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5% VAT on empty properties

5% VAT on empty properties

I have a client who was a project manager in his previous role and is therefore very hands on when it comes to arranging builders, contractors and materials as you would imagine.  He has started up a business that is buying empty residential properties and renovating them in order to let them out.  We had discussed the 5% VAT but because of his hands on approach and existing contacts with builders merchants etc he has previously always bought the materials himself and just paid for the labour however doing it this way for his new venture will mean he is missing out on the 15% VAT saving.

Is there anything from stopping him from setting up a Ltd company (and registering for VAT) in the middle to purchase the materials and pay the contractors and then invoice his property business at the reduced rate of VAT?  


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03rd Mar 2016 10:19

As I understand it

A (client) sets up B Ltd.

A then contracts B Ltd to do his renovations (ensuring the 2 year rule is met in this case) and pays 5% VAT.

B Ltd buys materials (and pays 20%), then hires workers to do the work with their materials (pays them 20%).

B Ltd recovers all the VAT it has paid.

A pays 5% on the whole cost.

Never actually done it in practice, but that was always the theory I was taught.


#Edited to make order more correct#

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03rd Mar 2016 10:36

SOP for this sort of thing. It is not usually the materials that are at issue though, but things like architect's and project management fees.

Remember though that both A Ltd and B Ltd will need to register under, and operate, CIS.

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