Housing developers who may already be having difficulty selling completed houses have been dealt another blow by HMRC.
House builders who intend to sell their newly constructed houses are entitled to reclaim all of the VAT on the build. However, some builders are finding that the slowdown in the housing market is making it difficult to shift their properties, and have made the tough decision to rent them out until the market picks up.
HMRC have picked up on this, and have issued a briefing telling builders that if they rent new properties out they may have to repay some of the VAT that they have claimed during the build. This is because property letting businesses are not automatically entitled to reclaim VAT on their building and general costs. These rules apply even if the letting is only temporary.
Faye Armstrong, of Dodd & Co Chartered Accountants said “The builders affected by these rules are being dealt a double blow to their cash-flow: Firstly from not being able to sell their properties, and secondly by having to repay a chunk of input VAT to HMRC”.
The amount of VAT to be repaid will depend on the rent charged, the property’s expected selling price and the amount of VAT that was reclaimed on the build, but Faye Armstrong gave some reassurance to businesses affected, saying “We have been able to use a special allowance given by HMRC to prevent some builders repaying their VAT”. She added “The problem is, that the special allowance is quite complicated to work out, and I’d recommend anyone who is thinking about renting their property to contact me or their own VAT advisor as soon as possible so we can plan how best to avoid repaying the VAT”.
Even after the initial clawback of VAT, house builders’ VAT problems may not be over, as “partial exemption” calculations will have to be prepared for as long as the property is rented out. If the rental income or the amount of VAT that the business reclaims each year is large, then the builder may be unable to reclaim all of its input VAT for as long as the property is rented out.
To discuss how this affects your business, please contact Faye Armstrong. |
