Building company and VAT

Building company and VAT

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A building company who is VAT registered buys a commercial property on which the OTT has been exercised. They reclaim the VAT on the property.

  The property is renovated.

Presumably the VAT incurred on the renovations are not recoverable as the subsequent sale without exercising the OTT is an exempt supply?  What about the initial VAT on the purchase?  Must this be repaid?

Replies (8)

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By spidersong
13th Nov 2014 11:22

Exempt Supply

If they're only looking to make exempt supplies then they should never have recovered the VAT in the first place, it should be declared and repaid to HMRC who will possibly look to issue penalties.

If they intended to make taxable supplies of some kind and have changed their mind then clawback provisions will apply and the claimed VAT still repaid, but there's no error in this case.

Why did they claim the VAT back in the first place? Was there an intention to make taxable supplies, or did they just decide to enter into transactions in one of the most complex and expensive areas of VAT law without taking any advice?

I have made some assumptions with the above i) that it's remaining as a commercial building, and ii) that the purchase was within the last 6 years

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Euan's picture
By Euan MacLennan
13th Nov 2014 11:33

Why didn't they opt to tax? 

Why didn't they opt to tax and charge VAT on the sale?

 

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Replying to SteveHa:
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By KarenCCarr
13th Nov 2014 11:37

vat

Euan MacLennan wrote:

Why didn't they opt to tax and charge VAT on the sale?

 

It is unlikely the purchaser is not VAT registered.

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Replying to lionofludesch:
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By spidersong
13th Nov 2014 11:40

??

KarenCCarr wrote:

Euan MacLennan wrote:

Why didn't they opt to tax and charge VAT on the sale?

 

It is unlikely the purchaser is not VAT registered.

Then if the purchaser is likely to be registered then an option may well be advantageous. Or did you not mean to use the negative and it's actually unlikely that the purchaser will be VAT registered?

Have they actually already sold the property?

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Replying to penelope pitstop:
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By KarenCCarr
13th Nov 2014 13:55

vat

spidersong wrote:

KarenCCarr wrote:

Euan MacLennan wrote:

Why didn't they opt to tax and charge VAT on the sale?

 

It is unlikely the purchaser is not VAT registered.

 

Have they actually already sold the property?

No.  Not yet

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Portia profile image
By Portia Nina Levin
13th Nov 2014 11:40

Oh

That makes perfect sense then.

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paddle steamer
By DJKL
13th Nov 2014 11:50

@KarenCCarr-Just to check

 

Just to check, presume post renovation the property is still a commercial property and is has not been changed to dwelling/ dwellings (residential) or relevant residential purpose?

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By KarenCCarr
13th Nov 2014 11:52

Sorry, I have just re read my answer.  It is likely the purchaser would NOT be VAT registered.

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