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Builder client building house to let

Our client is a self employed spec builder and now wants to build one of the houses to rent out. I am aware that the input VAT would be blocked as he will be effectively making an exempt supply. When building it, presumably he would not be required to charge his own labour, with the base cost just being the cost of the site plus and materials and VAT thereon.

Thanks in advance.

 

 

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19th Feb 2019 15:28

Charge his own labour ?

To whom ?

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19th Feb 2019 15:41

You may be thinking of ITTOIA s172B. If the land was never trading stock, that rule is not in point. If it was, it is.

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to Tax Dragon
20th Feb 2019 16:16

This is my exact point Tax Dragon.

If he puts the site into trading stock and then moves it off balance sheet as an investment property there would need to be a charge to IT for the theoretical OMV.

If it is classed as rental from day one, presumably this isn’t applicable

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19th Feb 2019 16:46

Self-supply of services for VAT I presume?

It depends on the value of the supply I believe but I’m no VAT expert...

https://www.gov.uk/government/publications/vat-notice-708-buildings-and-...

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to Adam12345
19th Feb 2019 16:53

"But you do not account for a self-supply charge if the work would have been zero-rated."

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to Wilson Philips
19th Feb 2019 16:56

Zero-rated or exempt? PNL/VNN always pulls me up on that...

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to atleastisoundknowledgable...
19th Feb 2019 16:59

Construction of dwelling - zero-rated.

Item 2(a) in Group 5 of Schedule 8 to VATA 1994.

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to Wilson Philips
19th Feb 2019 17:33

I would agree.

By the looks of it, there may be more VAT issues down the road.

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19th Feb 2019 17:49

I think I’m ok with the vat. The output can only be zero rated on the sale of a domestic dwelling, or on the construction of a domestic dwelling. In this case the imput tax is blocked on the basis that it will be an exempt supply by my client (rent).

My concern was that he is buying a site, which he will build a rental property on, as a builder. Would he have to account for the time spent as lost revenue, which I am happy now he wouldn’t.

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to Stats696
19th Feb 2019 17:54

What if he changes his mind a couple of years down the line and sells it ?

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to lionofludesch
19th Feb 2019 18:02

That shouldn’t change anything.

It may have been better had it been the other way around - the initial intention having been to sell, with rental pending that sale.

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to Wilson Philips
19th Feb 2019 18:13

No, he shouldn't charge anything.

The issue is - can he recover the VAT on the costs of building ?

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to lionofludesch
19th Feb 2019 18:27

If his intention is to rent he will not be able to recover the VAT (subject to de minimis rules). Subsequent sale would not change that.

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to Wilson Philips
19th Feb 2019 18:14

If he sells down the line, CGT disposal surely?

If he had the initial intention to sell then change to rental he would have to account for the input vat and repay it, surely it’s the same as if he didn’t claim it at the beginning?

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to Stats696
19th Feb 2019 18:29

It might be CGT. Given the nature of his business treatment may depend on how long he holds it for and in how willing HMRC are to believe him that his intention was to hold it as an investment.

Regarding VAT, by concession HMRC allow builders to recover VAT even if the property is let prior to sale. Yes there could be a clawback but for a single property the VAT may well be de minimis.

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to Wilson Philips
19th Feb 2019 18:28

Indeed. The sale could be zero rated.

The builder needs to read para 4.2 of Notice 708.

He definitely needs to keep records of the potential input tax.

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