Savings with Tax Dis-Application

In certain circumstances, businesses can take advantage of the option of disapplied tax, often in cases where an existing commercial structure is going to be converted into a residential building e.g. a pub due tobe converted into flats.

We have dealt with a variety of cases where tax dis-application has been of assistance :

1. A client came to us after a vendor they were purchasing a property from added VAT of some £35,000 in the final stages of the process. 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 – we can offer bespoke advice on this
2. A client did not realise that the option to tax should have been disapplied to another pub purchase and paid ‘VAT' of £100,000. The vendor has refused to repay this and HMRC will not allow VAT recovery, leaving our client in an unenviable position – our advice again is to take VAT advice so our advice is take advice early and plan.
3. Where there are connected parties and one is unable to recover at least 80% of VAT 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 £250,000 VAT recovery by routing the purchase through the trading company instead.

Sale of Buildings

Always consider the history of the building over 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 £1.35 million is to declare sales on a cash received basis, and purchases on a cash paid basis. Doing so 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 – we advise annual accounting for any business with turnover over £1.35 million

Flat Rate Scheme

This scheme is useful for businesses with a turnover of less than £150,000as it simplifies VAT and also can make savings.Our advice is it is worth seeing whether using this will achieve actual savings by undertaking a cost/benefit exercise, and we can help with this.