Overage Payments – What’s the VAT treatment

An overage payment is usually attached to a disposal of an interest in land where, in addition to the consideration paid at the point of the sale, a further payment will accrue to the vendor on perhaps the successful planning application for the site by the buyer or similar value enhancing impact.

HMRC’s view of VAT treatment has changed over the years. Originally HMRC saw overage as a separate supply from the original supply of land. HMRC then decided there was no link to the original supply and it was automatically standard rated.

Currently HMRC’s view is that overage payments follow the VAT liability of the original supply regardless of any events that take place in the meantime. This view has not been formally published yet so do make sure that if Overage has arisen in your organisation or for your clients you’ve got a clear understanding of how it was treated as well as retaining records on the VAT liability of the original sale i.e. exempt, OTT etc.

With the best will in the world activities in land and property remain one of the more complex areas of VAT management. It’s one of the core areas that Centurion – Xeinadin’s Indirect Tax team – spend much of their time supporting clients. If you’ve got VAT questions on a land acquisition or disposal or on a development plan, then do get in touch IndirectTax@xeinadin.com and we can be there to help.

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