The following Tax practice note Produced in partnership with Martin Scammell provides comprehensive and up to date legal information covering:
This Practice Note is about the VAT issues that arise in commercial developments. It first considers a straightforward unproblematic scenario, and then looks at:
whether and when the developer needs to exercise an option to tax
input tax recovery and situations in which the option might be disapplied
whether a disposal to an investor will be a transfer of a going concern (TOGC)
different development structures, including forward funding and forward sales
planning obligations and other contributions to local infrastructure
disposals of surplus land and uncompleted developments, and
rights to light
For VAT issues in residential developments, see Practice Note: Residential development—VAT issues.
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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