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CGS - a quick one

Apologies if this is stupid, not got a clear mind atm...

So you buy a property for £1m.  It therefore falls under the CGS.  You opt it and rent it out, all good, no adjustments needed.  Then one year your tenant leaves (all year), would that be cause for an adjustment?  You aren't making non-taxable use of the asset, you are making no use at all!

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By BKD
22nd Jan 2013 14:48

As you were

(Probably)

Where the asset is not used at all, then the presumption (and treatment) is that it is used for its intended activity. So if the non-use is just a temporary break in letting, which recommences after the one-year vacancy, business use throughout should continue, ie no adjustment necessary.

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22nd Jan 2013 14:51

I am probably missing the point ...

... but assuming that CGS stands for the VAT Capital Goods Scheme, adjustments to the input VAT claimed are only required under the scheme if you are a partially exempt business.  As you have opted to tax the property, you are not exempt in that respect.  Are you saying that your sales are partially exempt?  Otherwise, no adjustments are required.

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22nd Jan 2013 15:31

Thanks

Euan MacLennan wrote:

... but assuming that CGS stands for the VAT Capital Goods Scheme, adjustments to the input VAT claimed are only required under the scheme if you are a partially exempt business.  As you have opted to tax the property, you are not exempt in that respect.  Are you saying that your sales are partially exempt?  Otherwise, no adjustments are required.

 

Thanks both.  To address Euan's point, say for example I had 2 properties and only opted 1 if that makes it more sensible.  It was only an idle thought (a client is about to buy a CGS building and it may fall empty now and again), I wasn't sure of the consequences in such a situation and if 'empty' mean 'non-taxable use' and so a repayment was needed to HMRC.

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By BKD
22nd Jan 2013 15:56

Correction

It is not only exempt use that results in a CGS adjustment. An adjustment falls to be made where the property is used other than for making taxable supplies, which will include non-business use. No use at all is not non-business use, so no adjustment required. (Think I got all my negatives correct there:)

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22nd Jan 2013 16:10

So...

BKD wrote:

It is not only exempt use that results in a CGS adjustment. An adjustment falls to be made where the property is used other than for making taxable supplies, which will include non-business use. No use at all is not non-business use, so no adjustment required. (Think I got all my negatives correct there:)

 

If I'm following correctly, taxable use is taxable use, exempt or non-business use is exempt, and non use is pretty much N/A (you said taxable use followed by gap followed by taxable use would be all taxable use, presumably the reverse [i.e. exempt use] would apply also).

Thanks!

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By BKD
22nd Jan 2013 16:29

Pretty much correct

Taxable is taxable, exempt is exempt, non-business is non-business and non-use is non-use. Only the middle two uses require adjustment.

To expand a little. Say the property was being used for a taxable purpose, you decide to stop and use it for an exempt purpose. but that exempt purpose does not commence for a year. The intervening gap would probably be considered by HMRC to follow the intended future exempt use rather than the actual previous taxable use (so requiring a CGS adjustment).

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