W4 Exchange of Contracts (VAT) Flashcards
A five year old commercial property is being sold. The seller has not opted to tax. The seller is drafting the contract, which includes the SCPC.
Which one of the following correctly sets out the contractual VAT provision(s) required and the reason why? (Refer to the text of SCPC if you need to.)
(a) SCPC special condition A1 should be expressly incorporated and the purchase price should state it is exclusive of VAT because VAT is chargeable on the sale.
(b) SCPC special condition A1 should be expressly incorporated because VAT is not chargeable on the sale.
(c) SCPC 2 is incorporated in the contract and the purchase price should state it is exclusive of VAT because VAT is chargeable on the sale.
(d) SCPC 2 is incorporated in the contract because VAT is not chargeable on the sale.
Answer: (b)
The sale of an old commercial property where the seller has not opted to tax is not chargeable to VAT. SCPC special condition A1 is the relevant provision to incorporate to reflect the position that VAT is not payable in the contract.
In which one of the following situations is it most important for the purchase price in the sale contract to be expressly stated to be exclusive of VAT?
(a) A residential property is being sold.
(b) A new (up to 3 years old) commercial property is being sold.
(c) An old (more than 3 years old) commercial property is being sold. No option to tax the property has been made.
Answer: (b)
VAT is chargeable on the sale of new (up to 3 years old) commercial property, but the default position is that the purchase price is deemed to be VAT inclusive unless the contract states otherwise.
If the purchase price was not expressly stated to be exclusive of VAT, it will be deemed to be VAT inclusive. The seller will have to account for the VAT element out of the purchase price to HMRC and will be left only with the remainder.
The draft sale contract for a commercial property incorporates the SCPC, including SCPC 2. Special Condition A1 from the SCPC is not incorporated in the draft contract.
Which one of the following most accurately sets out the implication of this drafting and the reason(s) why the contract would have been drafted this way? (Refer to the text of SCPC if you need to.)
(a) VAT is chargeable on the sale of the property. The property is either a new (up to 3 years old) commercial property or an old (more than 3 years old) commercial property with an option to tax.
(b) VAT is not chargeable on the sale of the property. The property is either a new (up to 3 years old) commercial property or an old (more than 3 years old) commercial property with an option to tax.
(c) VAT is not chargeable on the sale of the property. The property is an old (more than 3 years old) commercial property with no option to tax.
(d) VAT is chargeable on the sale of the property. The property is an old (more than 3 years old) commercial property with no option to tax.
Answer: (a)
SCPC 2 is the default position which is that VAT is chargeable on the sale of the property. The purchase price should state it is exclusive of VAT. The possible reasons why the sale of a commercial property would be chargeable to VAT are that it is a new commercial property, or an old commercial property where the seller has made an option to tax.
