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HMRC internal manual

VAT Groups

VAT avoidance - groups of companies statement of practice on the new Schedule 9A VATA 1994: conditions for the issue of a direction under the new Schedule 9A: other provisions

Schedule 9A, paragraph 1(10) deem that, for the purpose of determining whether the input tax credit is used to make an undercharged supply, separate rights to goods or services (including options or priorities in connection with goods or services), and the goods and services themselves shall be treated as a single supply. The intention is to ensure that variations of avoidance schemes such as that in the following example are covered.

Example (Variation on basic exit scheme)

PX Group comprising companies A and B wishes to mitigate VAT on purchase of computer equipment.

A pays B 90% of cost for an option to purchase the equipment at a nominal value and the supply falls to be disregarded.

B leaves the group and registers in its own right.

A exercises its option and B supplies the goods to A after purchasing the goods and deducting input tax thereon. The argument could run that the input tax deduction was attributable only to the supply of the goods and not to the option. Without the special provision, therefore, there would not be an undercharged supply enabling a direction to be issued.

By providing that the supply of the option and the supply of the goods are to be treated as a single supply, the legislation ensures that such schemes are brought within the scope of Schedule 9A.