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HMRC internal manual

VAT Registration

Basic principles of registration: definition of a capital asset

The case of Verbond van Nederlandse Ondernemingen v Inspecteur der Invoerrechten en Accijnzen CJEC [1977] 1 CMLR 413, heard by the CJEC gave a broad definition of a capital good:

  • it may be tangible or intangible
  • it must be used for the purpose of some business activity
  • it must be durable
  • it must be of such value that its acquisition costs are not treated as current expenditure but are written off over a number of years.

The term ‘capital assets’ therefore covers goods and services which have been used in a business as ‘equipment’. It includes premises, plant, machinery, office machinery, computers, office furniture, used company cars, patent rights which have been exploited and which are sold outright, and goodwill.

Legal cases on capital assets

The Tribunal in the case of The Trustees of the Mellerstain Trust, EDN/89/41 VTD 4256 decided that the disposal of pictures on display to the public in an historic house was a sale of capital assets. However, in another case, ‘Company X’, solicitors’ advice was that pictures held as an investment were not capital assets.

In the Mellerstain Trust case, the paintings were deemed to be a capital asset because they were used to make taxable supplies: they were hung in a house which was open to the paying public. In the case of ‘Company X’, the paintings were not used to make taxable supplies, but were bought as investment assets by an investment company and formed part of the stock of the company.

Milk Quotas

The giving up of a milk quota is regarded as the surrender of a right to produce a certain quantity of milk and is considered a service. Generally, disposals of milk quotas which have been used for the purpose of some business activity are not considered to be sales of capital assets: so they may render the trader liable to register.

If the transfer of a milk quota is linked with a supply of land, it is considered as a single supply for VAT purposes. The liability of the quota follows the liability of the land and the conditions in VATREG02600 will need to be considered.

Sale of fishing and similar rights

The sale of these rights normally gives purchasers an ‘interest in’ or ‘right over’ land. However, the liability of the supply will depend on whether they are disposed of on their own or sold or leased with land and the conditions in VATREG02600 will need to be considered.