Introduction
Part 1: Introduction to VAT and property
Planning the development
Quick Reference Guide for residential property developers
Introduction to the case studies
Part 2: VAT and residential property development
PART 2, SECTION 1: VAT BASIC PRINCIPLES AND VAT ON INCOME
Chapter 1: Introduction to VAT
VAT is a tax on sales of goods or services
• VAT registration
• VAT returns
Two classes of supply
• Taxable and exempt
• Three rates of “taxable” supplies: 20%, 5% and the zero-rate
VAT recovery: the difference between taxable and exempt supplies
Time of supply: tax points
What “use” means in VAT
What’s your “intention”?
“Mixed” supplies at different rates of VAT
“Composite” supplies at one single rate
Chapter 2: VAT and property: the important terminology
What’s an “interest” in a property?
• Common terms: freeholds, leases etc
• Commonholds
• Goods or services
Commercial properties
Residential properties: “Qualifying properties”
Dwellings
• What is a “dwelling”?
• Criteria for VAT purposes
• Conversions
• Sales and rentals
When developers can recover VAT on expenditure.
Other important terms
• “Major interest”
• “Person constructing”
• “Person converting”
Chapter 3: The importance of getting the details right
The facts
• Names
• Addresses
• Description of property
Contracts and other documentation
Keeping proper records
What are you planning to do with the property once it’s completed?
• VAT recovery is based entirely on the use of the goods and services
Understanding the commercial and legal arrangements.
• Who’s involved?
Joint ventures
Always read the small print…..
Chapter 4: What does “business” mean?
You may be liable to register or be entitled to register for VAT if your development is “in the course or furtherance of a business”.
The business owner is registered for VAT, not separate property developments or other business activities.
There are different rules for commercial properties and residential properties.
Business and non-business developers used different VAT recovery procedures to claim VAT
Chapter 5: Introduction to VAT and property liability
Zero-rated construction and sale of new residential properties including dwellings
Reduced rated conversion and refurbishments.
Other income from residential property
Reliefs for alterations to residential properties for the elderly and disabled
Registering for VAT when you’re doing residential property construction or conversions
Commercial properties
VAT recovery rules
• Partial exemption
• Adjustments to VAT recovery in later years
Are there different rules for property developers and property investors?
Chapter 6: Property and Construction contracts
VAT and contracts
Just because it’s written down doesn’t mean it’s right!
What if a contract is silent about VAT?
Property transactions
• Buying opted commercial properties
• Tenanted properties
Construction contracts
Pricing: VAT inclusive or VAT exclusive?
VAT related disputes
Stamp duty land tax
Compensation and court settlements
Other legal documents
Chapter 6 Annex: Common VAT issues
Chapter 7: Value, payments and documentary evidence
Value for VAT and payment
Time of supply: tax points
VAT invoices
Case study: Stage 2: VAT liability of income
PART 2, SECTION 2: VAT ON EXPENDITURE
Chapter 8: How to purchase commercial properties VAT free: VAT1614 Certificate
When VAT is charged on commercial property.
Buying an opted commercial property VAT exempt for residential use
• Planning to convert a commercial property as a dwelling or RRP property
• What if the property contains an existing dwelling(s)?
• Disapplying the option to tax in other situations
What if I’m buying a new commercial property?
The vendor’s VAT position: the 2-price scenario
• When do vendors have to repay VAT to HMRC?
Using the VAT 1614 certificates
When VAT 1614 certificates MUST be used
• Issuing certificates before the price is legally fixed
• What happens if I’m late with my certificate?
• Keep a record of the events
Do I need planning permission for conversion work before I issue the VAT1614D?
Buying at auction
Buying through an intermediary purchaser: “relevant intermediary”
Buying a tenanted property?
What your solicitor needs to know
• Interaction with stamp duty land tax
What happens if you don’t use the property as you’d anticipated? Do I have to pay the VAT?
Chapter 9: Zero-rated new construction and reduced rated conversions and refurbishments
9.1: Basic rules
How does it work in practice?
• Consider VAT at the planning stage.
Definitions: new construction and “qualifying properties” for conversions and refurbishments.
When does the zero-rate apply?
Reduced rate for qualifying conversions.
Reduced rate for qualifying refurbishments.
Which conversion and refurbishment services qualify for the reduced rate?
• Qualifying services.
9.2: Mixed residential developments, standard rated conversion services and other
practical issues
Dwellings: conversions and refurbishments of the same property: the Note 3(3) issue.
What’s always standard rated even in zero-rated new construction and reduced rated qualifying conversions and refurbishments?
When is “completion”?
Mixed developments: apportioning the price between work at different rates.
• Work done before completion
• Work done after completion
Garages.
Planning permission; building consents: why it matters.
9.3: RRP properties, listed buildings and other residential properties 119
RRP properties
• When certificates are required
• Change of use rules
Multi-occupancy dwellings.
Zero rated construction of annexes for RCP properties.
Zero-rated conversion of non-residential properties for Registered Housing Associations.
How the relief applies to listed buildings.
Chapter 10: Reduced rated conversions and refurbishments: the money side of things
10.1: VAT implications of using a single contractor
How it works
Engaging a third party contractor
Design and build services
Setting up an in-house contracting company
10.2: Subcontractors, paying in cash and other money issues
Subcontractors
• Can subcontractors charge the reduced rate?
• Work on “certified” properties is always standard rated
• Does it matter whether subcontractors charge the correct VAT rate if I can claim the VAT from HMRC?
What happens if the contractor wants to charge me 20% but I think that the 5% rate should apply?
What if we’re still unsure about the VAT liability of certain work?
Does it matter if I can recover the VAT on my VAT return or under the DIY HouseConverters scheme?
Surely it’s cheaper using unregistered suppliers?
• No, it’s not always the cheaper option!
Paying in cash.
Pub conversions.
Chapter 11: VAT relief on other types of construction work 134
Redecoration, alterations, repairs and maintenance work
Work carried out in the course of qualifying conversion or refurbishment
Installation of energy saving insulation
Installation of grant funded heating measures
Adaptations for the handicapped
Adaptations for the elderly
First time connection of gas and electricity supplies
Case studies: VAT liability of the construction services
PART 2, SECTION 3: VAT RECOVERY
Chapter 12: Zero-rated sales of new residential properties and non-residential conversions: when developers can recover VAT
Why is zero-rating important?
• VAT registration
• Sales for letting
When the zero-rate applies to sales
The conditions for zero-rating sales of converted or refurbished properties
• First grant
• Major interest
• Person converting
Non-residential conversion.
• Does the zero-rate apply to the sale of all properties which qualified for reduced rated conversion work?
Don’t confuse reduced rated conversion/refurbishment services with zero-rated converted property sales.
And don’t confuse the ten year rule with the 2 year rule!
Other issues
• Garages
• Sales of part completed properties
• Relevant residential properties: certificates
Zero-rating sales of substantially reconstructed listed conversions
Chapter 13: Being a VAT registered business
VAT registration for property businesses
How and when to register for VAT
• When you are liable to register
• When the registration starts
• How and when do I have to notify HMRC that I’m liable to register?
Other types of VAT registration
• Voluntary registration when turnover is below the registration limit
• Registering to recover VAT on expenditure
• Registering before making any sales
• Group registration for associated companies
• Exemption from registration when VAT on expenditure exceeds VAT on sales
Place of supply rules: property and construction services
Registration for property businesses: Form V5
What if my sales are zero-rated and all I want to do is to claim VAT on my expenditure from HMRC?
Monthly VAT returns
Claiming VAT on pre-registration expenditure
Being VAT registered
• Paying VAT on other income
• Closely linked businesses
Cancelling your registration
• Claiming VAT on expenditure incurred after deregistration: VAT 427
Keeping records and accounts
Find a good accountant
Chapter 14: VAT recovery rules for VAT registered businesses
14.1: Introduction to VAT recovery
Introduction to VAT recovery rules: the main principles
Non-business expenditure
Blocked input tax
Claiming VAT on your VAT returns: the basic requirements
What happens when VAT is overcharged or incorrectly charged?
Adjustments to VAT returns
14.2: Partial exemption
Partial exemption: why is it so difficult?
Calculating how much VAT you can recover
Terminology
• Intention: First use principle
• Direct attribution
• Residual input tax
The standard method
• Income that can be excluded
• The partial exemption year
• Annual adjustments
• “De minimis” limits
Example: Residual input tax and annual adjustments
Special partial exemption methods
• When should I apply to use a special method?
Partial exemption for businesses who become partly exempt for the first time
Partial exemptions over-rides
14.3: Adjusting VAT recovery in later years
“Clawback” and “Payback”: When things don’t go to plan or you change your mind
• How does it work?
• How is the adjustment calculated?
• Residential property developers
Recalculating directly attributed VAT
Recalculation residual input tax
• Effects on prior years’ de minimis limit
The” Capital Goods Scheme” (“CGS”): Annual adjustments reflecting actual use
• The CGS and property developers
Partial exemption for housebuilders
The 10 year “VAT life” of a property
14.4: Practical VAT recovery for residential property developers
VAT recovery rules for mixed developments, including opted commercial property.
• VAT recovery: the initial intention
• Residential property
• Commercial property and the option to tax
• What happens with the option to tax is disapplied?
• Speculative builders
• Abortive expenditure
• Partial exemption special methods for mixed property developments
• Apportioning expenditure
Planning to maximize VAT recovery
• Correctly analyse invoices
• Work with contractors to identify zero-rated or reduced rated expenditure
• Using the partial exemption de minimis limits
Budgeting for VAT recovery adjustments
The most commonly asked question about recovering VAT on residential newbuilds and conversions.
Chapter 15: DIY property developers
15.1: Introduction to the DIY refund schemes
Is this the first page you’ve opened in the book?
Where to start.
What’s a conversion?
How to make a claim.
How to reduce the risk of your claim being rejected.
Other ways of saving VAT.
15.2: When you can make a claim
New construction
Conversions
Converting a non-residential property into a dwelling
• What’s a dwelling?
• Non-residential conversion
• Conversions of mixed residential and commercial properties
• The “ten year unoccupied rule”
VAT savings on contractors’ services
Reduced rated conversion services
• Builders’ materials
• Contractors must apportion costs
• You can only recover VAT “correctly charged” under the DIY Refund Scheme
• Get as much work done before completion as possible
• Working with your contractor
Listed buildings
15.3: What you can claim
Property: NO
Goods: SOME
Services: SOME
The “design and build” anomaly
What happens when VAT is over-charged or incorrectly charged?
15.4: When things don’t go to plan
What happens if you can’t live in the property when it’s completed?
What happens if your intentions change during the construction process?
Chapter 16: Converting pubs and other commercial properties with existing residential accommodation
When you can save VAT if you’re buying a commercial or mixed property
• The “90/10” split
When you can save VAT on reduced rated conversion services and refurbishments
• Converting horizontally
• Converting vertically
When you can claim VAT on non-residential conversions
• The difference between reduced rated conversion services and non-residential conversions
• The self-contained anomaly
Commercial developers and the DIY Refund Scheme
Case studies: How much VAT can be recovered from HMRC and the final VAT cost
Part 3: Introduction to commercial property and other issues
Chapter 17: Commercial property
What is commercial property?
The three main VAT rules that apply to commercial proeprt
Exemption and exclusions from exemption
The option to tax
VAT recovery rules
Self – supply rules
Anti-avoidance rules
• Preventing VAT savings through manipulation of the option to tax
• Preventing VAT savings by deferring completion of construction contracts
Mixed developments and apportionment
Are there different rules for investors and developers?
Chapter 18: Mixed developments
VAT and mixed developments
Apportionment in practice
VAT on the purchase of the property
VAT liability of conversions and refurbishments
VAT liability of sales and rental income
VAT recovery and partial exemption
Chapter 19: Holiday lets
What is a holiday let?
Property conversions and holiday homes
Income from holiday lets
The Tour Operators Margin Scheme
VAT recovery and partial exemption
Using your own home for holiday lets
Chapter 20: VAT planning and anti-avoidance
20.1: Background to VAT avoidance
What’s the difference?
• Evasion
• Avoidance
• Planning
The defining case for VAT avoidance: Halifax Plc
HMRC’s anti-avoidance guidance
• Context of the anti-avoidance
• Who they’re aimed at
• “Arrangements to reduce or save VAT”: Listed schemes and hallmarks
• Notification thresholds
20.2: Property and construction avoidance
What is acceptable planning in property and construction?
• How do you decide whether your plans constitute avoidance?
• Other anti-avoidance provisions
• How do HMRC find out about arrangements that aren’t disclosed?
Property and construction related schemes and hallmarks
When you can claim VAT on non-residential conversions under a sale and leasing arrangement.
• Other residential conversions and refurbishments
• New properties
Property transactions between connected businesses
• Getting planning right
• Set it up properly and do it properly
• Substance and form
Notifying HMRC or asking for rulings
Other ways to minimize VAT expenditure
And once you’ve done it, is it worth it?
Dev Co and VAT planning
Chapter 21: Managing the VAT process
Being VAT efficient
Dealing with HMRC
The biggest saving for the smallest effort when you can buy the property VAT exempt
Planning the development
Managing the project
After the process
Planning for the long term
Chapter 22: And finally, when things don’t go to plan!
Buying properties VAT free and not getting planning permission
When your original plans NEVER happen?
When your original plans are DELAYED?
Getting confused about conversions
VAT DIY claims
Chapter 23: The Three Stage Process
Appendices
Appendix One: HMRC guidance
Appendix 2: VAT and property legislation