VQOTW: Compulsory Purchase Orders and VAT

My client owns some land that he is required to sell under a Compulsory Purchase Order in connection with the development of HS2. He has opted to tax the site as he paid VAT on the purchase, and when he relocated his business, he began to let it out to a haulage business. The sum offered is substantial and the client is asking about the VAT treatment?

With HS2 and other civil engineering projects gathering apace, we are seeing Compulsory Purchase Orders (CPOs) cause confusion with regard to the VAT treatment, specifically where the land in question has been opted to tax.  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. Maybe your client is in a position to negotiate on the figure to add VAT; if not, the sum received will be deemed VAT inclusive, and your client 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.

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If you have a VAT query why not contact the VAT Advice Line on 0844 892 2470 to discuss the implications. Our team of experts have a wealth of experience and can also provide a written consultancy service at competitive rates.

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VAT Adviser
0844 892 2470

Jason has worked in VAT since 1998 originally specialising in not for profit and government sector, before expanding his knowledgebase across Small and Medium Enterprises, Owner Managed Businesses and large corporates. His previous roles in practice involved both compliance and consultancy and has a particular interest in land and property and charities. Jason is also a member of the VAT Practitioners Group.

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