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HMRC internal manual

VAT Partial Exemption Guidance

Guidance for specific trade sectors: land and property: other activities

Remember other (non Land & Property) activities might be undertaken by the business. Even if there are currently no other activities, there might be in the future (e.g. management services, miscellaneous supplies, etc). It will be necessary for the method to be able to deal with all the activities of a business if and when they arise.

Head office activities

Where a sectorised method is used, i.e. residual VAT is attributed to properties/business lines etc, the remaining residual overheads input tax pot should only include input tax incurred on costs which are used in making supplies by the whole business (e.g. group audit fees, parent company management charges, etc). Anything else should have been stripped out and put into an appropriate sector pot. A sensible way of apportioning this global overheads pot might actually be to divide it up and re-allocate it to the other activity sector pots in equal or appropriate shares to be apportioned there using the individual sector calculations.

Due consideration should be given to the range of functions being performed, for example:

  • board and company secretarial (truly residual);
  • strategy and business development; marketing (residual);
  • accounting, IT and systems support (normally residual);
  • property management and rent collection (attributable to leasing income);
  • development projects (attributable to those projects);
  • staff canteen (can be taxable supplies of catering and fully recoverable); and
  • finance and treasury (when supportive of the main business activities and no supplies made, residual. Where exempt supplies are made these may be incidental to the main business activities (see PE32000) but it may be appropriate to restrict input tax where they are not and if, in particular, significant input tax is incurred in making exempt financial supplies).

There are things to consider in respect of own occupation e.g.

  • if occupied property is partly let to others, any non-attributable building costs may need to be apportioned first to identify what goes into the Head Office sector pot;
  • there may be supplies made by the Head Office, possibly management fees and treasury department/financial transactions with other companies not in the VAT group or third parties.

There could be transactions with other members of a VAT Group which are not supplies for VAT purposes and it will be necessary to ‘look through’ the transactions to determine how costs are used by the group as a whole.