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VAT and conversion

VAT and conversion

 Company has purchased a Town Hall and is looking to convert the downstairs into Restaurant / Bar and the upstairs into apartments. The intention is to let all units on short term leases (under 15 years). This will be done in two stages with the downstairs being done first. Presumably if the client wants to reclaim VAT on the conversion costs re the Restaurant / Bar he will need to register for VAT and opt to tax the property. Also as I understand it the VAT charged by builders re the proposed 2nd Stage (ie Apartments) will be charged at 5% as converting commercial to residential but there will be no input tax reclaim available. Can anyone please confirm my understanding.


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By neileg
22nd Jun 2012 11:57


Because you are leasing the flats for less than 21 years, the supply is exempt. The VAT on the flat conversion is therefore not recoverable. It is worth reflecting on whether a 21 year lease would be a possibility as this would be a zero rated supply as the first time grant of a major interest in conversion to domestic accommodation. The input tax would then be recoverable.

On the bar, if the company is to run the bar, then they will need to register for this trade. The cost of conversion is a supply to a registered trader and thus will be recoverable. No option to tax is required.

If the bar is to be let to another party, then you will need to register and opt to tax so that the input tax is recoverable.

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By DMGbus
22nd Jun 2012 13:37

Partial exemption rules

By luck, good planning or judgement it is sometimes possible to recover otherwise non-recoverable exempt input tax.

In this case the exempt input tax relates to the flats (residential letting).("E").

The recoverable in full input tax relates to the bar (assuming either operated by the property owner or opted to tax by the property owner and rented to the bar operator). ("R").

To recap, the recoverability of the "E" category input tax is based upon partial exemption rules as follows:

If "E" is BOTH less than "R" AND less than £7,500 in a VAT year, then all of "E" is recoverable, otherwise none of "E" is recoverable.  It all depends upon the maths and timing of transactions, which sometimes can be managed to satisfy the above rules.





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