VAT & construction

VAT & construction

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Our client operates in fairly niche market.

They buy land, they then divide this land into individual plots, put in basic services such as ground works,utilities, phone conections, pavements, roads etc.

These plots are sold to individuals and the individual engages separate contractors to build domestic accomadation.

Our clients supplies seem to come somewhere between land (exempt) and new houses (Zero Rated).

We have read notice 708 and this decribes our clients supplies almost to a T and this guide says they are zero rated.

Our client had a previous accountant who dilly dallyed over the whole registration process and Customs cancelled the registration process due to non correspondence from the pevious accountant.

We took over the job in November 2004 and resuurected the registration for the 2 entities (there are 2 developments at two separate sites by two separate companies).

Both companies were registered and we asked for confirmation that the supplies were zero rated. Two separate Vat officers confrimed that the supplies were clearly (their words) zero rated.

First VAT return was prepared and substantial repayment was received.

VAT visit followed and visiting officer is saying supplies are exempt and registration should not have been granted.

Office is now insisting that registrations are cancelled and the VAT repayments have to be paid back (they have set a two week timescale).

Any help would be appreciated?
Gary Donald Fraser

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By johnlarke
10th May 2005 12:45

VAT & building land
Gary

You are right in your comments about the client coming somewhere between a supply of exempt land and one of zero rated new housing - but there is a fairly clear dividing line and you just have to establish exactly where your client's supplies fall.

I think you are referring to Notice 708 para 3.3.4 which gives examples of work closely connected to the construction of a building. But take care here as this only applies when there is actually a supply of such services to another, i.e. you carry out the work on another's land. If your client is just doing this work on its own land preparatory to a sale, it is not making any supply at that point. The only supply is the sale of the land itself.

You also need to look at paras 4.6.3 and 4.6.4 of the Notice which should answer your questions. The sale of land will be exempt unless it contains civil engineering works less than 3 years old, or the sale qualifies for zero rating as a partly constructed dwelling (i.e. it needs some part of the construction above ground level). Alternatively there is the option to tax, but that may be disqualified here if the purchasers intend to build houses for non-business purposes.

But your client should surely be able to make taxable supplies of one sort or another here. Is it not making a supply of new civil engineering works which will be taxable, and allow recovery at least of the input tax expended on those works? Or get part of the building above ground level before selling, to obtain zero rating.

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