Property developers – make sure you are accounting for VAT correctly

16th February 2018 Tax Nicola Roby

At CHW Bolton Accountants, we have many clients who make a living from purchasing, renovating and either selling or renting out houses. We are often asked about the VAT rules on renovation costs such as architect and contractors’ fees.

Nicola Roby, Director at CHW Bolton Accountants explains that not all costs will attract VAT, the rates can differ and the rules can be complicated:

• architect’s fees will all carry standard rated VAT – currently 20%
• if the house being renovated has been empty for less than two years the building work will be standard-rated
• if the house has been empty for more than two years; meets the conditions for qualifying residential premises; and the services are qualifying services all as set out in section 8 of VAT Notice 708; then the building work will be at the reduced rate of 5%
• the supply and installation of goods that are not building materials will be standard-rated even if the rest of the renovation qualifies for the reduced rate
• any materials bought without installation services will be standard rated

At CHW once we have established the VAT our clients might be incurring we consider the VAT position on the sale of the renovated properties and the impact on the recovery of VAT Input Tax.

Sale of a residential property which has been lived in at any time during the 10 years immediately prior to sale will be an exempt supply. As a consequence, VAT Input Tax incurred on the costs of renovation and costs of sale will not be recoverable unless the business is also making taxable supplies.

If, on the other hand, the residential property has been unoccupied during the 10 years immediately before being sold then the sale will be zero-rated as the first grant of a major interest in a newly converted dwelling.

The VAT Input Tax incurred on the renovation and selling costs can therefore generally be recovered.

This can be a complicated area and you should seek professional advice.  For more information on this or any other issue relating to your Small Business Accounts, Nicola Roby at CHW Bolton Accountants on 01204 534031 or via our contact us page.

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