Tag Archives: vat-house

VAT – Understanding land and property issues

By Marcus Ward 8 July 2024

Help!

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

VAT: Changes to the DIY Housebuilders’ Scheme

By Marcus Ward 20 November 2023

The DIY Housebuilders’ Scheme is a tax refund mechanism for people who build, or arrange to have built, a house they intend to live in. It also applies to converting commercial property into a house(s). This puts a person who constructs their own home on equal footing with commercial housebuilders. There is no need to be VAT registered in order to make the claim.

The Scheme can be complex, but here is our Top Ten Tips for claimants.

The Changes

From 5 December 2023, the follow changes apply:

claimants will be allowed to submit claims electronically
the deadline for making claims will be extended to six months (from three)
the list of documents required to support a claim has been amended
a new requirement for additional evidence when a derelict building has been converted into dwelling(s) – to be made on a specific form

These changes are set out in The Value Added Tax (Refunds to “Do-It-Yourself” Builders) (Amendment of Method and Time for Making Claims) Regulations 2023 and guidance is provided by HMRC here.

The new deadline applies to claims made on, or after 5 December 2023. The deadline, broadly, begins when a dwelling is complete. There is sometimes a dispute on the completion date, so this case and commentary may be of assistance.

VAT: DIY Housebuilders’ Scheme – deadline for claims extended

By Marcus Ward 20 March 2023

One of the main problems was the very strict (and rigorously enforced) deadline of three months for the submission of the claim form. This is from completion of the build (usually this is when the certificate of practical completion is issued) or the building is inhabited, although it can be earlier if the certificate is delayed.

A case on when a house is considered to be complete here.

However, HMRC has announced that this deadline will be extended to six months from a date yet to be announced. This extension is welcome as it is often difficult to collect all the required information and documentation. In addition, the whole process will be digitised some time in the future which will also simplify the process.

The Scheme can be complex, but here is our Top Ten Tips for claimants.

VAT – Work on farm buildings

By Marcus Ward 29 September 2022

I am quite often asked if there are any VAT reliefs for farming businesses carrying out work to farm buildings.

Indeed, there are some areas of the VAT rules which may be of assistance to owners of farms and farm buildings. Clearly, the best position is to avoid VAT being charged in the first place. If this is not possible, then we need to consider if the VAT may be recovered.

Repairs and Renovations of Farmhouses

The following guidelines apply to businesses VAT registered as sole proprietors or partnerships. Where the occupant of the farmhouse is a director of a limited company (or a person connected with the director of the company) it is unlikely that any VAT incurred on the farmhouse may be recovered. The following notes are provided by HMRC after consultations with the NFU:

Where VAT is incurred on repairs, maintenance and renovations, 70% of that VAT may be recovered as input tax provided the farm is a normal working farm and the VAT-registered person is actively engaged full-time in running it. Where farming is not a full-time business for the VAT-registered person, input tax claimable is likely to be between 10%–30% on the grounds that the dominant purpose is a personal one.
Where the building work is more associated with an alteration (eg; building an extension) the amount that may be recovered will depend on the purpose for the construction. If the dominant purpose is a business one then 70% may be claimed. If the dominant purpose is a personal one HMRC would expect the claim to be 40% or less, and in some cases, depending on the facts, none of the VAT incurred would be recoverable.

Other farm buildings

As a general rule, when VAT is incurred on non-residential buildings, then, as long as they are used for business purposes, it would be expected that 100% of the VAT is recoverable. Care should be taken if any buildings are let and it may be that planning is necessary in order to achieve full recovery.

It should be noted that if any work to a building which is not residential results in the building becoming residential, eg; a barn conversion, then the applicable VAT rate should be 5%. If the resulting dwelling is sold then generally the 5% VAT is recoverable. If the dwelling is to be lived in by the person converting it; the VAT incurred may be recovered, but the mechanism is outside the usual VAT return and a separate claim can be made. In these circumstances it is not necessary for the “converter” to be VAT registered.

As may be seen, in many cases it will be necessary to negotiate a percentage of recovery with HMRC. We can assist with this, as well as advising on VAT structures and planning to ensure as much input tax as possible is either not chargeable to you, or is recoverable.

VAT: When is the building of a house complete? (And why is it important?)

By Marcus Ward 11 June 2019

Completion of a residential dwelling

A technical point which comes up surprisingly often and seems innocuous is: when is a building “complete”? The following case is helpful, and I thank Les Howard for bringing it to my attention.

The date that the construction of a dwelling is deemed to be complete is important for a number of reasons. The issue in the case of Mr and Mrs James was whether certain works could be zero rated via the VAT Act Schedule 8 Group 5 Item 2 (The supply in the course of the construction of a building designed as a dwelling…) or as HMRC contended, they were the reconstruction or alteration of an existing building and the work should be standard rated.

Background

The James used a contractor to plaster the entire interior of their house in the course of its construction. However, the work was demonstrably defective to such an extent that the James commenced legal proceedings. A surveyor advised that all of the old plaster needed to be hacked off and replaced by new plastering installed by a new firm. The stripping out and replacement works took place after the Certificate of Completion had been issued.

The James claimed input tax on the house construction via the DIY Housebuilders’ Scheme.

Technical

HMRC refused the James’ claim to have the remedial work zero-rated because, in their view, the re-plastering works amounted to the reconstruction or alteration of the house which was, when the supplies were made, an “existing building”. They proffered Note 16 of Schedule 5 which provides that “the construction of a building” does not include “(a) … the conversion, reconstruction or alteration of an existing building”.

They stated that zero-rating only applied if the work formed part of the construction of a zero-rated building. They had previously decided that the work of snagging or correction of faults carried out after the building had been completed could only be zero-rated if it was carried out by the original contractors and correction of faults formed part of the building contract. When the snagging is carried out by a different contractor, the work is to an existing building and does not qualify for zero rating.

The James stated that the Customs’ guidelines on snagging do not take into account extraordinary circumstances. Their contention was that the re-plastering works were zero rated because they had no choice but to engage the services of a different contractor other than the one who carried out the original works.

Decision

The judge found for the appellant – the re-plastering works were zero rated.

There was a query as to why The James applied for a Certificate of Completion before the plastering was completed. In nearly all cases such a certificate would crystallise the date the building was complete.

The reasons were given as:

the need for funds. The James could not remortgage the house without the certificate and they needed to borrow a substantial amount
they could not reclaim VAT under the DIY Housebuilders’ Scheme until the Certificate of Completion had been issued
they were aware that the building inspector was beginning to wonder why the building works were taking such a long time
they needed the house assessed for Council Tax which could only happen when the certificate had been issued
the Certificate was issued as part of the procedure required by the Building Act 1984 and the Building Regulations of 2000

These reasons were accepted by the judge.

Despite the respondents stating that:

for the reasons given above
the fact that the James had been living in the house for some time
they had obtained the Certificate of Completion
the new plastering work had been done by the new plasterer such that the house had been constructed before supply of the new plasterer’s services had been made
the house was an “existing building”

the judge was satisfied that in the circumstances the new plastering work was supplied in the course of the construction of the building as a dwelling house and that there was no reconstruction or alteration of an existing building in the sense contemplated by Note (16) to Group 5 Schedule 8.

He observed that the Certificate of Completion records that the substantive requirements of the Building Regulations have been satisfied. But to the naked eye the old plasterwork was obviously inadequate and dangerous ad he could not possibly consider that the construction project had finished until the new plasterwork was installed. The James’ construction project was to build a new dwelling house. Plasterwork of an acceptable standard was an integral part of the construction works. The new plasterwork was done at the earliest practicable opportunity.

Commentary

Care should be taken when considering when the completion of a house build takes place. There are time limits for DIY Housebuilders’ Scheme clams and clearly, as this case illustrates, usually work done to a house after completion does not qualify for zero rating. So, if the owner of a house is thinking of, say, building a conservatory for example, it is more prudent in VAT terms to construct it at the same time as a new house is built, and certainly before completion.

I would say that the appellant in this case achieved a surprisingly good result.