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Expenses and VAT recovery?

Can two restaurants recover VAT on investment property.

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Hi Everyone,

I need help regards to the following issue:

2 VAT registered business invested in residential property and spent some money for refurbishment.

They are planing to sell the property for profit.

I am planning to keep the expenses out of restaurants' day to day expenses and add all the money spent for refurbishment to the cost of purchase price.

My trouble is, I do not know whether I should claim the VAT or not? 

Thank you very much for your time and insight.

Replies (12)

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By David Ex
05th Dec 2021 16:31

You’d be best speaking to an accountant. VAT and property isn’t generally an easy job.

Thanks (1)
Replying to David Ex:
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By Paul Crowley
05th Dec 2021 17:29

Agree. Do not advise if this is not your area
Client paying a fee to a specialist is cheaper than trying to cope with the consequences of error

VAT and buildings is definitely PII intensive

But firstly think
Is the activity an exempt activity? As in VAT exempt

Then, who or what did what?
You have not given a clue

Businesses are not entities
People, partnerships and companies are entities

Did 2 people start a new partnership?

I assume you are not trying to think CGT
Despite calling the trade asset an investment property

As such, seriously, talk to an accountant

Thanks (2)
RLI
By lionofludesch
05th Dec 2021 18:09

It's possible but you'd be straying into Partial Exemption Land.

It's not straightforward at all and you'd need to consider the de minimis limits because, on the face of it, all the input tax on the property expenses relates to exempt income and is therefore irrecoverable.

If you're not confident, take paid for advice.

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By VATs-enough
05th Dec 2021 21:06

Ignoring exempt sale/ partial exception etc, who's input tax is it ?

If the two restaurants doing this venture together, implied partnership, cannot claim the VAT in either of the entities as it doesn't properly belong to either individually.

Let's address the basics first

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Replying to VATs-enough:
RLI
By lionofludesch
06th Dec 2021 06:23

VATs-enough wrote:

Ignoring exempt sale/ partial exception etc, who's input tax is it ?

If the two restaurants doing this venture together, implied partnership, cannot claim the VAT in either of the entities as it doesn't properly belong to either individually.

Let's address the basics first

Fair point, well made.

Maybe we have three entities here.

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Replying to lionofludesch:
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By Paul Crowley
06th Dec 2021 09:09

We probably have joint ownership, probably a partnership but no idea who is getting charged for building works.
It could be the restuarants

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Replying to Paul Crowley:
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By Tax Dragon
06th Dec 2021 09:41

A partnership doesn't have to be 'in writing'. Sharing the profit is enough.

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Replying to Tax Dragon:
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By Paul Crowley
06th Dec 2021 10:31

If it is a partnership then my guess is it is not registered for VAT, and probably needs to get a UTR

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Replying to Paul Crowley:
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By Tax Dragon
06th Dec 2021 10:41

That's my guess too. As you said up front, description as "investment property" is not a promising start.

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Replying to Paul Crowley:
RLI
By lionofludesch
06th Dec 2021 10:42

Paul Crowley wrote:

If it is a partnership then my guess is it is not registered for VAT, and probably needs to get a UTR

If it's a partnership, it doesn't seem to have any prospect of taxable (for VAT) income.

Thanks (1)
Replying to lionofludesch:
Jason Croke
By Jason Croke
06th Dec 2021 11:00

Agree, the partnership would only be making exemption supplies of residential rent, so no right to register for VAT.

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Jason Croke
By Jason Croke
06th Dec 2021 10:58

I'm with everyone else on this.

Two separate companies working together on a project is a "joint venture" and for VAT, HMC usually see a joint venture as a Partnership.

The right to reclaim VAT is never because you have a VAT number, it is always because you make taxable supplies and the expenditure incurred is by the same person making the taxable supplies.

In the scenario where the builders are doing work on the dwelling, who are they billing and when the property is ready to let, who is charging the rent to tenants? You cannot begin to answer the input tax question until it is established who is making the supply of rent and who is buying the services in.

Residential rent is exempt, so no right to register for VAT anyway if a Partnership else, the companies will be partially exempt and require a partial exemption adjustment.

There are a number of ways to achieve compliance but it needs properly thinking through and structuring, so speak to your Accountant.

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