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HMRC internal manual

VAT Business/Non-Business Manual

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HM Revenue & Customs
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Specific issues: office holders

Recognising office holders

The law does not define an ‘office’. For VAT purposes it is any appointment of a responsible nature with a title that gives an immediate idea of the duties involved. For example, the director of a company, secretary to a tribunal or a clerk to a charity would be regarded as ‘offices’ in this context.

The appointments are usually held for an indefinite period, often on a part time basis. Payment is normally in the form of fees and expenses or an annual retainer. Describing the fees as a salary does not affect the status of the office holder.

A person may accept an office in the course or furtherance of a trade, profession or vocation. Where they do so, services supplied by them as the holder of that office are treated as supplied in the course or furtherance of the trade, profession or vocation. This is set out in section 94(4) of the VAT Act 1994.

In general, only people who are in business to provide professional services, and who continue to provide their services as office holders, are covered by section 94(4). This can apply to both public and private office holders.

There are special rules applying to (a) ecclesiastical legal appointments, (b) judicial appointments, and (c) legal offices including Legal Aid Committee members and Notaries public. These are explained in VBNB41200, VBNB41400 and VBNB41600 respectively.

Office holders covered by section 94, VAT Act 1994

Section 94 applies only to people such as solicitors, accountants and other practising consultants who:

  • are already in business to provide professional services; and
  • continue to supply their services and skills in the course of their duties as office holders.

Office holders not covered by section 94, VAT Act 1994

People who:

  • can demonstrate that their appointment to an office was offered and accepted in writing before their business consultancy began. (See Gardner (JJ) VBNB74100)
  • are appointed on grounds of their personal merit, occupational expertise or experience, or standing in the community as distinct from professional expertise;
  • do not otherwise provide professional services;
  • practice their profession solely as partners in a firm providing professional services and who accept the appointment in a purely private capacity;
  • are genuinely retired from active professional business and who supply their professional services solely as office holders; and
  • have the status of an employee or who by virtue of their conditions of appointment as office holders are effectively employees; for example they have conditioned hours of work, leave and sick leave entitlement, superannuation benefits

can treat their services as office holders as being outside the scope of VAT.

The direct tax treatment of office holders either as an employee or as a self- employed person should not be used as the basis for determining whether the activity is undertaken by way of business for VAT purposes.

Accounting for VAT

Many people whose services as office holders are covered by Section 94(4) will already be registered for VAT. Their services as office holders should be treated as part of the outputs of their business and accounted for accordingly.

Others should register for VAT and charge tax if their combined taxable turnover from office holding and related professional business activities is above the threshold for compulsory VAT registration.

Persons who practice their profession solely as a partner in a firm providing professional services may on occasion accept an appointment to an office in a purely private capacity. As long as they provide no professional services or skills in the course of their duties as office holder they are not liable to charge VAT on their fees.

Normally where someone provides professional services and skills, but retains the fees personally, it shows that the appointment was in a private capacity and VAT is not due. Fees accrued to the partnership would show that the office was accepted in the course of a profession. When this happens VAT should normally be charged by the partnership.

HMRC will normally accept that the appointment was in a private capacity if we are satisfied that the office holding:

  • has been arranged with the individual partner;
  • there is no written agreement between the partnership and the organisation in which the office is held;
  • arises from personal, family or significant financial (for example shareholding) interest in the organisation concerned; and
  • does not arise from the professional qualifications or interests which have made the office holder a member of the partnership.

Deduction of VAT incurred

VAT on any supplies to the office holder incurred in respect of the duties of that office is not input tax where an office holder is treated as making supplies otherwise than in the course or furtherance of a business. It cannot be deducted by the office holder or by any associated business such as a partnership.

Tax on supplies to a registered office holder or firm that are common to both business and non-business activities must be apportioned between the two. Only the business part can be treated as input tax. Further guidance on apportionment of input tax can be found in VIT VAT Input Tax VIT25000.