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VAT Pre-registration expen goods

My client is hoping to recover pre-registration VAT on expenditure on a commercial building.

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My client is hoping to recover pre-registration VAT on expenditure on a commercial building. The building was  erected on-site, and the supplier has charged separately for the supply and the build costs. All within 4 years of registration date, and still very much in use. Is VAT recoverable on just the materials (treating the labour costs as a service), or can VAT be recovered on the building labour casts as well?

Thanks, Simon

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By David Ex
29th Nov 2021 14:21

I vote not sure.

Is VIT32000 in point?

“ Capital items are defined as:

Land, buildings and civil engineering work or capital expenditure in relation to the same including construction, refurbishment, fitting out, alteration and extension, where the value is more than £250,000 (Land)”

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Jason Croke
By Jason Croke
29th Nov 2021 14:59

What use is the property being put? Is it used by the client as their own office/factory/base or is it rented out to someone? Is the client a developer and the property is treated as stock?

What was the cost of the construction (materials+ labour)?

Why would the supplier charge separate for materials and labour? If I am having a property built, I am paying for a property to be built. Sure, breakdown the quote between materials and labour, but are you saying the contractor invoiced materials separate from the actual construction/labour?

You can reclaim VAT on stock or assets on hand at time of registration but the materials are no longer "on hand" because they are now "incorporated" into the property. A newly constructed property is not an asset in the context of pre-registration VAT, a newly constructed property is a supply of services.

So my initial view is that you no longer have any materials in stock so the 4 year rule not applicable for those materials and you can only go back 6 months for services (the labour/construction).

Why is there a gap between the construction of the property and the VAT registration? If I understand correctly, you imply that the costs incurred are within 4 years and so I'm presuming this is a current date registration and you are trying to apply the 4 year rule to pre-registration expenditure.

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Replying to Jason Croke:
By SimonColeHamilton
29th Nov 2021 23:25

The building is a storage barn for agricultural use, acquired about a year ago. Clients have recently reached VAT threshold and registered for VAT, so applying 4 year rule to pre-reg expenditure. Thanks.

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Replying to SimonColeHamilton:
Jason Croke
By Jason Croke
30th Nov 2021 10:37

Construction of the barn was 1yr ago. Construction is a supply of services and falls within the 6 month limit. In terms of the materials, they will have been incorporated into the barn, there are no materials laying around ready to be sold to customers, so the materials aren't stock either.

They could have registered for VAT from an earlier date so as to capture the construction (ie, backdate the registration to the start of the building works) but all academic as HMRC don't usually change VAT registration dates once issued.

Your posting history suggests you are a CIS property development company (rather than an Accountancy firm) and all your queries on Any Answers have related to VAT land and property queries, I've no problem with that as you may well be an Accountant working in industry, but should you be advising your clients on VAT matters?

I mention this because you say the barn was built "about a year ago" whereas for VAT we need precise dates, you haven't stated what date the clients VAT registration is from, you say the barn was "acquired" but earlier said it was erected (acquired means purchased from a VAT perspective - so you are saying it was built new or bought from someone).

VAT and property has the most complicated set of rules and its easy to give the wrong answer without all the information.....such as why is the client only registering now? What is it that the client does? A "barn for agricultural use" means nothing to me...who is using it, the client or do they intend to rent it out for others to store equipment in, how much has it cost? (is it a capital goods scheme item), what is it that the client actually does (ie, is the cost of the barn directly related to the taxable activities of the business?) - all of these questions are required to get the right answer.

You've not answered the other questions I asked earlier i) value of project, ii) why materials and labour were billed separate by the same supplier and add to that iii) what the barn is used for/who uses it and iv) what does the business do?

So much to go wrong here, case here about a farmer who built a barn to store equipment in but the tribunal deemed it was not related to a genuine business activity and he was denied the £20k VAT he was trying to reclaim. This is why all the details are critical in arriving at an answer.

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