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17th January 2014

If you or your client are involved in developing a property it is always worth taking professional VAT advice as land and property is a complex area from a VAT view point. It is very easy to make costly mistakes which can result in a profitable development not achieving the profit expected if an assessment for VAT penalties and interest is incurred. This is highlighted in the case for McCarthy & Stone where HMRC sought to challenge the VAT treatment of a development.

The business specialises in building and selling retirement accommodation. These are generally separate apartments with communal areas for residents such as lounges that are also furnished by the business. The apartments are sold by long lease to the residents with the right to use the communal areas granted as part of the lease. A premium was paid for the lease with an additional sum toward fixtures and fittings. The terms of the lease also included ongoing rent and an annual charge for use of the facilities.

HMRC sought to argue that the business was either making an exempt supply of land plus the zero rate long lease or was making a mixed supply part of which was zero rated (the long lease) and part exempt (the use of the furnished area). This would then allow HMRC to block some of the input VAT on costs recovered by the business on the basis that the costs were not used for wholly VATable purposes.

The tribunal determined that the business had made a single supply of the new residential accommodation, which is sensible given that it is clear that the communal areas are provided for the better use and enjoyment of the supply of the accommodation to the residents occupying the apartments.

One simple free call may save your business a substantial sum in lost VAT , interest and penalties.

About the Author

The VAT People are leading VAT and Customs Duty consultants based in the North West of England. We work with a wide range of businesses throughout the UK as well as assisting our accountancy colleagues to unravel the thorny VAT issues for their clients. We are one of the UK's largest and most comprehensive sources of VAT and Customs advice, our consultancy team having over 140 years of experience in VAT and Customs gained in either HMRC or a Big 4 accountancy practice environment.

Call us on our VAT helpline 0800 077 4604 to discuss. All initial discussions are free with no-obligation.

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Article Published/Sorted/Amended on Scopulus 2014-01-23 13:03:06 in Tax Articles

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