The VAT 1614D certificate was iintroduced over 20 years ago to ensure that residitntial propety developers weren’s weren’t stuck with the VATon the purchase costs. The rules are compicated but the use of the certificate is straightforward and should be accepted by the vendor.
IT IS A VERY SIMPLE AND LEGAL WAY FOR PROPERTY DEVELOPERS, WHETHER COMMERICAL DEVELOPERS OR PRIVATE INDIVIDUALS, TO SAVE 20% ON THE PURCHSE OF A PROPERTY.
Unfortunately over the past couple of years, I’ve come across situations where the purhaser has ended up paying the VAT. Given the specific circumstances of each case, I can’t find a simple way fior the purchasers to claim back the VAT.
In a typical scenaro: the purchaser intends to convert the property into a blodk or flats or a single houme or a multi-occupancy dwelling, the sale of which may qualify fhr the zero-rate. So the developer is fairly relaxed about paying the VAT on the purchase, believing that it was entitled to claim the VAT from HMRC. However more often than not, the developer is left with an expecnsivel convered property that it can’t sell and has cost 20% MORE THAN IT SHOULD HAVE COSTS WITH SOMEITIMES NO WAY TO CLAIM THE VAT.
How many bathrooms can you by for 20% of the cost of the building?
It is a relabively straightforward procedure, as I’ve explained here https://vatexchange.co.uk/management-services/vat-1614d-procedure-faqs/ and with more information here https://vatexchange.co.uk/management-services/vat-1614d-procedure-faqs/. Not paying the VAT has a range of other benefits, not least, minimising the value for stamp duty land tax and having to reclaim the VAT from HMRC.
But when I”ve asked the developer why they paid the VAT, they usually say somehting along the lines that the vendor told thm that they (the vemdor) had optd to tax the property so had to charge VAT.
This drives me absolutely NUTS. The whole purpose of the form is:
Extract from P1: VAT 1614D:
you intend to use the building as a dwelling or for a relevant
residential purpose, or
• you intend to convert the building into a dwelling or
relevant residential building with a view to it being used
as a dwelling or for a relevant residential purpose, o…
It says so, RIGHT THRE ON THE FORM ITSELF.
As a VAT consultant, I always try to find legal and practical ways to help any property developer who ends up with an expected VAT bill,. And yes, I can earn money from developers in such situations.
But it’s not the way I like to earn money. In practice, I see more evidence that developrs spend signifiicantly more time chosing the colour of the bathromm suites with their designers than takaing advice about how to save real world money – and a LOT of if – by inviesting for a fews of a consuntant’s advice on how to avoid adding 20% to the overall purchase cost.
If you have a VERY good accountant, they may be able to deal with this correctly. But in my experience, this is the excepaiton rather than the rule (no criticism of accountants intended – after all I can hardly read a balance sheet never mind put together a set of accountants). You might thing ist’s overkill to pay a few £100s for yet another professional advisor. (And if you’re an accountant or solicitor, just think how impressed your client will be for introducing them to someone who can help them save such a lot of money).
And think about it – just how many bathroom suites could you pay for if you didn’t pay that unnecessary VAT upfront.
Marie
November, 2024