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bigduckontax, Accountant
Category: Tax
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I am purchasing a building that includes

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I am purchasing a building for refurbishment that includes a shop and two flats. I have just set up a small Property Development Ltd company and am unsure how the commercial shop changes the VAT implications. I am not VAT registered but am wondering if I should be. Will a proportion of the purchase price include VAT so that if i became VAT registered, I could reclaim that part?
I am refurbing flats and selling, then keeping shop to lease out. Sale of two flats will be over £81K but refurb properties are exempt so not sure where I stand.

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

The danger with VAT and property revolves about rentals. If you rent out the property and charge VAT on the rents then when you come to sell then you must charge VAT on the purchase price and a buyer not registered for the tax might well jib at an extra 20% and selling become non-competitive. Only the very biggest companies would dream of charging VAT on rentals.

Fortunately, this is not the case here. Were the company registered for VAT then it could reclaim all the input tax charged by contractors undertaking the refurbishment work. However, there is a problem. Property sales are, as you have already grasped, normally classed as exempt outputs for VAT. Now were they zero rated there would be no problem, but HMRC might well refuse registration were they cognisant of the exact scope of the company's activities and you will be asked when you try to register.

I suggest that you try to register the company for VAT. If accepted then the cash flow would be much improved, albeit at the cost of additional book keeping.

I do hope I have shown you a way forward with your question.

Customer: replied 3 years ago.

Hi Keith,

I did try and clarify your answer but it doesn't look as though it ever made it through. so continuing the conversation...

I think my really quandry is whether I SHOULD register or not. My preference would be NOT to register for tax as is hassle and my contractors are not charging me tax so very little rebate to be gained. I just don't want to get it wrong and have the HMRC after me.

So I suppose my question is, is the resale of the two flats is over £81K, as they are exempt, does this mean that income/turnover is not counted towards the £81k threshold? Meaning I will not exceed it and therefore do not need to be VAT registered as rental income from the shop will leave me under the 81K?

Thank you

I understand your predicament. I have been doing VAT since it was introduced in the mid 70s.

As property transactions, including rentals, are generally exempt supplies they do not count towards the 81K registration threshold so if you have minimal input taxes to reclaim why bother to register. It's all an awful palaver if you are not used to it. As far as VAT is concerned emulate Brer Fox, 'For he lay low and say nuffin.'

From what you tell me Catherine, there is no requirement for you to register at all and as your reclaimed input taxes are small, don't bother.

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