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VAT ON PROPERTY TRANSACTION. My company is in process of

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VAT ON PROPERTY TRANSACTION.
My company is in process of buying the freehold of an industrial unit for £300,000 plus VAT.
We are VAT registered and our taxable supply is coffee, which is VAT zero-rated. Therefore the VAT payable of £60,000 on the capital purchase is wholly recoverable from HMRC at the end of our first VAT period following the purchase. Is this correct, please?
Under the rules of Capital Goods Scheme, which applies to our purchase, the above reclaim is monitored for ten years and can give rise to VAT assessment. For example, if we deregister for VAT or sell the building during this time, we can expect clawback from HMRC. Is this correct, please? Is this is a contingent liability on the company, and how much should we provide over the period of ten years? Is it a reducing liability each year, during the ten years?
Thank you.
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with a question. You are quite correct in your opinion that the VAT paid on purchase of the premises can be recovered through the relevant quarterly return. Landed property is exempt from VAT, although an organisation can elect to charge VAT on rentals and thus on ultimate sales. If your company does not so elect that is an end of the matter. I do hope that my reply has been of assistance.
Customer: replied 1 year ago.

Thank you. Would you be so kind and comment on the second part of the question.

Under the rules of Capital Goods Scheme, which applies to our capital purchase, the above reclaim is monitored for ten years and can give rise to VAT assessment. For example, if we deregister for VAT or sell the building during this time, we can expect clawback from HMRC. Is this correct, please? Is this is a contingent liability on the company, and how much should we provide over the period of ten years? Is it a reducing liability each year, during the ten years?

Your answer is important to me. If a large tax bill is attached to the purchase I may have cancel the deal. Many thanks.

Expert:  bigduckontax replied 1 year ago.
Here is the advice from FindLaw UK: 'The input tax you initially recover on an asset is dealt with under the normal partial exemption rules. These rules mean that:you can reclaim all the input tax on assets you use or intend to use only for making taxable suppliesyou can’t reclaim any of the input tax on assets you use or intend to use only for making exempt suppliesyou have to use a partial exemption method to work out the percentage of the input tax you can reclaim on assets you use or intend to use to make both taxable and exempt supplies'As you make zero trated supplies the second and third limitations do not apply so as I told yoy you reclaim all input tax in one fell swoop.
Customer: replied 1 year ago.

Great answer. So, as long as our taxable supplies remain zero rated (or standard rated) then there is no potential liability of clawback by HMRC of the original reclaim?

Expert:  bigduckontax replied 1 year ago.
That would appear to be the position, you have it to a 'T'. It would, as you say, apply if the supplies remain zero or standard rated, but I would add that it would also be valid if the business made reduced rate supplies also.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3603
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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