January 2009


Property developers facing tax shock

In the current climate, a house builder who may not be able to sell a house immediately might choose to let it until the market recovers. The problem here is that the builder could become partially exempt. The sale of a newly-built house is zero-rated, meaning that full input tax recovery on the cost of materials and other expenses is possible; the rental of a house is exempt, with the result that input tax becomes non-deductible.

HMRC have issued Information Sheet 07/08 giving builders in these circumstances guidelines. Housebuilders who are not already partially exempt have to carry out a simple ‘de minimis' check based on the length of the intended letting and the amount of input tax incurred on construction. If this ‘de minimis’ test is failed, the housebuilder will have to apply the partial exemption rules and must perform quarterly calculations to restrict the amount of input VAT which can be recovered.

The impact of this will be significant. Many housebuilders who are unaware of the rules could be faced with the daunting prospect of having to repay input tax that they have already recovered.

UK Training's VAT and Property seminar explains the implications of partial exemption on housebuilders.

The UK Training seminar, The Essential Guide to VAT and Property, will help people achieve a complete understanding of the rules and regulations of VAT and property transactions. The course will benefit people responsible for accounting for VAT within their organisation and it will also benefit people who deal in and advise on property transactions. It reviews the major effects that property transactions have on VAT, and it clearly illustrates the procedures and controls to be implemented to comply with the requirements. It clearly demonstrates when particular property transactions should be treated as exempt and when they should be zero-rated, reduced-rated or standard-rated. It will also highlight for you the many pitfalls that can be avoided if proper consideration is given to the VAT implications before you commit your organisation to a contract that involves property transactions – too often people do something to reduce their VAT liability without appreciating the implications it has on other forms of taxation.

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