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option to tax and vat registered trader

option to tax and vat registered trader

I have a sole trader registered for VAT at present in the construction industry.  He has now bought a plot of land and intends to build a commerical building from which he will trade in a new business that is zero rated, the construction self employment will cease when staring to build this commercial property and the new zero rated business will  start when completed.

My question is should he opt to tax the new commercial building so he can reclaim all the VAT on the building  expenses, the total cost will by under the capital goods scheme or does he not have to do this as the new business wil be zero rated and he will stay VAT registered.

Your advice most welcome




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22nd Jun 2012 10:44

option to tax

If the sole use to which the building will be put is a zero rated business activity, then there is no need to opt to tax; input tax is deductible in full on all costs related to the construction.

Any proposed change of use at a later date will mean he should review the decision; e.g: if he wishes to let part or all of the building, then he may need to opt then. Or if he changes the nature of his business.

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By Vinoo
18th Jul 2012 11:48

Option to Tax

If a constucted building is used by the business then it falls under the "Capital Goods Scheme" if the value is more then 250k. CGS is only applicable if the company is making exempt and taxable supplies. In this case all input tax is recoverable as zero rated supplies are taxable supplies for the purposes of VAT.

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