Specific Planning
Option To Tax Dis-Application
In certain circumstances an option to tax is disapplied and this includes where an existing building is intended to be converted to residential use. The option can remain in some instances but generally is disapplied where a commercial premises, e.g. a pub, will be converted to new residential such as flats.
Always plan as we have had a number of recent examples where this helps:
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A client came to us stating the vendor had at the 11th hour notified him that the property sale for £200K was plus VAT (£35K). The premises was an old pub which our client was to convert to new residential for renting out. The VAT charge could not be recovered and in fact should not be charged so our advice was that the VAT should not be paid. Depending on the vendor's VAT position this may cause them a VAT loss so our advice is that our client should negotiate.
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A client did not realise that the option to tax should have been disapplied to another pub purchase and paid ‘VAT' of £100K. The vendor has refused to repay this and HMRC will not allow VAT recovery so our advice is take advice early and plan.
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Where there are connected parties and one of which is unable to recover at least 80% of VAT it incurs then the option to tax may be disapplied. This happened recently for a client of ours that was looking to purchase a property individually and rent to its partly exempt business that could only recover 65% of its VAT. We reviewed the position and secured £250K VAT recovery instead of nil by routing the purchase through the trading company instead.
Sale of Buildings
Always consider the history of the building for the last 10 years since the sale of a property which is a Capital Goods Scheme item can result in unnecessary repayments of VAT if not dealt with correctly.
Cash Accounting
A very useful scheme for business with a turnover not exceeding £1.35M in that sales are declared on a cash received basis, purchases on a cash paid basis. Effectively gives automatic VAT Bad Debt Relief.
Annual Accounting
A seldom used scheme but one which is good for expanding businesses as it assists the management of cash flow - again for business with turnover over £1.35M
Flat Rate Scheme
For businesses with a turnover of less than £150K, this scheme is useful as it simplifies VAT and also can make savings although our advice is it is worth seeing whether using this will achieve actual savings by undertaking a cost / benefit exercise.
