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.
Replies (4)
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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.
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.
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.