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Vat on new builds

Vat on new builds

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Can someone clarify some points for me:

If a ltd company contractor has bought some land and is going to pay someone to build a new property for the company (which will then be sold on), they can reclaim VAT on the costs (which are not zero rated) throughout the project via their quarterly vat returns. No VAT will be charged on the sale.

If an individual builds a house and then rents it out is there any way of reclaiming the VAT or is it only possible if they live in it and do not rent it out. In which case they would need to wait until the end to reclaim the VAT.

If a sole trader carrying out consultancy work is Vat registered, should rental income be included in box 6 of the vat returns?

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By NO Tax
23rd Dec 2014 00:21

vat on new builds
U should prob have split the questions up, anyway

1.Ltd company build's a new property for residential sale then all costs with Vat relating to that build can be claimed, if the subcontractor installs any extras like cooker, stereo speakers and luxury items then the will charged for this and must pass this cost onto the buyer.

2.If a new build is solely built to rent out then the vat isn't reclaim able unless u 'opt to tax' that property, then u can reclaim the vat but must charge vat on the rent. If lived in by the diy vat person for a period and then rented out there must be good reason and more detail on why the person reclaim vat under diy and then moved.

3.Yes any vat reg personal should account for all standard, reduced, and zero rated supply in box 6, pet hate by vat inspectors.

Hope this helps, need more detail to say anything else

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Hallerud at Easter
By DJKL
23rd Dec 2014 10:04

Re 2

 

Re 2, if talking about a residential property, which appears to be the thrust of the question, I cannot see how an option makes any difference?

Surely Vat is not charged on residential rents (except if say a block of flats leased for20 years (Scotland) 21 years or more (RUK- major interest ) )  short residential rents normally being exempt supplies. (Furnished holiday lets may attract vat)

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By spidersong
23rd Dec 2014 10:11

You (u) both need clarification...

Firstly what type of build by the company?, if they build a residential property to sell the first sale is zero rated and there's a right to recovery on any associated costs apart from white goods/carpets. As 'No Tax' says.

If they're building commercial premises, then a sale within three years of completion will be standard rated and give a right of recovery of any associated Input Tax including white goods.

If the first then why are the costs not zero rated because the zero rating automatically applies no matter who the owner of the land is. Unless the sentence is meant to read "they can reclaim VAT on that element of the costs that aren't zero rated" rather than "they can reclaim VAT on the costs (which are not zero rated)" which suggests to me that none of the costs are zero rated, which seems unlikely.

For the individual building a house query, then if subcontracting through a VAT registered builder then again most of the costs won't carry VAT. Of course if this is a residential building then the first half of 'NO Tax's point 2 is meaningless, as although you can theoretically 'opt to tax' a residential building that option won't actually apply to any residential use of the building, so you can't charge VAT and hence you can't recover it.

However the rest of point 2 is right in that you can only recover under the DIY scheme if the intention is for the property to be used in a non-business capacity e.g. own or family occupation. If they build intending to rent then the only relief they get is the zero rating of the building works.

And of course on point 3 that should include "and exempt supplies" as that is what the rental would be, and it does assume that the sole trader is also the sole owner of the property.

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By Jigs
23rd Dec 2014 11:02

Zero Rate sale

Thanks all for your comments, just to clarify that the properties mentioned are all residential properties.

The DIY scheme seems harsh, I appreciate that many of the costs will be zero rated but if they were to build the house in a company & sell it a later date (and not rent it) they would be able to reclaim the VAT on other costs which are subject to VAT.

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Hallerud at Easter
By DJKL
23rd Dec 2014 11:29

DIY scheme

Jigs wrote:

Thanks all for your comments, just to clarify that the properties mentioned are all residential properties.

The DIY scheme seems harsh, I appreciate that many of the costs will be zero rated but if they were to build the house in a company & sell it a later date (and not rent it) they would be able to reclaim the VAT on other costs which are subject to VAT.

Word of warning re the DIY scheme, be careful that if a supplier ought to have zero rated his supply  that he actually has, do not rely on the DIY  scheme to correct position  with a post event vat reclaim. The DIY scheme does not repay vat that ought never to have been charged.

Re other costs (professional fees etc)  a design and build contract can accommodate these, in effect being charged by the builder at zero rate. However care needs taken re the warranties and the duty of care  the professionals then owe to the end client- these need addressed within the build contract/ collateral warranties etc. Unless the vat on the professional fees, that would otherwise not be claimable,  is reasonably significant, the legal fees setting the contract to deal with such issues can soon outweigh the benefit.

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Replying to DJKL:
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By hcdavid
14th Oct 2017 20:16

Re DIY system.This is a new query but fits the original title.Possibly I should start a new thread?I am aware of the requirement for owner/family to build to live in or use for holidays if VAT is to be reclaimed.If a person's circumstances change e.g. ill health ,change of employment.How long would the property have to be used before it could be disposed of before the reclaimed Vat would be pursued by the government dept.I suppose this is a change of intention within a relatively short time of ownership e.g 1 year.

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Replying to Jigs:
By Ruddles
14th Oct 2017 21:06

There’s nothing harsh about it at all. Seems that you’re unable to grasp the distinction between building a house to sell on and building a house to rent out.

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Replying to Ruddles:
By Ruddles
14th Oct 2017 21:09

Oh b|_|gger. Just realised that I’ve responded to a 3 year-old thread.

Sift - get a grip and stop old threads being resurrected.

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