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bigduckontax
bigduckontax, Accountant
Category: Tax
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My company buys and sells low cost property in the UK (typically

Customer Question

My company buys and sells low cost property in the UK (typically houses for £50,000 and sells them for £60,000 - 2 properties a month). It is a UK property trading business. I am not VAT registered. I have signed an agreement with a Dubai estate agent company for them to market and sell my UK properties to their consumer clients who are abroad in Dubai. Then, when I complete the property sale to their clients, the Dubai company invoices me for agency commission from Dubai (about £5,000 per sale - No VAT) as per their agreement with me. The sale is completed by me when client visits UK. My question is:-
-Is this invoice a legitimate allowable expense even though actual client visits UK to complete the sale; and should VAT be charged on this invoice or not.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.

Right, VAT can be levied on real property transactions, but does not have to be. It is up to the organisation trading as the whether to charge VAT. Only the largest organisations would dream of so doing because if VAT is charged, for example on rents, then on ultimate sale it has to be added to the selling price too and any purchaser not registered for the tax would have to bear an extra 20% on top of the price, ouch!

There is no requirement to register for VAT at all unless your annual turnover is, or approaches 81K, of VAT taxable turnover (note those last three words) [source Gov UK - VAT thresholds].

The invoice to which you refer would appear to be a legitimate expense which can be offset against the company's earnings. It is outside the scope of VAT as it does not comprise 'VAT taxable turnover.' In my opinion as far as VAT is concerned, forget it; as an Australian would say, 'No worries, sport!'
Customer: replied 2 years ago.

Thank you. This seems good. But does the reverse VAT charge not apply? Is that because I am not VAT registered?


 


See advice from HMRC about buying services from abroad.


http://www.hmrc.gov.uk/vat/managing/international/imports/importing.htm#3


 


and


 


http://www.hmrc.gov.uk/manuals/vatpossmanual/VATPOSS14300.htm


 


 

Expert:  bigduckontax replied 2 years ago.

I see what you are coming from with Reverse VAT. If all your sales went via Dubai you would be over the 81K limit and thus registration for VAT might be necessary. However as you are both supplier and customer in the words of HMRC

 

'Where it applies, you act as if you are both the supplier and the customer - you charge yourself the VAT and then, assuming that the service relates to VAT taxable supplies that you make, you also claim it back. So there's no net cost to you - the two taxes cancel each other out.'

 

In taxation terms it is a lemon and, furthermore, were your company VAT registered and this is all the business it does, it could reclaim the input tax on all other services consumed as well making it a net recipient of reclaimed VAT every quarter, for everyone involved an exercise in financial futility as far as tax collection is concerned and in administrative ditto for you. If there is a danger of your company breaching the registration limit through your Dubai transactions then it may be necessary.

 

I would be inclined to raise the matter with HMRC's registration offices well before to get their views on whether it ought to be registered in the light of the organisation's normal trading pattern. HMRC advise using their telephone service, the relevant number is *****(###) ###-####

 

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Customer: replied 2 years ago.

Thanks for the answer. But if I have to register for VAT, my business cannot work as it is purely a consumer property trading business that just buys and sells low cost terraced houses. I buy from consumers who do not charge me VAT and sell to consumers (mainly investors from overseas, referred by the overseas company). These buyers will not want to pay VAT when they buy these small 2 bed houses.


 


I do not purchase much else - apart from the house, then I sell it at a profit as stated above. So there is not much input tax to reclaim back on other services. I am the only employee of my company.


 


Over 1 year, if I could sell 24 properties, my turnover on property sales will be £1.44m and I could make £240,000 gross profit of which £120,000 may go the overseas company as agency fees as they provide most of the clients and invoice me from abroad.


 


I may indeed have to see HMRC advice later. Is there another expert who perhaps specializes in this area and may have come across this before. I would be really grateful if you could help.

Expert:  bigduckontax replied 2 years ago.
I have advised you to check it out with HMRC.

You do not have to use VAT on your house purchases and sales as I explained. That is perfectly normal. It's only those Dubai reverse charge items you need to concern yourself with and you should consult HMRC on the way to handle that. They may well tell you not to register the company anyway.
Customer: replied 2 years ago.

Thanks very much for your reply. I can check it out with HMRC. However, if there is another expert that can help, I would be grateful as this must be a common scenario.

 

The problem was opened to other experts. However no-one has replied to answer this questions.

Customer: replied 2 years ago.

Is there any other expert who can answer this question please. The problem was opened to other experts but no-one ha replied.

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