Can developer claim vat back on legal fee newbuild

Legal fees vat reclaim

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Can a property developer building new build houses for domestic market claim the vat back on there legal fees when the purchase the land for development ? 

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RLI
By lionofludesch
09th Sep 2021 19:30

Hmmm - why do you think there's doubt ?

Is there something you've not mentioned ?

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By David Ex
09th Sep 2021 19:38

Deleted

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VAT
By Jason Croke
10th Sep 2021 10:50

If the intention is to build new homes and sell them, the sale of new homes is zero rated. Zero rate is a taxable supply (not an exempt or no VAT supply).

If making taxable (zero rated) supplies, the business is entitled to reclaim input tax associated with making those taxable supplies, such as acquisition of land, professional, building materials, labour, etc.

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Replying to Jason Croke:
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By HMRC Escapee
13th Sep 2021 14:46

Just to add ...

New developments are generally progressed under their own 'fresh' VAT number.

The VAT registration needs to be in place early enough to ensure that such items including possibly planning fees do not fall foul of the 6 month timelimit for pre-registration input VAT on services received.

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By pdorrington
05th Oct 2023 12:13

So can a property developer reclaim the VAT on the legal fees incurred in connection of the residential property once they have completed the development ?

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By pdorrington
05th Oct 2023 12:13

So can a property developer reclaim the VAT on the legal fees incurred in connection of the residential property once they have completed the development ?

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By pdorrington
05th Oct 2023 12:13

So can a property developer reclaim the VAT on the legal fees incurred in connection with the sale of the residential property once they have completed the development ?

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Replying to pdorrington:
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By Bobbo
05th Oct 2023 12:23

pdorrington wrote:

So can a property developer reclaim the VAT on the legal fees incurred in connection with the sale of the residential property once they have completed the development ?

Was the 'sale of the residential property' the sale of a new build home which was zero rated?

Or has the 'developer' merely completed the renovation of an existing residential property and sold that, which would be an exempt supply?

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Replying to Bobbo:
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By Justin Bryant
05th Oct 2023 12:38

Not necessarily exempt. See: https://webarchive.nationalarchives.gov.uk/ukgwa/20160124050108/https://...

"Revision to guidance concerning TOGCs of new developments of dwellings, relevant residential and relevant charitable buildings

The first grant of a major interest (freehold sale or long lease) in residential or relevant charitable property by the 'person constructing' is generally zero-rated (as explained in Notice 708 Buildings and construction and VCONST - Construction). The zero rate is designed to ensure that the development of such properties is ordinarily, largely VAT free.

We have traditionally taken the view that 'person constructing' status does not move to a person acquiring a completed building that is transferred as a going concern - this position is published in our technical manual in VCONST03560. However, recent cases in this area have highlighted that such transactions could lead to inequality of VAT treatment that is contrary to the purpose of the zero rate and could be in breach of the EU Principle of Fiscal Neutrality.

Having reviewed the position, we now accept that a person acquiring a completed residential or charitable development as part of a transfer of a going concern inherits 'person constructing' status and is capable of making a zero rated first major interest grant in that building or part of it as long as:

a) a zero rated grant has not already been made of the completed building or relevant part by a previous owner (for this purpose, HMRC consider that the grant that gives rise to the TOGC should be disregarded)

b) the person acquiring the building as a TOGC would suffer an unfair VAT disadvantage if its first major interest grants were treated as exempt (for example, a developer restructures its business. This entails the transfer (as a TOGC) of its entire property portfolio of newly constructed residential/charitable buildings to an associated company company, which will make first major interest grants. If these were treated as exempt, the transferee might become liable to repay input tax recovered by the original owner on development costs under the Capital Goods Scheme or partial exemption 'claw back' provisions and would incur input tax restrictions on selling fees that would not be suffered by businesses in similar circumstances - we would consider this to be an unfair disadvantage)

c) that person would not obtain an unfair VAT advantage by being in a position to make zero rated supplies (for example, by recovering input tax on a refurbishment of an existing building)

We will be amending our guidance in VCONST03560 in due course."

But I note https://www.gov.uk/hmrc-internal-manuals/vat-construction/vconst03560 does not reflect the above.

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Replying to Justin Bryant:
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By Bobbo
05th Oct 2023 16:18

Interesting link, Justin, thanks.

Given that was published in 2014, HMRC's manual still not being updated in 2023 is impressive.

Though the scenario I envisaged in my comment referring to a renovation of an existing building is some way away from falling within HMRC's conditions a-c there.

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Replying to pdorrington:
RLI
By lionofludesch
05th Oct 2023 12:38

pdorrington wrote:

So can a property developer reclaim the VAT on the legal fees incurred in connection with the sale of the residential property once they have completed the development ?

You clearly have your doubts. Is there any information you're keeping back ?

Because, based on what you've said so far, the answer is "of course he can".

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