Farming partnership converted a barn into a holiday home and reclaimed the VAT because the expenses were incurred to generate a taxable supply (the income from the holiday let).
The turnover is less than £85,000. The partners want to dereigster from VAT. VAT Notice 700/11 requires VAT to be declared on goods on hand at deregistration: tractors, farm machinery, holiday let furniture etc. But what about the holiday let itself? The inputs converting the barn into a holiday let were standard rated services. There is no requirement to pay VAT on services on deregistration. But I'm concerned about VAT Notice 708 'Buildings and construction' section 5.4.2:
'If, after conversion, the building is less than 3 years old when the sale or long lease is made, the sale or long lease is standard-rated. If the building is 3 years old or more, the sale or long lease is exempt.'
The conversion is less than 3 years old. If they were to sell they would have to charge VAT. Therefore I would have expected VAT to be paid on deregistration. I've spoken to the VAT Helpline and they say no VAT is payable. Is that correct?