Property & VAT

7th May 2014

Although we work with many different types of businesses, one of our specialties is property development. It’s an area of big transactions where getting the tax treatment right can be very beneficial, and getting it wrong can be very, very expensive.

For example, a recent case we dealt with was a multi-part London development.  The bottom floor of the property was commercial, and was being refurbished.  The first floor was being converted from offices to residential, and to top it all off (literally) a new storey of residential accommodation was being added.

What level of VAT should the contractors be charging our client, we were asked.

We were able to put a plan and guidelines in place to ensure that the correct VAT was charged (helping cashflow – always important in property development) and that the reclaiming of the VAT went smoothly.

(If you’re interested, the work on the commercial to commercial was charged to the client at 20% (standard) VAT, the work on offices to residential was charged at 5% VAT, and no VAT was charged on the newbuild residential.  All the VAT was reclaimed.)

Not considering the VAT properly would not just have led to cashflow problems, with the wrong VAT being charged.  It could have critically damaged profit levels, with the VAT not being able to be reclaimed.  That would have cost our client thousands.

So if you’re looking at a property development, do your tax planning at the very beginning, and make sure that the VAT situation is something you ask about.