VAT – Exercise of a power of sale

Several queries have come up on this during 2014.  Getting it right can be tricky.  The principle is that where a business is carried on by a taxable person and goods forming part of the assets of that business are sold by a third party exercising a power of sale, those goods are deemed to be supplied by the taxable person in the course or furtherance of his business and VAT is chargeable (or not) on that basis.  Land forming part of the assets of the business is treated as goods for this purpose.  Sale includes a grant or assignment of any interest in, right over or licence to occupy the land concerned.

A sale under a power could be a sale by a mortgagee or by a fixed charge receiver.  The appointment of a fixed charge receiver under section 109 Law of Property Act 1925 (LPA) does not amount to an insolvency for VAT purposes and so the receiver is treated as the agent of the person who granted the charge.  This is because in Sargent v CCE [1995] STC 399 it was held that ‘incapacitated’ in regulation 9 Value Added Tax Regulations 1995 means ‘incapable of carrying on business’. Such incapacity results from administrative receivership, liquidation or administration and not from the appointment of a receiver of specific properties.

The person selling goods under a power of sale must, within 21 days of the sale and whether or not VAT registered, send any VAT chargeable and a statement on Form VAT 833 to the VAT Central Unit showing:

• his name, address and, if registered, his VAT registration number
• the name, address and VAT registration number of the taxable person
• the date of sale
• the description, quantity and sale proceeds of goods sold at each rate of VAT
• the amount of VAT charged at each rate

The seller must send a copy of the Form 833 statement to the taxable person who owned the goods within the same time limit. Both seller and taxable person must exclude any VAT chargeable on the sale from their normal returns.  The seller must also issue an invoice to the buyer of the goods giving the name, address and VAT registration number of the supplier (the business). The seller need not be VAT- registered to issue the invoice.  Regulation 13(2) Value Added Tax Regulations 1995 provides that the invoice is treated as a VAT invoice.

Form VAT 833 can be downloaded here.

At the time of publication this case study was technically accurate however, as tax law and practice change rapidly, you should take specific advice before taking any action.