VAT legislation governing property transactions is complex. The high transaction values means that any mistakes or oversights can be expensive.
Property transactions are not limited to businesses in the property sector and any business buying, selling or leasing property needs to be alert to the VAT implications.
Building services may be subject to the zero-rate, reduced-rate or standard-rate of VAT. Property sales and lettings could be at the zero or standard rate or be exempt from VAT. The “option to tax” also needs to be considered as this will usually change VAT liabilities and VAT recovery rights.
An additional area of complexity, from 1 October 2019, will be the introduction of a reverse charge in the construction industry. You can read more about this here. Special rules apply to VAT recoveries. Unlike most items of expenditure, VAT on property costs is likely to be subject to adjustments for up to 10 years.
Our cost reduction strategy is based on:
- minimising payments (for example maximising VAT free charges by contractors on mixed developments); and
- maximising VAT refund claims.
The key point to remember is that VAT is an unforgiving tax that is not limited in its application to any profit or loss you may achieve. An enormous VAT bill can add insult to injury for a struggling business. Equally a large VAT saving may mitigate commercial problems that otherwise would appear insurmountable.
For further advice or help, please get in touch.