Value Added Tax Act 1994 section 89

Adjustments of contracts on changes in VAT

Section 89 deals with how the price in a contract for goods or services is adjusted when there is a change in the VAT charged on the supply between the time the contract is made and the time the goods or services are actually supplied.

• If VAT changes after a contract is agreed but before the goods or services are supplied, the contract price is automatically adjusted up or down by the amount of the VAT change, unless the contract says otherwise.
• The same automatic adjustment rule applies to tenancies and leases, but a general clause in a lease or tenancy will not override this rule unless it specifically refers to VAT or to this section of the Act.
• A "change in VAT" includes not only rate changes but also a shift from no VAT being charged to VAT being charged, or vice versa — for example, where a landlord exercises the option to tax land under Schedule 10.
• The practical effect is to protect both suppliers and customers from bearing the impact of VAT changes that were not anticipated when the contract was originally agreed.