On 1 October 2026, HM Revenue & Customs published revised VAT Notice 700/1 and associated manuals (VATP) providing comprehensive updated guidance on VAT treatment of partnerships, including Limited Liability Partnerships (LLPs) and Scottish Limited Partnerships. The guidance addresses long-standing ambiguities regarding the VAT registration threshold application to partnership changes, the treatment of capital goods scheme adjustments on partner entry/exit, and the Making Tax Digital (MTD) for VAT obligations where a partnership undergoes a change in membership. Crucially, it confirms that a change in partnership membership does not constitute a ‘change of legal entity’ for VAT purposes, provided the partnership continues the same business, but triggers specific notification and record-keeping requirements.
Key Takeaways
- MTD Continuity Rules: Partnerships using MTD-compatible software must ensure the software handles membership changes without breaking the digital link; HMRC provides a new technical specification for software developers.
- Capital Goods Scheme Adjustments: Departing partners remain liable for their share of outstanding Capital Goods Scheme intervals unless a formal election is made jointly with the continuing partners within 30 days of the change.
- Anti-Avoidance Focus: The guidance includes new examples targeting artificial partnership structures designed to fragment turnover below the VAT registration threshold, with HMRC signaling increased use of the ‘disaggregation’ provisions under VATA 1994 Schedule 1.
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.
Source: Read Official Announcement