Capital Focus purchased Tintern House in Banbury, Oxfordshire in August 1994, it was a commercial building and they intended to create one large residential building so they started work and reclaimed the VAT, however, they changed their mind and decided to create an HMO instead.
HMRC allowed the £45,000 input tax claim on the basis that it would be supply of a non-residential building converted to residential use and therefore zero-rated under Item 1(b), Group 5 of schedule 8 to the Value Added Tax Act 1994 (“VATA”)
On 22 April 2015 HMRC wrote to the Company stating that, because it had been converted for multiple occupancy, the sale of Tintern House
was not a zero-rated but an exempt supply and any input tax incurred that was directly attributable to it was not recoverable.
Building work can be charged at 5% in the following circumstances:
Renovating residential property that has been empty for more than 2 years
Where the number of dwellings is being increased such as converting a house into flats
Converting a commercial building into residential
Converting a house into an HMO
VAT Notice 708 has the exact details and whether or not the 5% rate can be used is a matter of fact not opinion. HMRC will not give specific clearance, they will refer you to the rules and ask you to check the rules with your builder for your project.
The property owner doesn’t issue a certificate (as would be needed to Zero Rating), its for the builder/developer to determine whether and on what the 5% VAT rate can be applied.
The only exceptions (when a reduced rate certificate would be needed) are
(a) a home or other institution providing residential accommodation for children
(b) a home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of old age, disablement, past or present dependence on alcohol or drugs or past or present mental disorder
residential accommodation for students or school pupils
residential accommodation for members of any of the armed forces
a monastery, nunnery or similar establishment or
an institution which is the sole or main residence of at least 90 per cent of its residents
and will not be used as a hospital, prison or similar institution or an hotel, inn or similar establishment.
Under the PDR scheme, persons seeking to obtain planning permission to convert certain types of non-residential property (such as agricultural buildings or office accommodation) to residential dwelling(s) can make a PDR application, rather than a full planning application. This acts to hasten the application process for claimants and is being increasingly adopted by planning authorities in England.
Here is an extract from Revenue & Customs Brief 9/2016…
To zero-rate the sale of all newly converted dwellings (from non-residential buildings) or to make a valid claim under the DIY House Builder Scheme, the newly converted building must meet the requirements of a building ‘designed as a dwelling’. Further information can be found in Section 14 of Notice 708: buildings and construction (14 August 2014).
One of the conditions is that the developer, builder or DIY House Builder Scheme claimant must be able to demonstrate that statutory planning consent (SPC) has been granted in respect of that dwelling and that its construction has been carried out in accordance with that consent.
In addition, part of the conditions for some supplies of construction services to be eligible for the reduced rate of VAT of 5% for the conversion of a non-residential building into a dwelling requires individual SPC. Further information can be found in Section 7 of Notice 708: buildings and construction (14 August 2014).
Following the introduction of PDRs, individual SPCs will no longer be required for some developments making the meeting of this condition difficult.
HMRC is clarifying its policy concerning the VAT treatment of works where an individual planning application is not necessary because statutory planning consent has been granted though PDRs.
HMRC will continue to require evidence to be produced that the work is lawful in order for the zero or reduced rate of VAT to apply or for a claim to be eligible under the DIY House Builder Scheme. Where the builder, developer or DIY House Builder Scheme claimant establishes that the conversion is covered by a PDR and individual SPC is not required, they must be able to evidence it by at least 1 of the following:
a) Written notification from the LPA advising of the grant of prior approval. or
b) Written notification from the LPA advising that prior approval is not required. or
c) Evidence of deemed consent (ie evidence that you have written to the LPA and your confirmation that you have not received a response from them within 56 days) and evidence that the development is a permitted development. This will include all of the following (where the documents have been created), plans of the development, evidence of the prior use of the property (eg evidenced by its classification for business rates purposes etc.), confirmation of which part of the planning legislation is relied upon for the development and a lawful development certificate where one is already held.
Developments carried out under a PDR must still meet the appropriate building standards. Should any circumstances arise where building control is not required, evidence from the local authority confirming this should be provided.
FRS102 affects many things and Section 30 sets out the rules on Currency Conversion.
FRS 102 states that
An entity can conduct foreign activities in two ways. It may have transactions in foreign currencies or it may have foreign operations. In addition, an entity may present its financial statements in a foreign currency
Entities will have a Functional Currency (a concept also used in IFRS) and it allows translation into a Presentation Currency
Reporting at the end of the subsequent reporting periods
30.9 At the end of each reporting period, an entity shall:
(a) translate foreign currency monetary items using the closing rate;
(b) translate non-monetary items that are measured in terms of historical cost in a foreign currency using the exchange rate at the date of the transaction; and
(c) translate non-monetary items that are measured at fair value in a foreign currency using the exchange rates at the date when the fair value was determined.
30.10 An entity shall recognise, in profit or loss in the period in which they arise, exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous periods
That all sounds pretty familiar, however, as pointed out by Grant Thornton
Under SSAP 20 Foreign currency translation in current UK GAAP, where matching forward contracts are in place for a transaction, the contracted rate can be used for translation of the matched transaction. This option is not permitted under FRS 102. Instead, a foreign exchange forward contract will be recognised on the balance sheet as a financial instrument at fair value and the associated debtor or creditor will be retranslated at the year-end rate.
There are also changes to Goodwill valuation
A key difference (FRS102) to note in comparison to SSAP 20 Foreign Currency Translation is that SSAP 20 regards consolidated goodwill as an asset of the parent company and not the subsidiary. [Steve Collings Blog]