Claiming vat on medical practice building

Claiming vat on medical practice building

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It is a new medical practice. The medical practitioners (doctors) are planning to build a new building for the practice. The builders have quoted a price of £437,000 plus vat paid over a period of time in installment.
Would theses doctors be able to claim the vat back?

Replies (21)

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chips_at_mattersey
By Les Howard
03rd Oct 2013 21:55

It depends

... on whether the medical practice is VAT registered, and the proportion of taxable income. I would expect that the proportion of taxable income will be low, leaving only part of the VAT recoverable. Further, the Capital Goods Scheme is likely to apply, given that the price exceeds £250,000.

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Replying to clark.hall:
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By Emthi
03rd Oct 2013 22:17

It is not vat registered. Even if the taxable income is low, I think they can voluntarily register for vat to reclaim this massive amount of vat more than £87,000

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By shaun king
03rd Oct 2013 22:14

Dispensing doctors

If the practice is to incorporate a pharmacy to dispense drugs then it will most likely be VAT registrable and it will also need to consider other taxable income which it may not have previously recognised. If this is the case then you need specialist advice because the question of business non business income, partial exemption and Capital Goods Scheme comes into play.

Having dealt with a number of practices before it is crucial at the onset that you get a Partial Exemption Special Method in place to maximise VAT recovery on the construction and fit out costs.

If there is no dispensing element any VAT recovery is going to be minimal.

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By shaun king
03rd Oct 2013 22:22

no

They can only reclaim the amount of VAT which can be attributed to the making of taxable supplies and no more.

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By Emthi
03rd Oct 2013 22:32

If there is a dispensable department, then they claim for that proportion only? Not for the whole building?

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By Healthpay
04th Oct 2013 09:14

Limited company

In the past I set up a limited company to build the building and rent it to the doctors and other users. Claimed £250k VAT back. Whether that would still work I don't know.

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Replying to stephenkendrew:
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By Emthi
04th Oct 2013 10:02

That is the plan probably, set up a Ltd company with these 5 doctors to build the building and rent it to their medical practice (partnership), but what will that Ltd company be doing? What business is it going to do? Just this rental income only? then what will happen, do they need to do quarterly vat return as usual?
Sorry for asking all

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chips_at_mattersey
By Les Howard
04th Oct 2013 10:02

intermediate limited company

I understand the attraction of using an intermediate company, which can spread the VAT cost, but it may also trigger anti-avoidance legislation. You should draw together the helpful comments above, and plan accordingly.

 

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Replying to lionofludesch:
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By Emthi
04th Oct 2013 10:07

Leshoward, if so, what are the procedures they have to adhere

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By shaun king
04th Oct 2013 11:33

Anti Avoidance

By setting up an intermediate company you will definitely be treading into the waters of anti avoidance as Les has stated especially if as I assume they are connected parties. This isn't something that any of us an comment on without knowing the full facts as you are now into complex areas of VAT as some of us know who make a living out of advising clients like yours. 

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By Emthi
04th Oct 2013 16:04

Let me write to HMRC for clearance in case of any checking that letter would be of a piece of evidence

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By shaun king
04th Oct 2013 16:09

Good luck

Not sure you can ask HMRC for tax planning advice!!!

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By User deleted
04th Oct 2013 17:02

How would the intermediate company work?

(a) You would have to charge VAT on the rents, which would continue to be a cost to the medical practice. OK, potentially a cash-flow benefit, but

(b) in order to charge VAT on the rents you would need to opt to tax the property and the option will be ineffective if the occupier is connected with the company and effectively more than 20% exempt.

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By User deleted
04th Oct 2013 19:30

The plan ...

... is for your clients to accept that due to the nature of their business they may be unable to recover more than a very small amount of VAT. Why do you think there must always be a 'plan' to recover any more than one is legally entitled to? Yes, that is a rather facetious remark - your real plan should be, if you are not comfortable in advising on VAT, to engage the services of someone that is - who, armed with all relevant facts, can advise accordingly.

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Replying to Portia Nina Levin:
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By Emthi
04th Oct 2013 20:58

Ya that is true if they can't reclaim it they can't. Even if they go to that someone he s going to advice them not to do but that small portion.

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By Emthi
05th Oct 2013 09:39

My colleague says that we can register for vat voluntarily and charge vat on rent. Then we see whether the threshold exceeds the limit. If so we can continue with this otherwise in few months or few years we can deregister vat

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By Steve Kesby
05th Oct 2013 09:48

How?

How does your colleague propose you go about charging VAT on the exempt rent? By opting to tax?

I suspect that your colleague isn't familiar with section 13 of VAT Notice 742A, whereas the previous respondents are.

Your colleague clearly isn't familiar with the self-supply provisions on deregistration.

What you're proposing doesn't work, but with the input of a paid for specialist, you might improve your chances of both recovering more VAT for the client and not getting sued.

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By User deleted
05th Oct 2013 10:21

I'm just wondering ...

... does the colleague have a part-time pub job?

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By shaun king
05th Oct 2013 11:31

How 2

How does your colleague propose dealing with the anti avoidance provisions in the VAT legislation? If only life was as simple as "of course you can do it" someone in the pub told me you can!!

Despite all the warning signs the OP still thinks there is a magic wand someone can wave.

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By Emthi
05th Oct 2013 12:37

Thank you all

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By plummy1
06th Oct 2013 00:01

Capital Allowances

I have no idea on Vat but try to get the builder to break down the costs of the build in as much detail as possible so that you have a good chance of identifying the capital allowances available. If the build cost quoted excludes the land value capital allowances could be close to £180,000 if not more. With AIA so high at the moment this could save a lot of tax! 

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