In a series of posts, Zaenia Rogers of the tax practice The VAT Consultancy unravels some of the complex VAT rules governing listed buildings. In this post, Zaenia shows how you can save on your project costs through careful planning.
People are still investing time and money in restoring Britain’s listed properties despite the economic downturn. This we know from the increasing number of projects we are being engaged to advise on.
So we thought it was timely to shed some light on the complex combination of legislation and case law when it comes to VAT and listed buildings, highlighting not only some of the problems we encounter, but also how, with a bit of careful planning, they can achieve a reduced rate of 5% or zero-rating on VAT.
A typical case for us will entail a client who owns a listed dwelling with various outbuildings. They want to embark on major alteration and repair works.
Here are the top five pitfalls we see property owners fall into and some expert advice for avoiding them:
1. Planning and Listed Planning Consent wording too specific:
One of the loops to jump through before zero-rating may be achieved (i.e. this is where your builder can charge his services to you with no VAT), is to comply with the criteria that states the ‘alterations’ are covered by the listed planning consent. A specifically worded consent may therefore lead to many problems in VAT terms, therefore careful upfront planning on the wording required is imperative.
2. Contractor’s liability:
The VAT liability will be that of your contractor and therefore careful negotiation with them is the key to ensuring that they agree with your project breakdown.
3. Separate outbuildings issue:
This is complex and so is a common area of error for contractors. In some cases the contractor may assume that, as the outbuildings are also listed, the same rules apply for VAT purposes. Although this view is incorrect, it would be beneficial for any property owner engaging the contractor! However, be warned. Some contractors may have clauses in their contracts to allow them to recover VAT from their clients where too little was originally charged so keeping silent when the contractor has the liability wrong is not always the best course of action. On many large projects our clients are keen to make sure the final invoice lays the VAT issue to rest.
4. Buying direct:
Many property owners are keen to order many of the specific items for their property themselves. In a recent case, a client was about to order their fireplaces direct from a supplier who would not also install them, it would be the main contractor who would do so. The fireplace was an approved alteration due to the fact it was being ‘opened up’. The best advice for the client here was to make sure the main contractor had the invoice made out to them and then he could supply on the fireplace as part of the zero-rated approved alteration. If the client had purchased this personally they would have been charged VAT which they would have been unable to recover. As the main contractor was making a taxable supply, they themselves could recover the VAT and supply on with installation to the client with zero VAT.
5. Explore other VAT rates:
Some clients are happy to achieve zero rating from the builder on part of the overall project (100% is unlikely to ever be achieved as certain items such as carpets, repairs or architects fees are always standard rated). However, a recent project showed the benefits of having an expert view. We reviewed a project that had already been analysed into zero and standard rated items. The split was 40% zero rated, the rest standard. However, on review we also applied the reduced rate, currently 5% (in this case applicable because the property had been empty for the last 2 years). This meant that 60% of the project should have been at 5% VAT, saving 12.5%, c£90K, for this particular client!
I would always advise careful tax planning right from the beginning. It is best to be clear with a contractor up front as to where liability lies. That will not only ensure everyone knows what they are responsible for, but will also stop VAT becoming an issue later on. Believe me, with building work always a disruption for the property owner, you will want to have as much peace of mind as possible.
In future posts, Zaenia will discuss specific technical terms and what they mean for a property owner.
The VAT Consultancy has been recognised as The Best Tax Team in a Boutique Firm at the Taxation Awards. For more information, call 01962 735350 or visit www.thevatconsultancy.com.
The VAT Consultancy is a member of ProjectBook, which has been created to help owners of listed or period properties understand how their buildings work and to help them find appropriate craftsmen, products and specialist information. The online Heritage Register contains over 540 registered businesses, the largest directory of its type in the UK. For more information, visit www.projectbook.co.uk.
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