UK VAT liability in contract clauses

Tue 21st Oct 2014

The UK’s Court of Appeal has recently ruled that special clauses within commercial contracts on the inclusion of potential UK VAT amounts due will overrule the general rule of VAT exclusive terms.

The case (CLP Holding Company 2014 EWCA Civ 1103) concerned a sale of property between two individuals. The seller had previously opted for the right to tax, which put the sale within the scope of UK VAT.

In the sales contract, the price was mentioned without reference to any VAT due. Generally, the would mean VAT should then be added to come to the full cash price. However, in the special clauses of the contract, it indicated that the price was the final amount due. The Court decided that since the acquirer had no prior knowledge of the vendor’s option to tax, and therefore a VAT liability would arise, he could not be expected to anticipate the VAT bill.

The Court therefore decided that VAT should be settled by the vendor, not the purchaser, and the special clause overrode the general clauses.