Readers’ forum: VAT liability of underwriting service

Underwriting fee

My client recently sold the freehold of a commercial property at an auction for £1.2m. There was no option to tax election on the building so the proceeds were exempt from VAT.

However before the property was sold my client did a deal with a separate company: if the property failed to sell for at least £1m at the auction the other company would buy it for this amount from my client instead. But if a selling price was achieved above this amount at the auction the other company would get 50% of the extra proceeds ie £100 000 in this case.

The problem is that the underwriting company has issued an invoice for £100 000 plus VAT for their commission.

As it relates to an exempt property sale the input tax is blocked under the rules of partial exemption...