Land and Property Development
Goods and services
The implications of a land or property transaction can vary depending on whether it involves a supply of goods or a supply of services. The distinction between these is significant because it determines the time that VAT becomes due. It is important for any transaction to be defined in this way from the start.
The grant, assignment or surrender of major interest in land or property is a supply of goods, whereas any other land or property-related supply is likely to be regarded a supply of services. The basic tax point is the time that they are first made available. This can be different from the state of invoice or payment.
Usually, the basic tax point for services is when the service is completed. However, there are special rules for any continuous supplies (such as rent) and specific provisions for construction services supplied under contract providing for staged payments. There are also anti-avoidance measures relating to stage payments, which can have significant implications for contractions with long retention periods.
Due to the complicated nature of land and property transactions, it is vital that all issues are addressed at an early stage, while being accurately reflected in the legal documentation.
Liability of supplies
Land or property transactions can be subject to VAT at different rates. Items can be exempt from VAT, attract VAT at a number of rates or be outside the scope of it altogether. While some of these items may be similar, they have subtle differences, especially when it comes to the recovery of VAT on related expenditure.
Although no VAT is due when a land or property transaction is exempt from VAT, the individual making the supply will be unable to recover the related input tax. In contrast, a transaction that is zero-rated for VAT purposes will not be subject to output tax either, although an input tax recovery may be possible.
When can a construction project/service qualify for zero-rated VAT?
The construction of a new building is usually subject to VAT. However, zero-rating may be granted if the building constructed qualifies for relief.
VAT law outlines qualifying buildings as:
A building designed as a dwelling or a number of dwellings
A building that will be used solely for a relevant residential purpose
A building that will be used solely for a ‘relevant charitable purpose’ (for non-business use or as a village hall)
A new building will normally only qualify for zero-rating if any existing structures are demolished, excluding foundations and basements.
For more information on qualifying buildings, read section 3.2.1 of VAT Notice 708 .
Do certain building materials qualify for a reduced rate?
The supply of installing energy-saving materials, such as solar panels, insulation and wind turbines attracts the reduced rate of VAT (5%) if made by installers and the supply is provided in relation to ‘residential accommodation’ or in a building intended for ‘use solely for a relevant charitable purpose’.
However, the European Court of Justice has ruled that this relief is in breach of EU laws and the UK could face penalties if the VAT liability does not change.
It is therefore expected that, as a direct outcome of this case, the VAT rate for the installation of energy-saving materials will be subject to the standard rate of 20% at some point in the future. However, any VAT increase would not have retrospective effect and would not affect anyone who had already ordered the installation of such materials.
Does roofing material qualify for 5% VAT?
The Upper Tier Tribunal allowed HMRC’s appeal against the First-tier Tribunal’s decision that conservatory roofs installed by Pinevale Limited qualified for the reduced rate of VAT as “energy-saving materials” amounting to “insulation for roofs”. The produce comprised a polycarbonate cellular material in aluminium frames that, when installed, comprised the (insulating) roof of the conservatory and was claimed to provide significant energy savings when compared to other forms of conservatory roofs.
When installed, it replaced the conventional roof on a new or existing conservatory. The First-tier Tribunal decided that this amounted to ‘insulation for roofs’, but the Upper Tribunal disagreed. The Upper Tribunal preferred a narrower interpretation of the VAT relief and agreed with HMRC’s argument that the term ‘insulation for roofs’ did not extend to the roof itself, whatever its insulating qualities.
HMRC’s appeal against the First-tier Tribunal decision was therefore allowed.
Does the supply of goods and services impact land and property transactions?
Land and property transactions can vary depending on whether they involve a supply of goods or a supply of services. The distinction between these is significant as it determines the time that VAT is due. Any property transaction should be defined in this manner from the start.
The grant, assignment or surrender of major interest in land or property is the supply of goods, whereas any other land or property-related supply is likely to be regarded a supply of services.
The basic tax point for services is when the service is completed. However, there are special rules for any continuous supplies for specific provisions for construction services supplied under contract providing for staged payments.
There are also anti-avoidance measures relating to stage payments, which can have implications for contracts with longer prevention periods.
Relevant residential purpose
This term is used a lot in land or property transactions, and encompasses a number of potential uses. Usually, it means institutional buildings, which provide residential accommodation for their residents, for example, a care home. It does not include any building used as a hospital or a hotel.
It is generally for the recipient of the grant to certify their status to the supplier, which will therefore award relief for VAT. The timing of when this notification is issued is vital, as is the continued use of the property for the specified purpose.
Qualifying services provided can be zero-rated, as long as the following conditions set by HMRC are met:
A qualifying building has been, is being, or will be constructed
Your services are made in the course of the construction of that building
Where necessary, you hold a valid certificate
Your services are not specifically excluded from zero-rating
How we can help
The VAT People can help to ensure your business is paying the right amount of VAT on land or property transactions. Our extensive knowledge means we can also advise on where you may be paying too much VAT, as well as discussing any reliefs available to you.
Contact us by calling 0161 477 6600, or fill out an online contact form and we will be in touch.
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