The subject of VAT and property is a complex area, as there are many VAT rates that may apply, even for work on the same property. There may be different VAT liabilities, for the purchase of a property, for the development work and yet another for the sale of the same property.
We work with many property owners, developers and contractors who need our support and expertise to guide them through some of the most complicated tax issues they may face. This is particularly important when you consider the high value of a property transaction.
The sale of property can give rise to a variety of different liabilities depending on whether:
- the property is classed as new for VAT purposes
- whether it is commercial or residential
- its previous use
Reclaiming VAT on a construction project is complicated, even if the property sale is only subject to a single VAT rate, as VAT recovery on certain items may be blocked.
Property transactions may also involve bartering, for example where the seller agrees to take part of a refurbished property at a reduced price. Such agreements are often overlooked and these transactions may have VAT consequences. Various payment terms may be involved in a property transaction, such as option payments or a payment for the dilapidation of buildings. The VAT consequence of each of these aspects need to be considered.
Special VAT rules apply to the sale of property that is sold with a tenant. This is treated as the transfer of a business as a going concern for VAT purposes, and so may fall outside the scope of VAT. Several conditions must be met for this outside the scope treatment to apply. If an error is made, this may result in HMRC imposing penalties on the party who made the error. We can assist you in reviewing transactions to determine whether this treatment applies and advise you on the conditions that need to be met.
In 2021, a new domestic reverse charge scheme was introduced for certain construction services. This not only affects the way VAT is accounted for but can also have a significant impact on cash flow, depending on where a business sits in the supply chain. We can advise on how this new reverse charge applies to your business.
