Can property developers reclaim VAT?

Value-added tax (VAT) is a tax that is levied on the value added to goods and services at each stage of production and distribution.

 
Property developers are typically required to pay VAT on the goods and services they purchase in the course of their business, often choosing a VAT specialist to help them wade through the administration and often complex issues.

However, in certain circumstances, property developers may be able to reclaim the VAT they have paid. In this blog, we’ll explore the rules around VAT and property development, and look at when developers may be able to reclaim VAT.
 

What is VAT?

 
VAT is a tax that is charged on most goods and services in the UK. The standard rate of VAT is currently 20%, although there are also reduced rates and exemptions for certain goods and services.
 

When is VAT payable in property development?

 
In property development, VAT is typically payable on goods and services purchased by the developer in the course of their business. This includes materials, labor, and professional services such as architects’ fees. VAT is also payable on the sale of new buildings, although there are certain exemptions and reduced rates that may apply.
 

Can property developers reclaim VAT?

 
In general, property developers are able to reclaim the VAT they have paid on goods and services used in the course of their business. This is known as input tax. However, there are certain rules and conditions that must be met in order to reclaim VAT.

Firstly, the developer must be registered for VAT with HM Revenue & Customs (HMRC). This means that they have to charge VAT on the goods and services they supply, but can also reclaim the VAT they have paid on purchases.

Secondly, the goods and services on which VAT is reclaimed must be used for business purposes. This means that VAT cannot be reclaimed on goods and services used for personal use or for non-business activities.

Thirdly, the developer must keep accurate records of all purchases and sales, including VAT invoices and receipts. These records must be kept for at least six years and must be available for inspection by HMRC.

Finally, there are certain goods and services on which VAT cannot be reclaimed. These include entertainment expenses, such as client hospitality or staff events, and purchases of vehicles for personal use.
 

When can VAT be reclaimed on property development?

 
VAT can be reclaimed on goods and services used in property development as long as they meet the conditions outlined above. However, there are some specific situations where VAT may be reclaimed in certain circumstances.

For example, VAT may be reclaimed on goods and services used in the construction of a new building that is intended to be used for a business purpose. This includes materials, labor, and professional services such as architects’ fees.

VAT may also be reclaimed on goods and services used in the renovation or refurbishment of a commercial property, as long as the property is intended to be used for a business purpose.

In some cases, VAT may also be reclaimed on the purchase of land or property, although this is subject to certain conditions. For example, VAT may be reclaimed on the purchase of a commercial property if the purchaser intends to use the property for a business purpose and the seller has opted to charge VAT on the sale.
 
In summary, property developers are generally able to reclaim VAT on goods and services used in the course of their business, as long as they are registered for VAT, the goods and services are used for business purposes, and accurate records are kept. There are also certain specific situations where VAT may be reclaimed, such as the construction of a new building or the renovation of a commercial property. If you are a property developer, it’s important to understand the rules around VAT and to keep accurate records in order to ensure that you are able to reclaim VAT where possible.