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Payback and clawback ― the basics

The payback and clawback provisions broadly apply in circumstances where:

1. •

   a business recovers (or does not recover) VAT on costs it incurs based on its intended use of those costs

2. •

   the intended / actual use changes before the original intention is fulfilled

SI 1995/2518, regs 108–110; Notice 706, para 13.1

The provisions require adjustments to input tax recovery to be made to reflect the change in intention as to how the costs are to be used.

For example, a largely exempt business might purchase property and recover VAT incurred on the basis that it intends to let out the property