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VAT on Rental New Build Residential Properties

What can be reclaimed?

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Hi guys, this is my first question asked here.... and its a tricky one, I have had conflicting answers so will lay out the situation as easily as I can.

There are two 'sister' companies owned by the same directors.  One company is a property rental company that owns a piece of land. The other company is a property developer.

The developer company is building residential properties on the piece of land owned by the rental company.  The properties will be let out, by the rental company, on ASTs once completed.

The building materials etc are purchased through the developer company and are charged, by the supplier, 20% VAT.

The developer company invoices the rental company monthly for purchases/labour etc.

Both companies are VAT registered.

I am curious as to how you guys would handle the VAT aspect of claiming and recharging? I have had very conflicting information.

Any help/info would be greatly appreciated.

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By Wanderer
05th Jul 2019 09:40

Clare29 wrote:

I am curious as to how you guys would handle the VAT aspect of claiming and recharging?

You are likely to get more help on here if you lay out what you believe to be the situation based on your research so far then let others review / critique it.
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By lionofludesch
05th Jul 2019 09:41

Built on bare land ? Building company's supplies to Rental company are zero rated.

Unless there's something you haven't told us ....

What's the conflicting advice you've received ?

Why is the rental company VAT registered ? I take it that it also has commercial property in its portfolio ?

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By Clare29
05th Jul 2019 10:14

Yes it does have commercial properties also.

Originally, I was told:
The developer company buys, say, bricks and puts this though the accounts the normal way claiming the 20% VAT. Then recharges the net figure to the rental company. Therefore the developer would benefit from the VAT reclaim.

Then I was told:
The developer claims the 20% VAT but then recharges the rental company Net + VAT. Then the rental company records this as gross amount VAT exempt. This would mean that no one benefits from VAT reclaim.

I hope this make sense :)

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Replying to Clare29:
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By lionofludesch
05th Jul 2019 10:28

Clare29 wrote:

Yes it does have commercial properties also.

Originally, I was told:
The developer company buys, say, bricks and puts this though the accounts the normal way claiming the 20% VAT. Then recharges the net figure to the rental company. Therefore the developer would benefit from the VAT reclaim.

Then I was told:
The developer claims the 20% VAT but then recharges the rental company Net + VAT. Then the rental company records this as gross amount VAT exempt. This would mean that no one benefits from VAT reclaim.

I hope this make sense :)

Just to be clear - who's doing the building ?

Who is sticking the bricks together in a pile to build the house ?

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Replying to lionofludesch:
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By Clare29
05th Jul 2019 10:31

An outside building company, who bills the rental company direct.
The purchases of building materials are by the developer.

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By lionofludesch
05th Jul 2019 11:16

So the developer is selling building materials to the rental company ?

That'll be standard rated.

But, if the developer is buying building services from the outside builder and selling a house to the rental company, that'll be zero rated.

You need proper advice about the structure of this contract. It's not tax efficient.

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Replying to lionofludesch:
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By Clare29
05th Jul 2019 11:29

The rental company has hired the builders and pay them direct. The builders charge for labour only.

In effect, they have 'hired' the development company to arrange all the planning & ordering etc.

The developer purchases building materials off a large national supplier (they have the trade discount) then sells it onto the rental company. So I presume that will be standard rated.

How does the rental company treat the purchase off the developer? Can they claim the VAT?

I am scouring over notice 708, but it seems to be aimed at the builder being the owner, although not read it all yet!

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Replying to Clare29:
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By lionofludesch
05th Jul 2019 11:39

Clare29 wrote:

The rental company has hired the builders and pay them direct. The builders charge for labour only.

In effect, they have 'hired' the development company to arrange all the planning & ordering etc.

The developer purchases building materials off a large national supplier (they have the trade discount) then sells it onto the rental company. So I presume that will be standard rated.

Yes.

Quote:

How does the rental company treat the purchase off the developer? Can they claim the VAT?

No.

You need to have the rental co buying a completed building from somebody.

Not buying materials off one company and getting another company to build a house from them.

It's as simple as that.

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Replying to lionofludesch:
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By Clare29
05th Jul 2019 11:44

Okay, that does sound simple.

Although, that is a lot of VAT that is paid that is not reclaimed by someone down the line!

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Replying to Clare29:
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By lionofludesch
05th Jul 2019 11:59

Clare29 wrote:

Okay, that does sound simple.

Although, that is a lot of VAT that is paid that is not reclaimed by someone down the line!

[sigh]

No, there isn't.

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By Vile Nortin Naipaan
05th Jul 2019 11:49

A THREAD ABOUT THE BENEFITS OF TAKING PAID FOR PROFESSIONAL ADVICE.

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Replying to Vile Nortin Naipaan:
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By lionofludesch
05th Jul 2019 12:00

Too right.

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By Clare29
05th Jul 2019 12:16

Advice was taken - like I said in my original post - the advice was conflicting........ jeeeeez I won't be posting here again!!!!!!

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Replying to Clare29:
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By Vile Nortin Naipaan
05th Jul 2019 12:19

Pay peanuts...

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Replying to Vile Nortin Naipaan:
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By Clare29
05th Jul 2019 12:30

Wow, lovely helpful community you have here. Enjoy it :/

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Replying to Clare29:
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By lionofludesch
05th Jul 2019 12:51

Clare29 wrote:

Wow, lovely helpful community you have here. Enjoy it :/

Another satisfied customer.©

You were told what your problem was.

You were told how to fix it.

What more help do you want ?

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Replying to lionofludesch:
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By Clare29
05th Jul 2019 12:57

Not to be ridiculed for asking in the first place

But thank you for your input on my original question

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Replying to Clare29:
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By lionofludesch
05th Jul 2019 13:18

Clare29 wrote:

Not to be ridiculed for asking in the first place

Personally, I wouldn't care if I got a piece of free advice that saved me thousands.

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Replying to Clare29:
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By Accountant A
05th Jul 2019 14:26

Clare29 wrote:

Wow, lovely helpful community you have here. Enjoy it :/

I love it when people join to ask for free advice on the same day, contribute absolutely zilch and then complain about the lack of "community" spirit.

Try contributing something first before looking to take.

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By Vile Nortin Naipaan
05th Jul 2019 12:36

Next: Post deletion...

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Replying to Vile Nortin Naipaan:
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By Clare29
05th Jul 2019 12:45

Vile by name, vile by nature!

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By lionofludesch
05th Jul 2019 12:54

Well, OK, that's fair comment.

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Replying to lionofludesch:
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By Vile Nortin Naipaan
05th Jul 2019 13:18

B1tch!

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By lionofludesch
05th Jul 2019 13:23

[chuckle]

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Replying to Vile Nortin Naipaan:
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By Clare29
05th Jul 2019 13:38

Behind every b***h there's a man who made her that way!

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Replying to Clare29:
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By Rammstein1
05th Jul 2019 14:39

Wow, sexist as well. How would you feel if that comment was made the other way round?

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By Wanderer
05th Jul 2019 13:27

Just before the inevitable.

Clare29 wrote:

Hi guys, this is my first question asked here.... and its a tricky one, I have had conflicting answers so will lay out the situation as easily as I can.

There are two 'sister' companies owned by the same directors.  One company is a property rental company that owns a piece of land. The other company is a property developer.

The developer company is building residential properties on the piece of land owned by the rental company.  The properties will be let out, by the rental company, on ASTs once completed.

The building materials etc are purchased through the developer company and are charged, by the supplier, 20% VAT.

The developer company invoices the rental company monthly for purchases/labour etc.

Both companies are VAT registered.

I am curious as to how you guys would handle the VAT aspect of claiming and recharging? I have had very conflicting information.

Any help/info would be greatly appreciated.

Thanks (1)
avatar
By jcace
05th Jul 2019 14:46

Hi Clare

Your original post stated: "The developer company is building residential properties on the piece of land owned by the rental company. .....
The building materials etc are purchased through the developer company and are charged, by the supplier, 20% VAT......
The developer company invoices the rental company monthly for purchases/labour etc.
Both companies are VAT registered."
Your subsequent posts suggest that the developer company is NOT doing any of the building and is only supplying materials.
The rental company will have to be charged VAT on the materials which, in all likelihood, it will not be able to reclaim as it is in respect of exempt supplies (future rental income).
If the developer company was doing the building, it could reclaim the VAT on the materials, as it would be in respect of a zero-rated supply (first sale of a residential property)
It would be worth checking who has actually contracted to build the properties (rather than who is simply paying)

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