What are the VAT considerations for the Land and Property sector?
For construction we are dealing with multiple potential VAT rates: 20% for refurbishments and commercial new builds; 5% for qualifying conversions and 0% for residential and qualifying charitable new builds. However, defining the terms ‘new’, ‘residential’ and ‘conversion’ is not as straightforward as it seems, thanks to the complex structure of VAT Act 1994 Schedule 8 which contains not only numerous exceptions but exceptions to exceptions.
For contractors and sub-contractors, the Domestic Reverse Charge, introduced in March 2021 by section 55A of the VAT Act shifts the responsibility for accounting for VAT from the supplier to the customer but not in all cases.
Then there are property disposals and the potential for VAT exemption, as well as 20% and 0% VAT possibilities.
Add to these the waiver of the exemption from VAT, commonly known as the option to tax, certification requirements and the Capital Goods Scheme and you are touching the tip of the iceberg that is the VAT complexity in this sector.
What are the potential benefits of discussing VAT?
Land and property transactions are by their nature high value and so the VAT at stake is similarly high. With penalties for careless errors of 30% of the tax, getting it wrong can mean disaster for any business.
Add to that the potential for fraud in this sector, especially in labour supply, and the risk to legitimate businesses of getting caught up in a fraudulent supply chain is high. With this comes time consuming and expensive HMRC investigation and in the worst cases HMRC seeking to recover fraudulently misappropriated VAT from the innocent parties in the supply chain if sufficient due diligence cannot be proven.
What types of businesses may benefit from discussing VAT?
Property developers, investors, landlords, builders, contractors, subcontractors, DIY housebuilders …the list goes on and any or all of these could get into a VAT mess without the proper technical advice and support.
Take property developers as an example. If a developer converts a warehouse into flats, they will incur VAT at 5% on qualifying conversion works and 20% VAT on non- qualifying works. If their intention at the time of the works is to sell the flats then the VAT is recoverable, except for any that is blocked by Article 6 of the VAT (Input Tax) Order 1992 (the Builders Blocking Order). However, if they decide to let the flats either instead of or prior to a sale, that recovered VAT is repayable to HMRC, either in part or in full depending on the developer’s future intentions.
What is our experience of working with the Land & Property sector?
Having worked in VAT exclusively for almost 40 years, I have worked with numerous Land & Property businesses, both on transaction level advisory projects and ongoing consultancy support and compliance.
I currently work with several developers in residential, commercial and specialist sectors such as PBSA and charitable buildings, providing regular review meetings where we discuss all current and planned projects to identify VAT opportunities and risks before they arise.
On the investor side I work with a large investment group handling the VAT aspects of all of their acquisitions, disposals and rental streams, working alongside their lawyers to provide a seamless solution to the complexities in this sector.
A couple of examples of the many advisory projects I have been involved in are:
- the acquisition of an opted to tax building by a religious body where I was able to achieve revocation of the option to tax, saving the charity several hundred thousand pounds in irrecoverable VAT;
- Working with surveyors on a multi-million-pound residential conversion where the contractors refused to apply the reduced rate of VAT due to the unusual nature of the works. With my intervention, the contractors conceded and refunded the overpaid VAT, which, incidentally, the owners were not aware could be recovered via a DIY Converters claim, so a ‘win win’!
For more information on how UK VAT Advice can help you, please contact us.
