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