by the seller on costs that have been ringfenced as above will often be fully recoverable as they are directly attributable to the taxable supply of services provided to the buyer. If the cost and VAT cannot be ringfenced then full recovery of VAT will most likely not be possible. Contains public sector information licenced under the open Government Licence v3.0 Mergers and Acquisitions VAT

Find out how VAT works in Nigeria including the VAT liability of goods and services, VAT registrtaion, imports and exports, e invoicing and much more. Nigeria VAT Introduction Nigeria’s Value Added Tax system has undergone a major transformation with the Nigeria Tax Act 2025, which officially took effect on January 1, 2026. This reform consolidated over 60 disparate taxes into a modern framework, re-branded the tax authority, and introduced significant reliefs for small businesses and households. VAT (Value Added Tax) is a consumption tax levied on goods and services at the rate of 7.5% in Nigeria. See summary below of goods and services which are vatable or exempt. Vatable Goods (7.5%) Televisions Telecommunications Electronics Professional Services Banking and advisory fees Furniture Bags Shoes Jewellery Car parts Crypto Transactions Vatable Services (7.5%) Accountancy Consultancy Engineering Legal Catering Entertaining Motor Repairs Exempt Goods Medical and pharmaceutical products Basic food Baby products Books and educational materials Agricultural Machinery Commercial Aircraft / Engine's and spare parts Exempt Services Medical services Banking Tuition / Education Services Airline Tickets Hire , rental, lease of agricultural equipment Exports of services Zero Rated Export of Goods Non Resident Companies Non resident companies making taxable supplies of goods or services in Nigeria must register for VAT and can appoint a representative. If the foreign supplier is not registered, the Nigerian customer's bank or payment processor may be directed by the NRS to withhold the 7.5% VAT at the point of payment. Thresholds & Registrations The 2026 reform significantly raised the bar for who must participate in the VAT system, exempting many micro and small enterprises. Domestic Businesses: You are only required to register and charge VAT if your annual turnover exceeds ₦50 million (raised from ₦25 million). Small Companies (≤ ₦50m): Do not charge VAT but cannot reclaim input VAT on purchases. Non-Resident Suppliers (Digital Services): Foreign companies (like Netflix, Google, or SaaS providers) must register if their annual Nigerian turnover exceeds $25,000. Mandatory TIN: The Tax Identification Number (TIN) is now harmonized with the National Identification Number (NIN). Every VAT-registered business must use its TIN on all invoices. Input VAT Recovery Nigeria uses a restricted "Input-Output" mechanism. You can only reclaim VAT paid on goods that are purchased for resale or used directly in the production of new goods. Recoverable: VAT on raw materials and stock-in-trade. Non-Recoverable: VAT on "overheads" (rent, electricity, professional fees) and capital expenditure (machinery, vehicles). These must be capitalized or treated as an expense in your Income Tax return. 2026 Refund Update: The NRS has introduced an automated refund system for exporters and businesses with consistent 0% rated supplies, provided they use the e-invoicing portal. E Invoicing and Digital Services The Federal Inland Revenue Service (FIRS) has been officially renamed the Nigeria Revenue Service (NRS) as of 2026. From 1, 2026, Nigeria has introduced mandatory e-invoicing for all medium and small VAT-registered businesses. Invoices must be generated in a structured XML/JSON format. They must be transmitted in real-time to the NRS's Non-compliance or failure to issue a valid e-invoice can result in a fine equal to 50% of the invoice value. VAT Return Filing Deadlines and Penalties Compliance is strictly monthly. Deadline: Returns and payments must be submitted by the 21st day of the following month. Currency: If you transact in foreign currency (USD, GBP, EUR), you must remit the VAT in that same currency.