Recovering VAT on property purchase

Recovering VAT on property purchase

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I've a client runs an educational establishment and isn't VAT registered because supplies are exempt from VAT.  However, he wants to buy a freehold property for the business on which there is an option to tax, so VAT will be charged which he will not be able to recover it.

He has another company, which could be registered for VAT and could then rent to the educational establishment, but then VAT would be chargeable on rent, which would be irrecoverable, and capital goods scheme would probably apply, so not very advantageous.

Can anything be done to enable the client to recover the  VAT?  There are probably some fairly minor supplies such as uniforms and the like where standard rated VAT could be charged, but this would be minimal compared with exempt supplies.

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chips_at_mattersey
By Les Howard
24th Sep 2014 09:10

property rental

The VAT position might be workable if the education provider is a non-profit. If not, then anti avoidance provisions prevent the intermediate company from opting to tax.

An alternative would be to make the education provider taxable, so as to allow the option.

Either way, more detailed professional advice is recommended.

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By The VAT Doctor
22nd Sep 2014 22:46

Complex...but

I agree with Les about the advice - this is not easy.  However situations like this always make me think about the fairly well known example of a Political party with a similar conundrum effectively avoiding the option by a well worked TOGC and timely surrender strategy.

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Replying to Tax Dragon:
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By BryanS1958
23rd Sep 2014 23:59

TOGC/Surrender

Not sure that the TOGC route would work as the building isn't currently occupied by the educational establishment, it's occupied by a different business.  Also, wasn't this route blocked in many cases by subsequent anti-avoidance legislation?  Nice idea though of it could be made to work!

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By The VAT Doctor
24th Sep 2014 00:33

Yes, awkward

Agree AA rules make this tough, but this situation always makes me think of that example!  Legislation talks about intention for exempt body to occupy.

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