V6.201 Contractor as developer

Part V6 Business by business

V6.201 Contractor as developer

V6.201 Contractor as developer

Contractors may double up as developers, ie they may both build and sell properties. The VAT treatment of the supply of property is covered in depth in V6.321–V6.323 Property Development. It is worth pointing out that many supplies of property are exempt from VAT. However, the contractor will make taxable (at the standard or zero rate) supplies of property in the following circumstances—


    —     where he constructs a new “qualifying” building and then grants a zero-rated major interest in that building (zero rate);


    —     where he converts a non-residential building into a building designed as a dwelling, or intended for a relevant residential purpose, and then grants a major interest in that building (zero-rated);


    —     where he sells the freehold in a new commercial property that he has constructed (standard-rated);


    —     where he carries out work, such as alterations to an existing building, and then makes a supply of that building if he has made an effective waiver of exemption (option to tax) in respect of that building (standard-rated).

The liability of such supplies is explained fully in V6.322 “Zero-rated transactions in land and property”.

In circumstances where a contractor doubles up as developer, there can be issues as to what is the true nature of the transaction and the extent to which input tax incurred on land is recoverable. This issue was highlighted in the case

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