(1)Where, after the making of a contract for the supply of goods or services and before the goods or services are supplied, there is a change in the VAT charged on the supply, then, unless the contract otherwise provided, there shall be added to or deducted from the consideration for the supply an amount equal to the change.
(2)Subsection (1) above shall apply in relation to a tenancy or lease as it applies in relation to a contract except that a term of a tenancy or lease shall not be taken to provide that the rule contained in that subsection is not to apply in the case of the tenancy or lease if the term does not specifically to VAT or this section.
(3)References in this section to a change in the VAT charged on a supply include references to a change to or from no VAT being charged on the supply (including a change attributable to the making of an option to tax any land under Part 1 of Schedule 10 ).
Cases considering section 89 3
[2003] EWCA Civ 1541 · 8 October 2003Limits
Applies the statutory VAT adjustment to the rent unless displaced by the lease. Clause 5(10)(i), read with clause 3(31), displaced the tenant’s liability for VAT on rent due before the required documents were supplied. (see paras [12]; [25]-[27]; [30])
Applies the rule that a change in VAT after a supply contract is made is added to or deducted from the consideration unless the contract provides otherwise. The lease’s VAT provisions supplied the contrary contractual provision. (see paras [11]-[12]; [25]-[27])
Limits the circumstances in which a lease term is treated as excluding the statutory VAT adjustment. Specific reference to VAT or section 89 was required, and the lease contained such references. (see para [11])
[2003] EWCA Civ 1070 · 24 July 2003Limits
Interpreted to require VAT to be added to rent where the lessor’s election to tax changed the VAT charged on the relevant supply before it was rendered. Rent including VAT therefore fell within the statutory indemnity covenant (see paras [30]-[33]).
Applied to require VAT at the relevant rate to be added to the rent as part of the consideration for the landlord’s supply. The tenant’s failure to pay rent including VAT was therefore within the implied indemnity covenant (see paras [30]-[33]).
Confirmed that the absence of a specific VAT reference in a lease does not itself prevent section 89(1) from applying. The judge’s reasoning on that point was upheld (see paras [30]; [33]).
Interpreted to include a change to or from no VAT being charged. The lessor’s election to tax therefore constituted a relevant change before the supplies concerned, engaging section 89(1) (see paras [30]-[33]).
[2008] EWHC 3100 (Ch) · 18 December 2008Interprets
Interprets a change in VAT as altering the consideration for the supply, rather than creating a separate debt. In a tenancy, that consideration is rent. (see paras [14], [30]-[31], [52(vi)-(viii)])
Applies the special treatment of tenancies and leases when considering whether VAT changes alter the rent payable. (see para [14])
Applies the provision treating a change from no VAT to VAT, including one caused by an election under Schedule 10, as a change in VAT charged on the supply. (see paras [14], [30]-[34])
What each judgment says about section 89 is in the case-law panel in the full Act.