Joint Ventures and VAT
Our client (Ltd Company 'A') is in the process of entering into a Joint Venture with another Company (B) who we do not act for.
The Joint Venture agreement is being drawn up by solicitors. The bones of the agreement are
Company B purchases the freehold. This is funded by a bank with a first charge and company A loan with a second charge over the freehold.
The freehold is then developed by the Joint Venture, and the properties subsequently sold. The money generated is then used to clear both the bank loan and the loan of company A. Any balance is then split between the two companies.
To me, this seems to be a partnership arrangement, and hence the joint venture should register for VAT in its own right. However, on looking on HMRC website, all they say on the issue is:
If you and another person intend to work together on a business or project as a joint venture, HM Revenue & Customs (HMRC) may consider this as a partnership. This would be a new and separate person for VAT registration purposes. The joint venture may have to register for VAT if its turnover is above the relevant threshold.
Does anyone know where any further guidance on this issue is, or if they have had any practical experience with this sort of situation?
A Joint Venture may, indeed, be a partnership.
HMRC Internal Guidance provides four conditions for the existence of a partnership - a business; a view to a profit; sharing profits or losses; that the parties may, individually, bind the others in relation to transactions.
The alternative is that the companies account for output tax on their proceeds of the Joint Venture.
If matters are still being discussed, I would choose which is preferable, and set up the contract accordingly. It is better for you and your Client to decide such matters, rather than let HMRC do so.