VAT claim refused - change of use - commercial to residential.

[Jason n Tara]

Afternoon,

We have just finished our conversion of part of a company run nursing home. As such it is a change of use from commercial to residential and, in theory, we thought that we would be able to claim the VAT on the materials. 
HMRC “DIY team” have stated that we cannot claim as the building had been “lived in” within the last 10 years. 
 

we think we still have a claim but was wondering if anybody had encountered anything like this with their build and claim? 
 

Looking for clarification and maybe a precedence if anybody can help 🤓

[ToughButterCup]

Hello (both). Welcome.

 

Interesting issue.

Just to be up-front about things - we aren't experts, merely hard-bitten interested people. Do not take our advice as anything more than an aid to your own thinking. Please also consider taking professional advice

 

Why do you think you still have a claim? 

Does your thinking center on the HMRC definition of 'lived in'  ? 

[Temp]

+1 about not being experts on VAT but unfortunately I think HMRC are correct. 

 

Extract from VAT708 (my bold)..

 

Quote

5.3 Non-residential conversion

 

A ‘non-residential conversion’ takes place in 2 situations. The first is when the building (or part) being converted has never been used as a dwelling or number of dwellings (read paragraph 5.3.1) for a ‘relevant residential purpose’ (read paragraph 14.6), and it is converted into a building ‘designed as a dwelling or number of dwellings’ (read paragraph 14.2), or intended for use solely for a ‘relevant residential purpose (read paragraph 14.6).

 

The second situation requires that in the 10 years immediately before (read paragraph 5.3.2) the sale or long lease, the building (or part) has not been used as a dwelling or number of dwellings or for a ‘relevant residential purpose’ and it is converted into a building either ‘designed as a dwelling or number of dwellings’ (read paragraph 14.2), or intended for use solely for a ‘relevant residential purpose’ (read paragraph 14.6).

 

Snip

 

5.3.1 The meaning of ‘use as a dwelling’

 

A building is ‘used as a dwelling’ when it has been designed or adapted for use as someone’s home and is so used. The living accommodation need not have been self-contained or to modern standards. So, buildings that have been ‘used as a dwelling’, include:

 

* public houses and shops where any private living accommodation for the landlord, owner, manager or staff is not self-contained ― normally because part of the living accommodation, such as the kitchen, is contained within the commercial areas rather than the private areas

* bedsit accommodation

* crofts

 

If you convert these types of property into a building ‘designed as a dwelling or number of dwellings’, or intended for use solely for a ‘relevant residential purpose’, then, unless the 10-year rule applies, your sale of, or long lease in, the property cannot be zero-rated and is exempt from VAT.

 

 

 

 

 

[Temp]

However you might come under..

 

 

Quote

 

7. Reduced rating the conversion of premises to a different residential use

7.1 The conditions

7.1.1 Introduction

 

If you carry out work to an existing building, you will normally have to charge VAT at the standard rate. You may be able to charge VAT at the reduced rate of 5% if you’re converting premises into a:

 

‘single household dwelling’ (read paragraph 14.4)different number of ‘single household dwellings’ (read paragraph 14.4)‘multiple occupancy dwelling’, such as bedsits (read paragraph 14.5)premises intended for use solely for a ‘relevant residential purpose’ (read paragraph 14.6)

 

The remainder of this section explains the detailed conditions that need to be met before you can reduce rate your services

 

Snip

7.3 Conversions into single household dwellings

A qualifying conversion is carried out when the premises being converted is a building, or part of a building, and after the conversion the premises contains a greater or lower number (but not less than one) of ‘single household dwellings’ (read paragraph 14.4), but not where the number of ‘single household dwellings’ in part of the premises is unchanged (read paragraph 7.3.1).

A qualifying conversion includes the conversion of:

• a property that has never been lived in, such as an office block or a barn
• a multiple occupancy building such as a bedsit block
• living accommodation which is not self-contained, such as a pub containing staff accommodation that is not self-contained
• any dwelling which had previously been adapted in its entirety to another use, such as to offices or a dental practice

Continues..

 

 

 

I think in this case you should be charged 5% by trades, 20% on materials you buy and possibly reclaim the VAT paid on VAT431C? If that covers such a project.

 

 

 

 

Edited July 21, 2023 by Temp

[AliG]

I don't think you can reclaim VAT on a reduced rating project, you can only pay 5% to service providers. It is not entirely clear looking at the rules.