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If you’re involved in residential property developments, make sure you’re not paying too much VAT on development costs. VAT recovery can often be an issue on residential projects, so better make sure you’re not paying too much.
There are numerous VAT reliefs available for residential developments. Although VAT zero-rate is usually reserved for new builds, the 5% VAT reduce-rated applies to the development of existing properties and is much wider in its scope than many realise.
There is also a 4-year window within which to make adjustments, so even if 20% VAT has already been charged, all is not lost.
We regularly assist developers obtain retrospective VAT refunds from contractors who were not aware that the reduced-rate of VAT applied to the work they were doing.
This isn’t the end of it, either, because even if the amount of VAT paid is reduced, there could still be ways of minimising restrictions to VAT recovery. For example, we recently assisted a client recover a significant amount of VAT from HMRC that the client had thought was irrecoverable. Even though the 5% reduced rate of VAT had been applied by the contractor to the costs, the client had assumed that the VAT was irrecoverable because the properties it had converted into residential spaces had been let on (VAT exempt) short term lets.
However, we presented a proposal to HMRC that included the long-term plans for the development, not just the current and short-term activities, which HMRC agreed to, resulting in full VAT recovery for the client.
Tips for Online Sellers
If you are a UK business selling to consumers in the EU, make sure you understand how recent changes to the EU VAT rules applying to the sale of consumer goods impacts on UK suppliers.
Brexit has thrown a few spanners in the works for most UK businesses trading with the EU, but a recent revamp of the EU VAT rules applying to the sale of consumer goods into and across the EU from 1 July 2021 has introduced further issues to UK sellers, particularly those selling online.
Because there is no longer a sales threshold to be reached before UK businesses selling to consumers in the EU have to register for VAT in the EU, many are now faced with the decision of whether to register for EU VAT or simply stop selling to the EU. Many have chosen the latter.
The requirement to register in the EU only applies in relation to consignments that are valued at no more than €150, and although there are alternative delivery options that can avoid the need to register for VAT in the EU are available, it has become clear in practice that freight businesses and tax authorities are not making it easy for sellers to adopt alternative approaches.
There are also new VAT rules that apply to sales through Online Marketplaces such as Amazon and eBay, so you need to be aware of these too.
The recent changes are also having a significant VAT compliance impact on ‘drop shipped’ deliveries to EU consumers, which are a popular option for online sellers, so the impact of the changes needs to be considered if these arrangements are to continue.
Our team would be happy to help you understand the potential impact of all the above changes. Not only are we able to advise you on VAT requirements in the UK, the EU and beyond, we also have a network of business partners that enables us to provide global VAT compliance services, from VAT registration through to VAT returns and dealing with overseas tax authorities.
If you have any questions about this article or VAT advice in general, please do not hesitate to get in touch.
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