Proposal is: Client LLP builds several childrens nurseries and enters into lease with a company which in turns rents each building to nursery operators.
Vat will be payable on construction and therfore land/building will be opted for tax and going forward vat chargeable on rent.
Ignoring immaterial partial exemption possibilities, is there a structure we can put in place to avoid having to charge vat to nursery operator but still get vat back on construction costs?
Magic wand please?!
iain mcfadden
Replies (6)
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Anti Avoidance Disapplication
If the LLP is connected to the intermediate tenant, either in the traditional sense or if the intermediate funded the construction in any way, and the property is a capital goods scheme item then the LLP's option to tax will be disapplied in relation to the head lease if the intermediate uses the property mainly for exempt purposes.
Did anyone follow that?
Paul Taylor
Senior VAT Consultant
Dains
Told you I was the Tax Duffer
Robert, you seem to imply that the option to tax applies to the VAT group, not just the individual entity. Can you confirm that just to reduce my level of ignorance a bit. Cheers
Workable structure?
Sorry, Neil, the onward supply of the property by any member of a VAT Group would attract VAT.
I'm not sure there's an easy way of avoiding charging VAT to the nursery.
The LLP could do the construction with an option to tax in place, charge VAT on the lease to the company, but that company doesn't opt to tax so absorbs the VAT before leasing to the nursery operator. Doesn't save any VAT in the long run, but does make it appear to the nursery that they aren't paying any.
Need better advice than I can give
It is possible to set up a susidiary company to the LLP and form a VAT group. LLP builds the buildings and opts to tax. Lease the buildings to the sub. Since it's a VAT group, you don't charge VAT. The sub does not opt to tax so when it lets the buildings it does not charge VAT.
No promises and don't rely on this advice. I'm the tax duffer!