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Sam
Sam, Accountant
Category: Tax
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Dear *****, Thank you for your answer where you mentioned that

Resolved Question:

Dear *****,
Thank you for your answer where you mentioned that for the advice on the following issue your charge will be £42. Will be happy to pay this if fully satisfied.
I have two companies A Ltd & B Ltd. A Ltd is a parent company and B Ltd is a subsidiary. A Ltd is dormant where B Ltd is trading as a hotel and restaurant. B LTD is already registered for VAT and A Ltd is not. A Ltd wants to build a new building on the premises of B Ltd and run it as a hotel completely separate from the existing hotel. The new building will be a stand alone quite separate from the existing building. I want to make sure that I am able to reclaim the input VAT on the construction cost. Will this new work be zero, exempt or standard rated. A Ltd will have to be VAT registered and would like your advice as to what options are available to reclaim input tax on the new property.
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi
Thanks for your question and for asking for me.
I cannot locate any previous question from you - was this listed under a different user name perhaps?
Limited company A must get registered for VAT as soon as the trade commences (and those costs can be reclaimed back on the first VAT return that the trade commences) and this will fall under the existing VAT return as the income from both will need to be added together for VAT purposes, as these are linked trades. So you should alert HMRC (VAT) of this, as soon as the new hotel is ready for business, as you will trade from the same VAT number and HMRC need to be aware of this factor.
This is the only way you can claim the VAT costs from this new build (as the property will be used 100% for trade purposes)
And for information - Zero rating on new builds only relates to residential dwellings or buildings constructed wholly for charitable purposes, so this will not apply to you, and this build cannot be exempt or reduced rated for the same reasons, so the standard rate of VAT will apply.
Thanks
Sam
Customer: replied 2 years ago.

Dear *****,

I am a bit confused here. On one hand you mentioned that A should register for VAT as soon as the trade commences and claim all the VAT on the first VAT Return and on the other hand you mention that all this will fall under the existing VAT Return as two trades will be linked ( presumably because parent/subsidiary relationship. What is the point then of having two VAT registrations.

As we are talking about over £100,000 of input VAT why can't A LTD register for VAT as soon as the construction starts. This way A Ltd can reclaim on quarterly basis rather than wait for 18 months the time it will take to complete the building. If there are two separate VAT registration then why should the trades from two businesses be lumped together and enter the totals in the existing VAT registration.

Secondly, would it be okay to build the new property under B LTD and claim all the V|AT on quarterly basis under the existing registration and forget about A LTD.

Expert:  Sam replied 2 years ago.
Hi Ashraf
Thanks for your response
Sorry for the confusion - what I mean is you cannot advise HMRC of the new hotel until the trade of it begins, at which point you will merely be adding this new business venture within the existing VAT position.
You will not have two registrations but will advise HMRC of the new to include the new business venture into the existing registration (hope that makes more sense!)
The adding together of the linked trades isn't just because of the parent/subsidiary relationship, its the fact that they are the same trade also.
You cannot add Limited company A into the VAT position until you start trading, as you will not be providing any taxable supplies from that hotel until you actually start trading.
And the answer to your new question - which I should advise under Just Answer policy should be listed as a new question as not part of the original question posted - but as you are new to Just Answer, I shall answer within this question thread, on this occasion.
No, the same applies, if you build under Limited Company B, then you cannot claim the VAT on the new build until its starts providing a taxable supply. (which will be when you are open for business and trading)
Thanks
Sam
Customer: replied 2 years ago.

Dear *****

Thank you for your concession about the second question,

In other words what you are saying is that no input tax can be reclaimed either by company A or company B until the new build is complete and has commenced trading.

Ashraf

Expert:  Sam replied 2 years ago.
Hi Ashraf
Yes that's right - as you have no taxable supply on which to offset it until such time that the build produces a trade income.
Let me know if you have any follow up questions but, if, in the meantime you would rate the level of service provided, it would be appreciated as this ensures I am credited for the work by Just Answer.
Thanks
Sam
Customer: replied 2 years ago.

Dear *****,

Sorry if I am using too much of your time. It is because I am not fully satisfied. I am more confused than before.

In your last reply you confirmed that neither company can claim input tax until there are taxable supplies. In my question I mentioned that company B is trading and has taxable supplies. If taxable supplies is the criteria for claiming input tax then why company B can't claim input tax immediately when the build starts as it is already making taxable supplies? Company B in this case will be the owner of new build.

Second confusion is that why two companies can not have there own VAT registrations because each company is a legal entity own its own right? If company A builds a new property then why it is necessary to include its taxable supplies (when it starts trading) in the existing VAT of company B? Surely company A is a separate legal entity and eligible for its own VAT registration.

Ashraf

Expert:  Sam replied 2 years ago.
Hi
Thanks for your response
You have an existing business on which you run a hotel (Company B) which is a subsidiary of Company A, this is a hotel and you claim input tax and offset this against the output tax charged.
You now wish to build a new hotel and claim back the standard rate of VAT which you cannot so until that building is up and running as a hotel too.
Even if you build the new hotel under Company B which is already up and running and trading - the actual costs which will arise from this new hotel cannot be reclaimed until that new build is actually viable and trading in its own right. As those costs will NOT arise from the existing trade but the extending of the business with a new building.
Once its up and running you will also claim back input tax on the day to day running of the hotel but also then be eligible to claim back the settings up costs (which will include the VAT charged on the building materials and labour) but CANNOT claim any of those building and labour costs until such time you are trading.
Its that simple
You have to trade as one entity when the new hotel is up and running, so there is no avoiding VAT. HMRC do not permit artificially separating of businesses when they are within the same trade. I can only advise the legal position and your obligations, which I am sure you can appreciate.
Thanks
Sam
Sam, Accountant
Category: Tax
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Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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