As one of the most complex areas of VAT, you need a high level of technical knowledge to navigate VAT on property effectively. Our VAT accountants helped a local accountancy firm resolve a complicated option to tax issue and avoid costly errors for their client through our specialist VAT consultancy service.
The background – what is the option to tax?
Supplies of commercial property are generally exempt from VAT, however, businesses can choose to ‘opt to tax’ a property and account for VAT on any supplies made.
The key advantage of exercising the option to tax is that businesses can recover the VAT on costs associated with the property.
With the significant level of tax involved in selling and purchasing a commercial property, you should always seek specialist VAT advice to make sure you are calculating the right VAT treatment for your business.
Recently, our specialist VAT team helped a Midlands-based accountancy firm to achieve the most tax-effective outcome for their client.
The client
As a user of our on-demand VAT consultancy service, a local accountancy firm in the Midlands contacted our VAT and Indirect Tax team to seek specialist advice and clarity on behalf of their client.
The firm’s client was in the process of buying an opted to tax commercial property for £725,000 plus VAT and the firm wanted to confirm that the VAT would be recoverable following the purchase.
Although the accounting firm had a general understanding of the option to tax and VAT on property, specialist guidance through PKF VAT Assist helped the firm to guarantee the best possible outcome for the client.
How we helped
To establish whether an option to tax approach would be an effective and appropriate treatment for the buyer, we had to answer two crucial questions:
- Is there a valid option to tax in place?
- Is the property empty?
We ensured that the firm’s client had received a copy of the seller’s notification of the option to tax, which had been acknowledged by HMRC. We also confirmed that a current tenant intended to remain at the property with four years left on their 10-year lease and that the lease agreement did not terminate as a consequence of the property being sold
The results
We concluded that the transaction could be treated as a Transfer of a Going Concern (‘TOGC’). This meant it would be treated as the sale of a property rental business transfer rather than simply the sale of a property.
The benefits of the TOGC treatment were:
- VAT of £145,000 did not need to be paid in addition to the purchase price. This provided the firm’s client with a significant cash flow benefit, as there was no need for additional finance which could have increased costs
- A stamp duty land tax (‘SDLT’) saving of circa £7,250. This is because the SDLT is based on the VAT Inclusive amount payable. As no VAT would be due, the SDLT payable was reduced.
We were able to obtain an agreement for all parties for this to be a VAT-free TOGC through liaison with accountants and solicitors on both sides and ensuring that all relevant documents had been submitted to HMRC.
Specialist VAT support on-demand for your business
The field of VAT is a complex landscape that many accountants and businesses have difficulty navigating. With our on-demand VAT consultancy service, answers to your VAT questions are just a call or email away.
PKF VAT Assist is a cost-effective and time-efficient consultancy service for individuals and businesses operating within the accountancy industry. A bespoke advisory service which can be flexed to meet your specific requirements, our VAT service offers direct access to specialist advice and tailored solutions to your VAT challenges.
For more information on the consultancy helpline and our service packages, including costs, contact our team at 01332 374 432 or by emailing [email protected].