VAT and Compulsory Purchase Order
Apr. 26, 2019, 9:42am
With HS2 and other civil engineering projects gathering apace, Compulsory Purchase Orders (CPOs) can cause confusion with regard to the VAT treatment, specifically where the land in question has been opted to tax.
What is the VAT treatment in these situations?
From the landowner’s perspective, who may not even want to sell the land, a CPO is offered as a form of compensation to the landowner. Compensation is usually outside the scope of VAT but how does that align with land which has an option to tax attached to it?
HMRC Internal manual VATTOS9380 provides clarity on the question. The transfer of land as a result of a CPO is a supply for VAT purposes and normal VAT rules and tax points apply. Therefore, if the land is opted to tax, the sale of the land under the CPO will bring rise to an output tax liability. It is therefore advisable for landowners to consider their position to negotiate on the figure to add VAT; if not, the sum received will be deemed VAT inclusive, and the landowner will need to pay 1/6 of the sum to HMRC as output tax.
The landowner would, having made a taxable supply, be able to reclaim input tax associated with the sale.
Where land is not opted to tax, a sale under a CPO is still a supply for VAT purposes, but would be exempt and therefore the landowner would receive the full amount of the CPO offer. This means that a landowner with opted land may be at a disadvantage if there can be no movement on the sum offered.