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HMRC internal manual

VAT Valuation Manual

Specific applications: Tenanted pubs: agreement with the Brewers’ Society about deduction of input tax in respect of brewers’ tenanted estate

  1. This agreement, which had effect from 1 August 1989, covers only those brewers who elect to waive exemption of the rents from all their tenanted properties under paragraph 2 of Schedule 10 to the VAT Act 1994*. Brewers who do not elect, or elect from some, but not all, of their tenanted properties, are outside the agreement and should contact their local VAT office if they wish to negotiate special agreements.
  2. Under the agreement, the entitlement to deduct input tax in respect of tied tenanted licensed houses containing a residential element is as follows:
    1. An agreed percentage of the input tax incurred on the maintenance and repair of, and capital expenditure on, tenanted property and of that incurred in selling or leasing such properties, including professional fees shall be deemed to be non-deductible.
    2. This restriction of an agreed percentage of input tax shall cover the whole matter of the tenanted estate so that no further restriction of input tax shall be required in respect of the exempt supplies made in the form of tenanted rents received and deemed to relate to the domestic accommodation.
    3. The property expenditure referred to in paragraph 1 above does not include expenditure on tenants’ furniture, fittings and equipment, on the costs of cellarage or dispense equipment, advertising and other management expenses.
    4. The method will be used for at least two years. However, Revenue and Customs reserve the right to review the arrangements should there be a change in brewers’ circumstances which affected significantly the amount of input tax they are entitled to deduct.
    5. A brewer’s tenanted estate shall be the houses actually tenanted throughout the relevant period. Where this is difficult to ascertain, Revenue and Customs will accept an average based on the total of houses tenanted at the beginning and end of the appropriate period.
    6. Nothing in the agreement affects the right of any brewer to question the correctness of the apportionment of his input tax in this way, although in such circumstances Revenue and Customs would also be entitled to propose an alternative basis of apportionment.

Traders can see this agreement in Notice 700/57 Administrative Agreement entered into with trade bodies.

*Was paragraph 2 of Schedule 6A to the VAT Act 1983.