Why is international VAT so complicated! Reply

Stress business woman

EU VAT is a nightmare.

Here is an example of why its complicated…

Before 1st January 2015 all businesses supplying telecommunications, broadcasting and e-services such as downloaded ‘apps’, music, gaming, e-books and similar services to private consumers located in other EU Member States (referred to as ‘B2C’ supplies) were taxed where the business supplier was established, which is simple to understand and implement.

Since 1st January 2015 VAT is now charged in the country where the customer has ‘use and enjoyment’ of the services.

So lets say you are an American (normally zero rated) on holiday in France, even though you pay with an American credit card and buy from a UK supplier because you are reading your ebook in France, French VAT will apply. Sounds like a nightmare, doesn’t it.

To help with this HMRC introduced the VAT MOSS (Mini One Stop Shop).

Then there is is the VAT return….

Box 2 Acquisition Tax is calculated as UK VAT due on VAT free purchase of goods from other Member States, i.e. 20% x Box 9 figure, the same amount is then entered in Box 4 (as noted below by HMRC) so the net effect is Zero.

Box 9 Total EU Purchases are the value of goods bought from other EU Member States on a VAT free basis.

The following are HMRC’s instructions:

Box 2: VAT due from you (but not paid) on acquisitions from other EU countries

You need to work out the VAT due – but not yet paid by you – on goods that you buy from other EU countries, and any services directly related to those goods (such as delivery charges). Put the figure in Box 2. You may be able to reclaim this amount, and if so remember to include this figure in your total in Box 4.

Box 4: VAT reclaimable on your purchases

This is the VAT you have been charged on your purchases for use in your business. You should also include:

  • VAT due (but not paid) on goods from other EU countries and services directly related to those goods (such as delivery charges) – this is the figure you put in Box 2

http://www.hmrc.gov.uk/vat/managing/returns-accounts/completing-returns.htm#4

If you trade regularly with the EU you may be required to do Intrastat Returns

Here is a useful guide from Sage.

steve@bicknells.net

What are the VAT implications of converting commercial buildings to residential? Reply

foreman builder and construction worker with blueprint in indoor apartment

There are several issues to watch out for:

Transfer Of a Going Concern (TOGC)

Before you buy a commercial property you will need to find out if the current owner has opted to tax.

Supplies of land and buildings, such as freehold sales, leasing or renting, are normally exempt from VAT. This means that no VAT is payable, but the person making the supply cannot normally recover any of the VAT incurred on their own expenses.

However, you can opt to tax land. For the purposes of VAT, the term ‘land’ includes any buildings or structures permanently affixed to it. You don’t need to own the land in order to opt to tax. Once you have opted to tax all the supplies you make of your interest in the land or buildings will normally be standard rated, and you will normally be able to recover any VAT you incur in making those supplies. VAT Notice 742A

If an Option to Tax is in place the seller will charge VAT when they sell the property.

If the purchaser is not registered for VAT they get a very large VAT bill to pay, however, if they register for VAT or are registered for VAT before the sale takes place then its possible to use the TOGC rules to avoid having to pay VAT on the purchase.

The main conditions are:

  • the assets must be sold as part of the transfer of a ‘business’ as a ‘going concern’
  • the assets are to be used by the purchaser with the intention of carrying on the same kind of ‘business’ as the seller (but not necessarily identical) – for example commercial property rental
  • where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer
  • in respect of land which would be standard rated if it were supplied, the purchaser must notify HMRC that he has opted to tax the land by the relevant date, and must notify the seller that their option has not been disapplied by the same date

The TOGC rules are compulsory. You cannot choose to ‘opt out’. So, it is very important that you establish from the outset whether the business property is being sold as a TOGC. Incorrect treatment could result in corrective action by HMRC which may attract a penalty and or interest.

Problem areas:

  1. Gap in trading – for TOGC to apply there must be no significant gap in trading between the sale and purchase
  2. VAT registration – If the vendor is VAT registered, there can only be a VAT-free TOGC if the purchaser is registered at or before the transfer

TOGC Intended for Residential Use

Schedule 10 para 6 VATA 1994 Notice 742A para 3.4

Your option to tax will not apply if you supply a building or part of a building that is not designed or adapted as a dwelling (or number of dwellings) or for a relevant residential purpose but you receive a certificate (VAT1614D) from the recipient of your supply (by the time described in paragraph 3.4.3 and paragraph 3.4.4) certifying that it is intended for use as a dwelling or number of dwellings or solely for a relevant residential purpose. This can apply where the building, or relevant part, is either intended for such use:

  • without conversion work being undertaken
  • after conversion

Conversion of Commercial to Residential for Sale – Zero Rating

VAT notice 708 (Schedule 8 Group 5 item 1 VATA 1994)

5.5.1 What ‘person converting’ means

You are a ‘person converting’ a building if, in relation to that building, you are acting as, or have, at any point in the past, acted as:

  • a developer – you physically converted, or commissioned another person to physically convert, a building (in whole or in part) that you own or have an interest in
  • a contractor or subcontractor – you provided construction services to the developer or another contractor for the conversion of the building, sub-contracting work as necessary

5.5.6 TOGC of converted developments of dwellings, relevant residential buildings

A person acquiring a residential development that has been subject to a qualifying conversion as part of a TOGC inherits ‘person converting’ status and is capable of making a zero rated first major interest grant in that building or part of it as long as:

a) a zero rated grant has not already been made of the converted building or relevant part by a previous owner (not including the grant that gives rise to the TOGC)

b) the person acquiring the building as a TOGC would suffer an unfair VAT disadvantage if its first major interest grants were treated as exempt (for example, a developer restructures its business. This entails the transfer (as a TOGC) of its entire property portfolio of newly constructed or converted qualifying buildings to an associated company, which will make first major interest grants. If these were treated as exempt, the transferee might become liable to repay input tax recovered by the original owner on development costs under the Capital Goods Scheme or partial exemption “claw back” provisions and would incur input tax restrictions on selling fees that would not be suffered by businesses in similar circumstances – we would consider this to be an unfair disadvantage)

c) that person would not obtain an unfair VAT advantage by being in a position to make zero rated supplies (for example, by recovering input tax on a refurbishment of an existing building)

A recent case suggests the rules even apply to Houses of Multiple Occupancy (HMO’s) and that HMO’s can also be Zero Rated

https://www.gov.uk/government/publications/vat-notice-708-buildings-and-construction/vat-notice-708-buildings-and-construction#zero-rating-the-sale-of-or-long-lease-in-non-residential-buildings-converted-to-residential-use

The case is Capital Focus Limited v HMRC TC05193 Appeal number TC/2015/04891.

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.
HMRC lost the case, here is the result..
VAT Zero HMO

Reduced Rate VAT for Conversion from Commercial to Residential

The rules are in VAT Notice 708

Using the reduced rate of 5% is useful for Residential property (exempt from VAT) but is also useful for commercial buildings where there is no option to tax in place.

Conversions into single household dwellings

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

It does not include:

  • the creation of living accommodation that is not a ‘single household dwelling’, such as most ‘granny’ annexes or additional bedrooms at a care home, and
  • the renovation or alteration of living accommodation that had been used for other purposes without the premises being adapted, such as a flat above a shop that has been used for storage. If the living accommodation has not been lived in for two years or more, the reduced rate explained in section 8 may apply

Conversions into multiple occupancy dwellings

A qualifying conversion includes the conversion into a multiple occupancy dwelling of:

  • a single household dwelling
  • a building used for a relevant residential purpose, such as a care home, and
  • a property that has never been lived in

It does not include, for example, the creation of additional bedrooms at a dwelling consisting of bed-sits.

Conversions into premises intended for use for a relevant residential purpose

A qualifying conversion includes the conversion of:

  • a single household dwelling
  • a multiple occupancy dwelling, and
  • a property that has never been lived in

into premises that will be used solely for a relevant residential purpose.

It does not include:

  • the remodelling of an existing ‘relevant residential purpose’ building, such as a care home, and
  • any conversion where a new qualifying residential ‘home’ or ‘institution’ is not created in its entirety, such as the conversion of outbuildings into additional bedrooms for an existing care home

What services can I reduced-rate?

Other than installing goods that are not building materials, you can reduced-rate any works of repair, maintenance (such as redecoration), or improvement (such as the construction of an extension or the installation of double glazing) carried out to the fabric of the building.

You can also reduced-rate works within the immediate site of the premises being converted that are in connection with the:

  • means of providing water, power, heat or access
  • means of providing drainage or security, or
  • provision of means of waste disposal

All other services are standard-rated. For example, you must standard-rate:

  • the installation of goods that are not building materials, such as carpets and fitted bedroom furniture
  • the erection and dismantling of scaffolding
  • the hire of goods
  • landscaping
  • the provision of professional services, such as those provided by architects, surveyors, consultants and supervisors

 

steve@bicknells.net

Will I pay VAT on my membership? Reply

Exclusive Membership Badge

The VAT rules on membership fees and complex but some types of membership are VAT exempt

  • Professional Bodies
  • Trade Unions
  • Learned Societies
  • Political Parties

However, in general HMRC considers that where a subscription fee is paid to a membership body in return for benefits then it will be subject to VAT.

VAT notice 701/5 states..

Which of my activities are business activities for VAT purposes?

These include:

  • providing benefits to members in return for membership subscriptions (for members racing clubs where subscriptions finance the purchase of racehorses see Notice 700/67 Registration scheme for racehorse owners)
  • providing benefits to members in return for a separate charge
  • making supplies to non-members for a charge
  • admission to any premises for a charge
  • providing catering, social and other facilities to non-members in return for a charge

HMRC’s advice is set out in VBNB606600

The general rule is that subscriptions are consideration for a package of benefits. The liability will follow that of the various supplies being made. Therefore, you will need to apportion the subscription unless all of these supplies have the same liability.

Our historic view that membership benefits supplied in return for a subscription constitute mixed supplies that need to be apportioned rather than a single supply was taken in the case of The Automobile Association (see VBNB75960). In that case the High Court accepted the AA’s subscription charge was for a mixed supply of their magazine, the key to the AA box insurance and various other services.

However, following the decision in Card Protection Plan (see VBNB75960) we concluded that our previous approach was wrong in law. The subscriptions of a members’ club were usually consideration for a bundle of supplies, each of which is for the better enjoyment of the principal supply, and all the supplies therefore share the same VAT liability.

We did, however, accept that in some cases there were two or more supplies, each of which was an end in its own right. In those cases apportionment was the proper treatment. Where a business had incorrectly treated its supplies as mixed under the old legal understanding, we took no action and we introduced ESC 3.35 to allow non-profit making members’ clubs to continue to do so.

Normally a body will apportion its subscriptions either in relation to the costs that it incurs in making the supplies or in relation to the price at which the supplies are separately available (a market value method). However, here are no fixed rules requiring apportionment by a particular method. Any method is acceptable as long as the end result is fair and reasonable.

steve@bicknells.net

Is there a way that Buy to Let Landlords can reclaim VAT? possibly! Reply

for rent black blue glossy web icon

Residential letting of property is exempt from VAT, so can’t charge VAT on the Rent.

The VAT rules say, if you only sell or otherwise supply goods or services that are exempt from VAT then yours is an exempt business and:

  • you cannot register for VAT
  • you cannot recover any VAT you incur on your purchases or expenses

However, if an Individual (Sole Trader), Partnership or Company has other vatable supplies, it could register for VAT and be partly exempt.

Partly exempt business

Your business is partly exempt if your business has incurred VAT on purchases that relate to exempt supplies. This is known as exempt input tax.

Generally, you won’t be able to reclaim exempt input tax. However, provided the amount of exempt input tax is below a certain amount, it can be recovered in full.

Non-business use in a partly exempt business

You can’t reclaim VAT you pay on goods and services that aren’t for business purposes. If your business is partly exempt and you buy goods or services that you use partly for business and partly for non-business purposes you must split the VAT accordingly. You then use your partial exemption method to work out how much of the business VAT you can reclaim.

Keeping records if your business is partly exempt

If you make both taxable and exempt supplies, you must keep a separate record of your exempt sales and details of how you’ve worked out how much VAT to reclaim.

De Minimis Limits

To stay below the de minimis limits, the following two conditions must both be met:

  • the input VAT attributed to exempt supplies must not exceed £1,875 for the quarter (£625 for a monthly return and £7,500 for an annual calculation); and
  • the input VAT attributed to exempt supplies must not exceed 50% of the total input VAT incurred in that quarter.

Effectively, this allows up to £7,500 of input VAT, relating to exempt supplies which would not otherwise be recoverable, to be recovered each year by a partially exempt business.

Vatable Business Activity

You could

  1. Provide Freelance Services
  2. Rent out vatable commercial property
  3. Let property as holiday accomodation
  4. Or provide other business services

Generally, my recommendation would be to keep your business activities in separate businesses so you need to be careful not to focus on a small VAT saving for the sake of the overall business structure.

 

steve@bicknells.net

Now you are a Champion, don’t forget to pay VAT! Reply

 Prize. Poster Comic Speech Bubble. Vector illustration.
Tax on prize money has a few complications.

HMRC doesn’t regard lottery winnings as income, so all prizes are tax free, hooray!

But the problems start when you give the money away, as reported in the Guardian in 2012

The cash will form part of your estate and be liable for 40% inheritance tax (IHT) if it takes the value of your estate above the current threshold of £325,000.

Gifting millions will not save you from paying IHT either: HMRC will tax you on a sliding IHT scale should you die within seven years of gifting any cash to friends and relatives – a 20% reduction in tax if you die between three and four years after gifting, a 40% reduction between four and five years, etc). You can get around this by making sure the recipient signs an agreement that they will pay any IHT due if you do die within seven years.

The IHT issue also applies where you have a syndicate without a syndicate agreement.

The solution to this is to have a syndicate agreement , then you can look forward to spending your fortune.

The reasoning behind HMRC’s thinking goes back to the case of Graham v Green [1925] 9TC309 and concerned a man whose sole means of livelihood came from betting on horses at starting prices.

The basic position is that betting and gambling, as such, do not constitute trading. Rowlatt J said in Graham v Green [1925] 9TC309:

A bet is merely an irrational agreement that one person should pay another person on the happening of an event.

This shows that having expertise or being systematic (“studying form”) is not enough to create a trade of being a ”professional gambler”.

Some ”professional gamblers” do carry on a trade, for example, where they receive appearance money for appearing on television programmes. They are providing a service to a customer (the television production company) for reward. Whether their gambling winnings are proceeds of that trade would depend upon the facts. BIM22017

The other problem for HMRC is that if you tax ‘winnings’ you would have to allow tax deductions for ‘losing’ and there are more losers than winners.

Things get complicated when it comes to sporting events, in general, amateur sporting prizes are tax free, here are HMRC’s examples for Community Amateur Sports Clubs:

Clubs may wish to arrange prize competitions where the nature of both the competition and the prize is such as to promote participation in the sport. In strictness there is nothing to permit this but where the value of prizes, are commensurate with amateur participation in the particular sport these would not prevent club from being registered. Competition prizes of sufficient value to attract professionals or such frequency that could be equated with payment to players would preclude qualification as a CASC.

Example 1 A Cycling club promotes races in which members and others, particularly local juniors, are encouraged to participate. Modest cash prizes are awarded and funded from entry fees and local sponsorship. This would be acceptable.

Example 2 A Golf club holds regular competitions for members throughout its season. Although individual events may be limited by gender or handicap, all members are able to participate in some of the competitions. Prizes of golf equipment, for example bags, shoes, balls or vouchers redeemable at the club shop are awarded. Again, this would be acceptable.

Example 3 A Bowling club organises frequent competitions for club members with cash prizes subsidised by a brewery. Senior players derive significant benefit from these arrangements. A club that subsidised its members in this way would be unlikely to qualify as a CASC.

When it comes to professional sporting events the tax can be significant and has led to problems attracting sporting stars.

Like most countries, the UK charges tax on appearance fees and prize money when non-resident athletes compete in Britain but, unlike many other countries, it also seeks to tax the athlete’s global endorsement income.

Based on the number of days spent competing in the UK, Her Majesty’s Revenue and Customs charges tax on a percentage of the athlete’s income earned elsewhere.

“It’s like me asking you to come to work today and pay three times in tax what you’re getting”

As reported in the Telegraph in February 2013.

What may professional sports competitors don’t realise is that prizes can be subject to VAT!
6.6 Prizes, prize money and appearance money
Prizes and prize money awarded to, and appearance money paid to competitors, are always treated in the same way, regardless of whether the entry fees for the competition are exempt or taxable.
Prizes and prize money are outputs and appearance money is an input. Details of their treatment are shown in Notice 701/5 Club and associations.

steve@bicknells.net

Permitted Development VAT Zero Rating – new rules 1

foreman builder and construction worker with blueprint in indoor apartment

VAT and Construction are never simple!

But on the 3rd May 2016 HMRC have tried to simplify Permitted Developments with Revenue & Customs Brief 9/2016 

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.

steve@bicknells.net

Spot the VAT Ball! Reply

Fussballer
They think its all over, it is now!

VAT (and Tax in general) can be a complicated and hard to understand.
The FT reported earlier this month..

A long-running battle between the UK taxman and betting minnow Sportech over VAT paid on a game called Spot the Ball between 1976 and 1996 looks as though it may, finally, be nearing an end game.

Spot the Ball, which was popular in the seventies, shows a scene from a football match and players are invited to mark where they think the ball should be.

Back in 2009, Sportech lodged a claim that it should not have been charged VAT on the game as Spot the Ball – in its view – was a game of chance and not a game of skill and therefore not subject to VAT.

The Court of Appeal has restored the decision of the First-tier Tribunal (FTT) that the ‘spot the ball’ competition was a game of chance. The Court of Appeal agreed with the FTT.
As a result of the decision, the cost of entering the game should have been exempt from VAT under VATA 1994 Sch. 9 group 4. The repayment claim arising in this case is reputed to be around £97m.

Is Flat Rate VAT the best option? Reply

Stressed couple checking bills

There are lots of VAT schemes to choose from

Standard VAT Scheme – on this scheme the VAT is based on tax points from invoices

Flat Rate VAT Scheme – If your turnover is below £150k you could join the Flat Rate Scheme, this scheme applies a % to your sales to work out your VAT Liability, it can make VAT returns easier to complete and in can sometimes work in your favour as the Flat Rates may mean you pay less VAT, if you join in your first year of VAT registration you get an extra 1% off the rate for the first year.

VAT Cash Accounting Scheme – if your turnover is below £1.35m you can account for VAT on a Cash basis, this is particularly helpful if your customers pay you on slower terms than you pay your suppliers

Annual Accounting Scheme for VAT – if your turnover is below £1.35m you could join the Annual Scheme and complete one return for the year but you make either 9 interim payments or 3 quarterly interim payments

Retail VAT Schemes – These are specific schemes aimed at mainly at shops and help to overcome the issues of mixed vat rate goods

VAT Margin Scheme – The margin scheme relates to second hand goods and accounts for VAT on the margin, for example on the sale of cars

They will all produce different answers!

We have a Flat Rate comparison Tax Calculator that can help

Recently there have been lots of concerns about the Flat Rate Scheme

As reported by Rebecca Cave in accountingWEB

HMRC previously insisted that all consultants should chose the category ‘management consultants’ (flat rate: 14%), even if they were consultants in health and safety, employment, or marketing. Now those businesses who do not describe themselves as management consultants are free to choose the category ‘business services not listed elsewhere’ (flat rate:12%).

Another area that caused confusion was the advice in para 4.4 of the previous version of VAT Notice 733, that all engineering consultants and designers should choose the category for ‘architect, civil and structural engineer or surveyor’ (flat rate 14.5%).

So a new VAT Notice 733 has been issued

Are you using the best VAT Scheme for your business?

steve@bicknells.net

 

Is £277k a fair penalty for being 1 day late on VAT Reply

Businessman and businesswoman in panic of the financial crisis

There have been a couple of recent cases that highlight the importance of filing and paying VAT on time. Both cases were argued on proportionality.

Blue Ocean Associates Ltd v Revenue and Customs (VAT – PENALTIES : Default surcharge) [2016] UKFTT 42 (TC) (26 January 2016)

VALUE ADDED TAX – default surcharge – return submitted one day late – with a penalty of £277,185.00  proportionate – yes

As the default which is the subject of the present appeal was the first such default by the Company in the surcharge period, the surcharge fell to be calculated at the rate of 2% on the amount which was paid late (£13,859,254.00) and was therefore £277,185.00.

Trinity Mirror PLC v Revenue & Customs [2014] UKFTT 355 (TC) (14 April 2014)

VAT – default surcharge – whether penalty proportionate – appeal allowed

In respect of the 06/07 VAT Period, Trinity Mirror was required to (1) make 2 payments on account of £1,546,965.00 each by, respectively, 31/05/2007 and 29/06/2007, and (2) file its VAT return and make a balancing payment of £5,467,130.92 by 01/08/2007.  Trinity Mirror made the 2 payments on account, and filed its VAT return, on time.  It made the balancing payment in full on 02/08/2007, that is, 1 day late.

The Penalty was £70,906.44

Its pretty clear from both cases that HMRC are getting tough on late returns and payments so its vital that businesses don’t miss deadlines!

steve@bicknells.net

What are the rules for claiming reduced VAT on conversions? 1

mounting thermal insulation boards

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 basic conditions for reduced-rating the conversion of premises to a different residential use

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, however, be able to charge VAT at the reduced rate of 5 per cent if you are converting premises into:

  • a ‘single household dwelling’ – see paragraph 14.4
  • a different number of ‘single household dwellings’ – see paragraph 14.4
  • a ‘multiple occupancy dwelling’, such as bed-sits – see paragraph 14.5, or
  • premises intended for use solely for a ‘relevant residential purpose’ – see paragraph 14.6

Example 1

A block of flats consists of 4 floors, each with 4 flats. A lift is installed and work is carried out throughout the whole building. On the ground, first and second floors the footprint of each flat is changed to take account of the new lift. This results in the internal configuration of each flat being changed. On the third floor 3 penthouse flats are created from the original 4.

Although the overall number of single household dwellings in the building has changed (there has been a reduction by one unit) only the work to convert the third floor will be eligible for the reduced rate because it is only in this part of the building that the number of dwellings has changed. But see also the next example.

Example 2

Taking the above example, if the reduction in the number of flats on the third floor happens by combining 2 of the original flats together – the other 2 being refurbished – then the reduced rate will only apply to the work to merge the 2 flats together.

Example 3

Taking example 1, as well as the changes to the top floor, the number of flats on the ground floor is changed to 5 smaller units. In this example, the overall number of dwellings in the building has not changed (there are 16 units both before and after the work). However, as parts of the building are examined independently, and because the respective parts of the building meet the conditions at paragraph 7.3, the reduced rate can apply to the work to convert those parts.

What services can I reduced-rate?

Other than installing goods that are not building materials, you can reduced-rate any works of repair, maintenance (such as redecoration), or improvement (such as the construction of an extension or the installation of double glazing) carried out to the fabric of the building.

You can also reduced-rate works within the immediate site of the premises being converted that are in connection with the:

  • means of providing water, power, heat or access
  • means of providing drainage or security, or
  • provision of means of waste disposal

All other services are standard-rated. For example, you must standard-rate:

  • the installation of goods that are not building materials, such as carpets and fitted bedroom furniture
  • the erection and dismantling of scaffolding
  • the hire of goods
  • landscaping
  • the provision of professional services, such as those provided by architects, surveyors, consultants and supervisors

7.6.1 Garages

You can reduced-rate the:

  • conversion of an outbuilding into a garage
  • construction of a new detached garage, and
  • the construction of a drive serving the garage

provided:

  • the garage is intended to be occupied with the ‘single household dwelling’, ‘multiple occupation dwelling’, or the premises intended for use solely for a ‘relevant residential purpose’ resulting from the qualifying conversion, and
  • the work is carried out at the same time as the qualifying conversion

Please note however that you cannot reduced-rate the provision of a hardstanding unless it is also used as an access.

If you carry out work that requires statutory planning consent or statutory building control and it has not been granted, then your work is standard-rated.

steve@bicknells.net

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