VAT Connect – March 2016

March 31, 2016

 Scope of VAT relief widened on mixed-use property conversions

The decision in a recent Tribunal case brings good news for developers that convert properties with both existing residential and non-residential parts.

It has long been HMRC’s view that the sale of converted mixed-use properties (where there was both non-residential and residential parts) to form new dwellings do not qualify for zero-rating when sold because they had been a residence before.  This meant that developers made an exempt sale, and were left with an irrecoverable VAT cost that reduced their profit.

In the recent case of Languard New Homes Limited, the First Tier Tribunal found that the conditions were being misinterpreted, and narrowing the scope of the law’s intention which was to encourage the development of new housing.

The Tribunal’s decision sets another precedent in allowing zero-rating of the sale of new homes if they were part of a conversion where the original use of the property was part-residential and part commercial, so long as the whole of the conversion increases the number of dwellings that existed before.  This, in the Tribunal’s opinion, is the correct interpretation in the context of the social purpose that the rule sets out to achieve.

The Tribunal’s interpretation is great news for any property developers that take on mixed-use properties to convert to dwellings and sell.  For those that have converted something similar in the last 4 years and did not recover the VAT, you may be entitled to make a retrospective claim.

The Tribunal’s decision can be read in full on their website here.

he hidden meanings in your planning consent

In another recent property case, the Upper Tribunal has denied a fisheries business input tax incurred on the construction of a house on the estate. 

Mr Burton built the ‘occupational dwelling’ to be used as a home by a full-time employee (and their family), and after reviewing the planning consent, the First Tier Tribunal allowed his input tax claim on the basis that the separate use and disposal of the house was not specifically prohibited in the planning permission (one of the main conditions when recovering VAT on the construction of a new dwelling).

However, the Upper Tribunal has determined that the conditions laid out in the planning consent, whilst not specifically prohibiting the ‘separate use or disposal’, must be interpreted to provide a direct link between the new house and the business premises, which amounted to a ‘prohibition on separate use’.  Mr Burton’s claim of input tax therefore fell outside the conditions under the rules that would allow him to recover the VAT cost.  The full decision can be read on the Tribunal’s site.

Our VAT Team regularly provide detailed guidance on construction projects.  Since any error can add 20% to costs, it is always important to ensure VAT is considered early in construction projects.

Is the extent of your livery ‘ancillary’?

A Tribunal case has decided that leaving straw and access to rainwater for cattle did not amount to a high enough level of care that falls within the definition of ‘livery’.

In the case of David and Ann Owen, they let sheds to neighbouring farmers to house cattle, and treated their charge as an exempt supply of stabling.  During a VAT inspection, HMRC took the view that the cattle received more than just accommodation; they received “bed and breakfast”, and as such the whole of the charge was for standard-rated livery services.

In hearing the case, the Tribunal found that the extent of ‘livery’ was to place straw in front of the cattle when required, and allow the cattle access to rainwater which had gathered.  The Tribunal decided that this was not ‘livery’, or looking after them properly, and was therefore ancillary to the exempt supply of stabling.  The full decision can be read here.

Road Fuel Scale Charges

If your business accounts for the private use of fuel using HMRC’s Fuel Scale Charges, they’re about to change.

Scale charges are amended each year, and come into effect from 1 May.  Businesses must use the new scale charges from the start of their next prescribed accounting period beginning on or after 1 May.  The new rates for 2016 can be found here.  And if you need to check the CO2 emissions of your vehicles, you can do that via the site here.

Increase in VAT Registration and Deregistration Limits

Following the March Budget, the VAT registration and deregistration limits have increased.

With effect from 1 April 2016, UK businesses who exceed £83,000 in taxable supplies (standard, zero, and reduce rated goods and services) in a 12-month backward look or in the next 30 days alone are obliged to register for VAT.  For those UK businesses that are already VAT registered, you can apply to deregister if your taxable supplies are less than £81,000 in the last 12 months.


If any of these articles raise further questions for you, please contact any member of our VAT team.

Alan Davis – VAT Partner and Head of Tax
Alan Flavelle – VAT Manager
Fiona Baird – VAT Manager