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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4207
Experience:  FCCA FCMA CGMA ACIS
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I own a property ltd investment/development company and I have

Customer Question

I own a property ltd investment/development company and I have a query on VAT that you may be able to help with.
The company bought a former ambulance station (property) in 2011 and converted it to 3 flats and an office at this time. Further planning has now been sought for changing the office to a 1 bedroom flat along with 1 x new 2 bedroom flat on top an existing single storey and 1 x new build 1 bedroom house.
The company is not VAT registered and does not want to charge vat on rents or future sales. The new build costs are coming out at circa £250,000 plus vat so the question is can a new company be set up to claim the vat back on the build without effecting the company's future vat status? The vat is £50,000 so it’s a big headache and we really need to find a way to make this vat saving?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Here is the Gov UK advice on VAT on such matters (VAT Notice 708): Conversions of this nature should be charged at the VAT reduced rate rate of 5%, some 12.5K. Registering your existing property company for VAT does not require you to charge VAT on rentals unless the company so elects. The disadvantage of electing to charge VAT on rentals is that on disposal the tax has to be charged on the selling price also which may make the sale, if it is to a non VAT registered body, not an economic proposition as they may jib at forking out another 20%! You could form a new company, but why go through all that palaver when there is no need? You would have to pay conveyancing fees to transfer the property, an expensive exercise. I do hope that I have shed some light on your position.
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Customer: replied 2 years ago.

Thanks Keith

So your saying vat should be 15% not 20% by the builder?

Expert:  bigduckontax replied 2 years ago.
I am saying that as it is a conversion of or to residential use that the work should be done at the reduced rate of VAT, namely 5%.
Customer: replied 2 years ago.

Sorry please can you clarify - the Vat rate should be 5%?

Expert:  bigduckontax replied 2 years ago.
Correct, VAT is at the reduced rate.