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bigduckontax, Accountant
Category: Tax
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My client is a VAT registered company which purchased a block

Customer Question

My client is a VAT registered company which purchased a block of land 5 years. The company usually does contract work for individuals and is now building a new home.
Is the company allowed to reclaim VAT on materials and what are the VAT implications when the property is sold ? I understand there maybe be kitchen fixtures worth about £5,000.
Your guidance would be appreciated.
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.

Hello, I'm Keith and happy to help you with your question.

Pinsent Masons [Solicitors] have the following advice on VAT on the sale of residential landed property.

'It is possible to choose to charge VAT on certain supplies of land that would ordinarily be exempt supplies; however, this is not possible for supplies of residential or charitable land which are always exempt. Suppliers will often choose to charge VAT so that they can recover VAT input tax incurred.'

So when and if the company sells it will be making an exempt supply for this item. Where exempt supplies are made input tax can only be reclaimed in proportion to standard plus zero rated supplies and total supplies. In the account period this happens the de minimus rule may apply and all input tax be reclaimable. I ran a set of accounts once where there were continuous sales of standard and exempt supplies and the application of that rule enabled us to slither under the wire so to speak and reclaim all input tax. On such a large sale as a domestic residence I cannot see this a very likely possibility. So you can claim the input tax as you go, but there may have to be an adjustment on ultimate sale and it have to be refunded to HMRC. Suppliers of building materials can sometimes charge a lower rate for materials supplied. This might reduce your exposure to input tax. VAT Notice 708 has the following guidance:

'Retailers and builders’ merchants charge VAT at the standard rate on most items they sell. Builders, however, charge VAT on ‘building materials’ that they supply and incorporate in a building (or its site) at the same rate as for their work. Therefore, if their work is zero-rated or reduced-rated, then so are the ‘building materials.’ However, some items are not ‘building materials’ and remain standard-rated.'

I do hope I have helped shed some light on your situation.

Customer: replied 3 years ago.

Hello Keith

Many thanks for your response and feel the need to contact client and to establish whether contact a VAT expert.

It might be too late since the building is almost completed.

Mnay thanks


Expert:  bigduckontax replied 3 years ago.
Delighted to have been of assistance, David.
Please be so kind as to rate me before you leave the Just Answer site.