Supplies relating to property may be, or have been; 20%, 17.5%, 15.%, 10% 5%, zero-rated, exempt, or outside the scope of VAT – all impacting, in different ways, upon the VAT position of a supplier and customer. In addition, the law permits certain exempt supplies to be changed to 20% without the agreement of the customer. As soon as a taxpayer is provided with a choice, there is a chance of making the wrong one! Even very slight differences in circumstances may result in a different and potentially unexpected VAT outcome, and it is an unfortunate fact of business life that VAT cannot be ignored.
Why is VAT important?
The fact that the rules are complex, ever-changing, and the amounts involved in property transactions are usually high means that there is an increased risk of making errors. This is increased by the fact that these are often one-off transactions by a business, and in-house, in depth tax knowledge is sometimes absent. Such activities can result in large penalties and interest payments, plus unwanted attentions from VAT inspectors. Uncertainty regarding VAT may affect budgets and an unforeseen VAT bill (and additional SDLT) may risk the profitability of a venture.
Problem areas
Certain transactions tend to create more VAT issues than others. These include;
- whether a property sale can qualify as a VAT free Transfer Of a Going Concern (TOGC)
- conversions of properties from commercial to residential use
- whether to opt to tax (OTT) a commercial property
- the recovery of VAT charged on a property purchase
- supplies between landlord and tenants
- the Capital Goods Scheme (CGS)
- the anti-avoidance rules
- mixed developments
- apportionment of VAT rates
- changes in number of dwellings in a building(s)
- changes in intention of use of a building
- sale of partially completed developments
- partial exemption
- charity use
- non-business use
- relevant residential use
- the place of supply (POS) of services
- holiday lets
- serviced apartments
- contracts
- new build residential
- DIY Housebuilders
- tax points (time of supply)
- HMRC queries
- deposits
- and even seemingly straightforward: VAT registration
Additionally, the VAT treatment of building services throws up its own set of VAT complications.
The above are just examples and the list is not exhaustive.
VAT Planning
The usual adage is “right tax, right time”. This, more often than not, means considering the VAT treatment of a transaction well in advance of that transaction taking place. Unfortunately, with VAT there is usually very little planning that can be done after the event. For peace of mind a consultation with a VAT adviser can steer you through the complexities and, if there are issues, to minimise the impact of VAT on a project. Assistance of a VAT adviser is usually crucial if there are any disputes with VAT inspectors. Experience insists that this is an area which HMRC have raised significant revenue from penalties and interest where taxpayers get it wrong.
Don’t leave it to chance!
For more information, please see our Land & Property services