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Road works fall within the definition of new civil engineering work and be subject to mandatory VAT, irrespective of the effect of the option to tax. A value will also have to be apportioned to the road therefore. A tax invoice should be issued in relation to the parts which are subject to VAT.
VAT incurred on the construction of the road will remain recoverable in full since the sale of the road will be subject to VAT.
The Court of Appeal decision in Longridge, appeared to have been established beyond serious doubt the difference between business and non-business. At that time, however, the case of Wakefield College, had yet to run its course, but was not looking promising, and was based on somewhat different circumstances. Nevertheless, has giving us yet another view as to what ‘non-business’ really means.
in its argument, HMRC suggested that about 50 other cases, involving approximately £120m of VAT, would be affected by this decision. The Court made some interesting comments, derived from reading the French version of the Finland and Borsele cases, and said whether there is a supply for consideration and whether that supply constitutes an economic activity are two separate questions. A supply ‘for consideration’ is necessary, but is not sufficient in itself for an actvity to be an ‘economic activity’. The first condition requires the payment to be made under a legal relationship with reciprocal performance between the supplier and the recipient, i.e. the ‘direct link’. The economic activity condition means also showing that the supply is made ‘for the purpose of ‘obtaining an income. But ultimately the Court decided that here the “direct link” test was met anyway, because the fees were not means-tested.
Thus it seems likely that the position after Longridge remains, i.e. that the only use that is not to be regarded as ‘business’ is in cases where there is no ‘remuneration’ (for which read payment or ‘consideration’). Unfortunately HMRC may now be likely to argue that, even in very small operations where below-cost payment is received, (such as in the cases of St Pauls and Yarborough nurseries) construction services may not qualify for relief. It also leaves many in much the same place they were at the end of the Longridge litigation, although we shall wait and see whether imaginative use of this new theory gives rise to more favourable future court decisions.
The self-supply rule applies where there is a construction of a building or an extension to an existing building – the extension increasing floor space by at least 10%.
The value of the construction services must be over £100,000 in a year for this self-supply rule to apply.
The self-supply rule basically calculates output tax on the open market value of the construction services and so this output tax has to be accounted for by the business on the VAT return.
By the same token, this output tax forms input tax which the business can recover in the normal way so, if it uses the building to make taxable supplies in any way, then that proportion of input tax can be recovered.
The self supply rules effectively puts the trader in the same position as if they had engaged the registered contractor.
Please note that you may face penalties.
30% careless, 70% deliberate -through its possible to get reductions:
Delayed tax payments= 5% of Potential lost revenue.
Note for past errors you have two options (after netting off the errors)
(i) to correct the errors on the next VAT return of the errors less than £10k or 1% of turnover (max £50k)
(ii) if more, then you need to make a voluntary disclosure to HMRC.
Hope this helps.
Donation and grant income is not consideration for a supply and is a non-business activity that falls outside the scope of VAT. This is because this income is freely given with no strings attached and is treated by the charity as a gift.
However a grant or donation that have conditions attached to them which is a in return for the payments are taken as consideration and VAT on them.
If the conditions attached do not necessarily make it consideration for a supply because nothing specific is being provided to the funder, then they still are non-business.
HMRC says that a limited cost trader is a business that buys only a few goods. More specifically, a limited cost trader’s spend on goods, including VAT, in a quarter is:
-less than 2% of its VAT-inclusive sales for that quarter,or
-more than 2% of its VAT-inclusive sales for that quarter, but less than £250This figure should exclude the cost of assets not used the following items:
food and drink for the business or its staff
capital expenditure
vehicles, vehicle parts and fuel (unless your business uses its own vehicles in the transport business, for example if you run a taxi hire firm)‘relevant goods’ are exclusively for business, hence staplers, hole punchers, paper etc that used at your home office are UNLIKELY TO QUALIFY as revelant goods under strict application of the law. However letterheaded paper will.
VAT is charged on either monetary or non-monetary consideration. IF:
• Barter trade cases
-subjective but what seller would have paid if monetary; not possible to defer VAT if goods are supplied,
-tax point delivery or <14 days’ invoice.( see Naturally Yours Cosmetics case)• No consideration
-check deemed consideration eg gifts to staff or own use; money’s worthBy default, supplies of goods and services (made in the UK, by a taxable person, in the furtherance of a business) are subject to the VAT which can be standard rate of 20%, zero rated (nil rate) or exempt on monetary equivalent of the consideration.
Under the CGS rules all of the expenditure on the building (£1 million) is the value for CGS purposes. As the CGS threshold for buildings remains at £250,000, the input VAT claimed needs to be clawed back over the 10 year period depending on the use.
You can find more information on CGS on HMRC website.
I suggest a full analysis of income should be carried out to ensure that the taxable, exempt and non-business income is properly classified and you review which PE method suits you.
When that data has been evaluated, an accurate assessment can be made as to whether the floor space method or an alternative partial exemption special method is suitable.
The floor space method works by considering how much floor space is used in making taxable supplies compared to the total floor space used for making taxable and exempt supplies. The floor space given over to common areas such as cloakrooms, toilets, staff rooms, office areas and corridors etc. is excluded from the calculation.
I agree HMRC have historically been opposed to methods based on floor space. There are a number of cases in which the taxpayer has been unsuccessful including e.g. Vision Express (UK) Ltd [2009] and Aspinalls Club Ltd (LON/99/540 [1999].
However, a more recent case involving London Clubs Management Limited (“LCM”) [2011] EWCA Civ 1323 held that a floor space method was acceptable for that particular casino. LCM was successful in the First and Upper Tier Tax Tribunals, as well as the Court of Appeal. Whilst that is encouraging, it must be noted that judgment specially mentioned that the case was fact specific to the taxpayer involved. It cannot therefore, automatically be assumed that what was acceptable for LCM will be suitable for you.
Its also worth noting that changing the PE method to some special method takes ages and HMRC requires a lot of supporting documentation to support your assertions.
Hence all this should be reviewed – looking to the cost vs benefit of the change.
Project Management is key to ensure a building site is run smoothly, someone has to manage the processes. ZR applies to all services except professional fees like Architect fees, surveyors etc. In my view, you could ZR esp if supplied with material, otherwise SR.
This should not make much of a difference if the project manager is VAT registered (except Cashflow).
Regards
According to HMRC website, holiday accommodation includes, but is not restricted to, any house, flat, chalet, villa, beach hut, tent, caravan, or houseboat. Accommodation advertised or held out as suitable for holiday or leisure use is always treated as holiday accommodation. There may be a restriction under which occupation of the property throughout the year is not permitted, but this will not always be the case. Residential accommodation that happens to be situated at a holiday resort is not necessarily holiday accommodation. For details of how to treat off-season letting see paragraph 5.6.
Sale of the property:
If it is a new dwelling (,3 years) with no occupancy restrictions, the first sale or grant will be zero-rated for VAT purposes as it can qualify as a dwelling. If new and occupancy restriction then its standard rated and you must account for VAT on the initial charge, and on any periodic charges such as ground rents and service charges.if you sell it after 3 years of letting (no longer a new building building) then its sale is normally exempt from VAT.
Exempt sale means you cannot recover input VAT or HRMC has to clawback input tax claimed.Conversion works:
If you are converting a non-residential building (or refurbishes a residential property that has been empty for two or more years) for use as holiday accommodation, the work can qualify for the reduced rate of VAT at 5%.First grant of major interest in land/properties which are dwellings is Zero Rated (ZR). The input costs incurred is fully recovered except on white goods. Some of the items you listed are ZR by suppliers and others like materials on their own, professional fees, white goods etc are Standard Rated (SR).
A change of use is subject to a claw-back adjustment. In cases of Briararch and Curtis Henderson, the clawback is split between the lease period say (3 years) and the subsquent taxable sale. HRMC tends assume house life span is 10 years and hence input VAT is split 3:7, and 3/10 of the input tax is clawed back.
To avoid this clawback, the developer can consider a sale of the houses to a group company which will be ZR. The new company cannot be part of the VAT group since supplies between vat group members are outside scope of VAT and could therefore not be ZR. The sale of properties to a group company would attract SDLT unless group relief is claimed.
The company can lease the properties and rentals are exempt and related input VAT not recovered. No SDLT is payable on short term leases. This is not considered abusive following the principles of Halifax case (ie are the result the intended by VAT legislation = yes as dwelling are ZR).
VAT:
Sell of the 6th property is first grant of major interest of a dwelling and hence zero rated.Purchase of existing property, letting and its eventual sale are VAT exempt and the related VAT costs cannot be recovered unless its under deminus level.
SDLT:
FA 2003 Sch 6A, exempt SDLT on acquisition by property developer from individual acquisition new building if the conditions below are met:
– New building being sold to individual
– New building to be used as main residence
– Old building previously occupied as main residence at some time in the last 2 years
– Developer does not acquire area of land at old building beyond permitted area
–This is quite complex but i will try to answer in simple language.
OUTPUT VAT
Firstly, VAT is due on the sell of furniture for cash £15k plus advertising services received.1. Cash payment:
VAT is due on the full £15k on the tax point which is on sale completion or invoice date (if invoice is issued within 14 days). You cannot defer VAT payment on the installment payments.2. Advertising services:
Note consideration is made up of monetary and non-monetary values. In this case non-monetary consideration is not agreed in advance i guess. VAT case abt Naturally Yours Cosmetics (where the tax payer was selling cosmetics products to party hostesses) is your guidance on non-monetary considerations. Consideration should be assessed from the recipient of the consideration ie company X which could be the cash equivalent or value of the advertising services the company would normally charge. The value is VAT-inclusive amount and hence VAT is 1/6 of the amount.Hence the invoices on furniture will include both cash and advertising services and this is issued to X at outset.
INPUT VAT
Since Y is getting advertising services (these are not FREE). A value has to be attributed to the services which i guess is the total value of furniture less the cash payment as shown above. Normally such a service which is provided continuously, the tax point is the earlier of invoice date or payment. However given that Y has already invoiced this (cash payment plus advertising), the cash payment is taken as an advance payment and hence tax point is at outset.VAT RETURN & CASHFLOW
Y will record output tax for total consideration and input tax on the advertising services provided by X.Cash received at outset of £3k may be used to make the net VAT payment.
