Commercial development—VAT issues
Produced in partnership with Martin Scammell
Commercial development—VAT issues

The following Tax practice note Produced in partnership with Martin Scammell provides comprehensive and up to date legal information covering:

  • Commercial development—VAT issues
  • Basic scenario
  • VAT registration
  • Does the developer always need to opt?
  • Is it always better to opt?
  • What if the developer does not opt straightaway?
  • Appraisal stage
  • Intending to develop
  • Will opting always ensure VAT recovery?
  • When might the anti-avoidance rules be relevant?
  • More...

This Practice Note is about the VAT issues that arise in commercial developments. It first considers a straightforward unproblematic scenario, and then looks at:

  1. whether and when the developer needs to exercise an option to tax

  2. input tax recovery and situations in which the option might be disapplied

  3. whether a disposal to an investor will be a transfer of a going concern (TOGC)

  4. different development structures, including forward funding and forward sales

  5. planning obligations and other contributions to local infrastructure

  6. tenant incentives

  7. disposals of surplus land and uncompleted developments, and

  8. rights to light

For VAT issues in residential developments, see Practice Note: Residential development—VAT issues.

Basic scenario

There can be a range of VAT issues with commercial developments, but in practice most developments do not raise significant problems. It is useful to start by considering a straightforward, and unproblematic, scenario involving a speculative development.

In this case the developer will identify an opportunity, and will opt to tax at this stage, intending to make taxable supplies in the development (see Practice Note: The option to tax land and buildings).

It will incur costs—perhaps in assembling the site, in securing planning permission, and then in carrying out the development. VAT will be chargeable on construction costs, professional fees and possibly on the acquisition, but this will be wholly recoverable from HMRC, given the developer’s intention to make taxable supplies.

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