VAT 5% or Zero? And some other questions from a newbie.

[Bird]

I've got a commercial property purchased through a new limited company which has PP to convert to residential.  It's been empty for 2 years, but not the years prior to PP being granted.

My intention is to rent out the property, even holiday let if there isn't some restriction, but would move in if there is some other restriction.

 

I have a builder lined up to do the conversion and I told him I am eligible for the reduced 5% VAT rate - He's asked for a certificate.  I've found VAT Notice 708 documentation quite confusing to read and doesn't specifically address my case.

 

1. This 5% rate does apply to limited companies, not just individuals.

2. If my limited company registers for VAT, can it avoid the VAT charge altogether?

3. Are there restrictions on sale of the property after claiming reduced rate?

4. Are there restrictions on the use of the property after claiming reduced rate, for example short holiday rents?

5. Since I'm just making up a certificate and handing it to the builder, how does HMRC know I'm not evading tax?  Is the builder accountable for this once he's accepted my certificate?

 

Thanks!

 

[nod]

No

[Bird]

49 minutes ago, nod said:

No

To which question?

[nod]

Limited companies don’t get any special treatment when it comes to vat 

[Bird]

4 hours ago, nod said:

Limited companies don’t get any special treatment when it comes to vat 

 

Are you certain of this? I haven't found any specific reference to limited companies in the official guidance https://www.gov.uk/guidance/buildings-and-construction-vat-notice-708 but it does seem relevant to "developers", which is defined as the one who has commissioned the conversion.

 

The following articles also seem to indicate the limited companies are eligible for this rate, unless something has since changed in the rules since written.

 

https://www.taxinsider.co.uk/what-does-the-vat-rate-on-building-works-apply-to-ta

This refers to a business-owned property conversion receiving 5% rate.

Quote

 

Residential conversions

It’s a common scenario; a business owns a commercial property on the edge of a town centre, which has been empty for some time as the owner cannot find a commercial tenant in these difficult economic times.  The building is now used as offices, but it was originally used as a large house.  The owner intends to convert it back into residential use as three flats, which can be sold following conversion.  The building work would be subject to VAT at the 5% rate, but in order to reclaim any of the VAT incurred the property would have had to have had no residential use for at least ten years for the sale to be zero-rated, otherwise it would be an exempt supply and the VAT would be irrecoverable.

 

 

https://hlca.co.uk/resources/vat-and-construction-works-5-vat-reduced-rate/#:~:text=Specific considerations for Developers

This refers to the conditions under which a property developer receiving 5% might reclaim that 5%.

Quote

Specific considerations for Developers (recovery of 5% VAT)

 

Typically, any 5% rated VAT incurred in relation to a dwelling renovation, or conversion will be irrecoverable (for VAT registered developers) if there is an intention to sell or long let the property upon completion.

However, input VAT at 5% will be recoverable in the following scenarios:

• If the residential property was empty for 10 years prior to starting the works any onward sale will be Zero rated, and thus related input tax will be recoverable subject to the normal rules.
• If it is intended that the property will be used as a furnished holiday let upon completion, any future letting income will be taxable to the standard rate and therefore related input tax incurred on the renovation or conversion works will be recoverable subject to the normal rules.

 

[Bird]

My builder has taken advice from his accountant and is proceeding at the 5% VAT rate, without me needing to generate any sort of certificate.