Apportioning values and change of use

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Apportioning values and change of use
  • What needs to be apportioned?
  • Buildings used for a relevant residential purpose
  • Relevant charitable purpose
  • Change of use of certificated buildings
  • Accounting for VAT
  • VAT registration

This guidance note provides an overview of the main issues that need to be taken into consideration if a business is involved with supplying construction services or granting a major interest in a site that contains qualifying and non-qualifying buildings (ie the construction of a shop with flats above it).

VATA 1994, Sch 10, para 35–36; ; HMRC Notice 708 

This guidance note should be read in conjunction with the following notes:

  • Zero-rating the construction of a new building
  • Zero-rating the sale or grant of a long lease in a new building
  • Converting a non-residential building
  • Converting a non-residential building for a relevant housing association
  • Approved alterations to protected buildings
  • Zero-rating the sale or grant of a long lease in a protected building
  • Reduced VAT rate – conversion of property to an alternative residential use
  • Reduced VAT rate – renovating and altering empty residential property
What needs to be apportioned?

Please note that if the business is only making supplies in respect of the qualifying part of the building, it does not need to apportion its supply and should charge VAT at the reduced or zero rate of VAT as appropriate. Alternatively if its supply only relates to the non-qualifying part of the property then VAT must be charged at the standard rate on the supply made.

Businesses that make supplies that relate in part to the qualifying and non-qualifying parts of the building will need to apportion the value of its supplies between the qualifying and non-qualifying buildings using a fair and reasonable apportionment. VAT will be due at the appropriate rate on each type of supply.

The following will need to be apportioned if the building will be used for qualifying

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