Tag Archives: vat-building

VAT: Buildings and construction update

By Marcus Ward 1 February 2024

HMRC has amended Notice 708 which covers:

when building work can be zero-rated or reduced-rated at 5%
when building materials can be zero-rated or reduced-rated at 5%
when the sale, or long lease in a building is zero-rated
where you can find out more about the VAT domestic reverse charge for building and construction services
when developers are blocked from deducting input tax on goods that are not building materials
when a builder or developer needs to have a certificate from their customer, confirming that the building concerned is intended to be used for a purpose that attracts the zero or reduced rate
when a customer can issue that certificate to a builder or developer
what happens when a certificated building is no longer used for the purpose that attracted the zero rate, the use for that purpose decreases or the building is disposed of
the special time of supply rules for builders
when a business, on using its own labour to carry out building work on a building or civil engineering structure that it occupies or uses, must account for a self-supply charge

Sections 18.1 and 18.2 of the Notice and the certificates in those sections have been updated to show they have force of law under The VAT Act 1994, Schedule 8, Group 5, Note 12.

VAT: Doctors and healthcare professionals

By Marcus Ward 16 January 2023

Healthcare services – an overview

I have noticed that I am receiving more and more queries in this area and HMRC does appear to be taking an increased interest in healthcare entities. This is hardly surprising as it can be complex and there are some big numbers involved.

(This article refers to doctors, but applies equally to most healthcare professional entities including; opticians, nurses, osteopaths, chiropractors, midwives, dentists etc.)

The majority of the services provided by doctors’ practices are VAT free. Good news one would think; no need to charge VAT and no need to deal with VAT records, returns and inspections.

However, there is one often repeated question from practices; “How can we reclaim the VAT we are charged?” This is particularly relevant if a practice intends to spend significant amounts on projects such as property construction or purchase.

The first point to make is that if a practice only makes exempt supplies (of medical services) it is not permitted to register for VAT and consequently cannot recover any input tax. Therefore we must look at the types of supplies that a practice may make that are taxable (at the standard or zero rate). If any of these supplies are made it is possible to VAT register regardless of their value. Of course, if taxable supplies are made, the value of which exceeds the current turnover limit of £85,000 in a rolling 12-month period, registration is mandatory.

Examples of supplies of services and goods which may be taxable are:

drugs, medicines or appliances that are dispensed by doctors to patients for self-administration
dispensing drugs against an NHS prescription (zero-rated)
drugs dispensed against private prescriptions (standard-rated)
medico legal services that are predominantly legal rather than medical – for example negotiating on behalf of a client or appearing in court in the capacity of an advocate
clinical trials or market research services for drug companies that do not involve the care or assessment of a patient
paternity testing
certain rental of rooms/spaces
car parking
signing passport applications
providing professional witness evidence
any services which are not in respect of; the protection, maintenance or restoration of health of a patient.

So what does VAT registration mean?

Once you join the “VAT Club” you will be required to file a VAT return on a monthly of quarterly basis. You may have to issue certain documentation to patients/organisations to whom you make VATable supplies. You may need to charge VAT at 20% on some services. You will be able to reclaim VAT charged to you on purchases and other expenditure subject to the partial exemption rules – see below. You will have to keep records in a certain way (see MTD) and your accounting system needs to be able to process specific information.

Because doctors usually provide services which attract varying VAT treatment, a practice will be required to attribute VAT incurred on expenditure (input tax) to each of these categories. Generally speaking, only VAT incurred in respect of zero-rated and standard-rated services may be recovered. In addition, there will always be input tax which is not attributable to any specific service and is “overhead” eg; property costs, professional fees, telephones etc. VAT registered entities which make both taxable and exempt supplies are deemed “partly exempt” and must carry out calculations on every VAT return.

Partial Exemption

Once the calculations described above have been carried out, the resultant amount of input tax which relates to exempt supplies is compared to the de-minimis limits (broadly; £625 per month VAT and not more than 50% of all input tax). If the figure is below these limits, all VAT incurred is recoverable regardless of what activities the practice is involved in. More details here.

VAT registration in summary

Benefits

recovery of input tax; the cost of which is not claimable in any other way
potentially, recovery of VAT on items such as property, refurbishment and other expenditure that would have been unavailable prior to VAT registration
only a small amount of VAT is likely to be chargeable by a practice
may provide opportunities for pre-registration VAT claims

Drawbacks

increased administration, documentation and staff time
exposure to penalties and interest
may require VAT to be added to some services provided which were hitherto VAT free
likely that only an element of input tax is recoverable as a result of partial exemption
uncertainty on the VAT position of certain services due to current tax cases
potentially dealing with the Capital Goods Scheme (CGS)
possible increased costs to the practice in respect of professional fees.

Please contact us if any of the above affects you or your clients.

VAT Domestic Reverse Charge technical guide

By Marcus Ward 12 December 2022

An overview of the Domestic Reverse Charge (DRC) here.

HMRC has published amended guidance on the DRC. The main change involves the supply of scaffolding on zero-rated new build housing. The guidance confirms the change to HMRC’s previous policy and that there will be transitional period up to 1 February 2023 where businesses can use either reverse charge accounting or normal VAT rules.

VAT: Roof panels are not insulation. The Greenspace case

By Marcus Ward 2 December 2021

Latest from the courts

In the Upper Tribunal (UT) case of Greenspace Limited the issue was whether insulated roof panels were “energy-saving materials” per VAT Act 1994, sect 29A, Schedule 7A, group 2, items 1 and 2 and thus liable at the reduced rate of 5%. Or rather at the standard rate of 20% on the basis that they were a supply of a roof itself.

Background

The appellant supplied and installed roof panels for conservatories which comprised a layer of close-cell extruded polystyrene foam (Styrofoam) around 71mm thick. The Styrofoam was covered with a thin aluminium layer and a protective powder coating which are together around 2mm thick. The supplies were made to residential customers and the panels were fitted onto their pre-existing conservatory roofs. The Panels were slotted into place on the existing roof structure and Greenspace did not replace its customers’ existing roof framework when doing this; the struts and glazing bars that supported the previous glass or polycarbonate panels were left in place. Consequently, the Panels were not self-supporting and could only be used if the customer already had an existing conservatory roof structure.

The decision

The First-tier Tribunal (FTT) decided in 2020 that the panels were not “insulation for a roof” but were a new roof in their own right, and that the appellant’s supplies did not therefore qualify for the reduced rate of VAT (unlike insulation that could be separately attached to a roof, the panels actually formed the roof).

The UT dismissed the new appeal and found that the FTT had not been obliged to compare the roof after Greenspace had installed its panels to the original roof. The frame that was retained could not itself be described as a roof, and the provision of the Thermotec panels which made the conservatory weatherproof as well as insulating it could properly be categorised as the provision of a new roof.

One of Greenspace’s grounds of appeal was that the FTT decision was vitiated by the assumption that because the panels took the form of roof coverings, they were necessarily incapable of constituting “insulation for … roofs”. The appellant argued that as this was a flawed assumption (that Greenspace’s supplies “must” be treated as something more than insulation) the decision should be set aside. This contention was rejected by the UT judge.

Commentary

A fine distinction is often required to be made to establish the correct VAT treatment of a supply. In this case a degree of semantics was required to determine whether the panels were energy-saving materials (even when they certainly saved energy). On such small things turned the assessment of £2.6 million here. It always pays to double check VAT treatments rather than making assumptions.

VAT: Domestic Reverse Charge for construction services from 1 March 2021

By Marcus Ward 17 February 2021

A reminder

The twice delayed introduction of the Domestic Reverse Charge (DRC) for the construction industry will be introduced from the first of next month and affected businesses need to have the necessary procedures in place – as it won’t be deferred again.!

Details of the scheme here and here.

Please contact us if you have any queries.

VAT: Land and property – A “fun” quiz

By Marcus Ward 26 July 2019

VAT: Land and property

I am quite often asked the seemingly straightforward question: Can I recover VAT on this land purchase? So, by way of a little quiz, I look at why this can be a loaded question.

Background

A person purchases bare land in the UK for £450,000 which is subjected to the option to tax. So, VAT of £90,000 is incurred. Your task, should you wish to accept it, is to say yes, no, or maybe to input tax recovery in the following situations (assume the purchaser is VAT registered).

Questions

On the purchased land the person constructs:

a dwelling and supplies the house on a 25-year lease
an office and uses it for his own business supplying FS to a client in China
a storage facility and a fully taxable company leases it to another company in the same partly exempt VAT group after opting to tax
a block of ten flats with a gym and swimming pool which tenants are entitled to use. Grants 99 years leases on all flats
a dwelling but uses it for short term holiday lets of no more than a fortnight.
a warehouse which is sold on completion but without an option to tax being made before the sale
the land is held with the intention of constructing dwellings at some time in the future, which could be over six years
a factory which is not subjected to an option to tax but is leased to an US company
a block of three flats which are rented for six months before freehold sale
a sport hall by a school Academy which is leased to sporting charities and also used for its own educational purposes. No option to tax
a manufacturing plant which a company rents to a connected (non-VAT grouped) party which makes and sells toys. The option is taken
a car showroom and offices which a company uses for its own business of selling cars, providing finance and brokering insurance
a care home for the elderly which a company uses for that purpose
a small cabin office and the remaining land is used for a forestry business which will have no sales for ten years (when the trees are grown)
a residential block which is immediately transferred to an associated company (an arm’s length transaction) on completion. No tenants are in situ.

We are looking at recovery of input tax on the land purchase here, ignoring other (say; construction and professional) costs. That is another article in itself.

The questions have been simplified, usually, they tend to be rather more “involved”.

Answers

…soon!