Munster’s first independent VAT consultancy practice providing specialist VAT and Indirect tax advisory, assurance and interim management support services to owner managed businesses, small & medium enterprises, accountants and legal practices.

VAT on property – Lest we forget!

Friday, September 10, 2010

by Nick Ryan

In 2008 new rules for the application of VAT on property transactions were introduced, with them came a complete change, added complexities and a need to look over ones shoulder as the rules included transitional measures for the management of old properties and transactions entered into prior to January 2008.
Like with any change time is needed to become accustomed to the new rules and it is often experience in applying the new rules to transactions that provides for greater comfort and clarity in understanding. Unfortunately with the introduction of these new rules there also came a collapse in the property/construction sector and an economic downturn. These factors have impacted on the new rules as businesses focus changed to address much greater needs and with the slowdown in transactions the lack of experience in applying the new rules has hindered an understanding of the application of the new rules.
In this current climate many businesses have undergone processes of change involving downsizing, restructuring, disposals, and in some cases, closures of functions and operations. In these instances, fixed assets are often involved and within this there is property, commercial and residential. In these times it is more evident that a business can forget that rules have changed and new measures require their attention. Questions should be asked by businesses where property has been acquired, disposed of or transferred to a new operating operation as to whether the new rules were considered. Has a Capital Goods scheme been implemented, was the history of the property established and was it a transitional property?
Any degree of uncertainty should be addressed to ensure that the new rules are correctly applied and the correct procedures are in place to manage the property assets held by the business.
Since the introduction of these new rules a number of further changes and amendments have been introduced including:
• Changes to the management of transitional properties under the Capital Goods scheme and the introduction of the “Big swing” rule.
• The management of VAT for Rent to Buy schemes for residential properties.
• The management of waivers of exemption between connected parties in a VAT group.
• How VAT is applied to supplies of properties by public bodies.
• How VAT applies to Deeds of variations of leases.
• VAT and forced property sales.
Some of these rules are focused on the residential market though the changes in totem reflect the need for businesses to be constantly aware of a need to have a full understanding of how VAT can impact on their business and ensure that the correct VAT treatment is applied in order to avoid any undue additional costs.
We welcome your comments on the above and “war stories” that may help other businesses so please submit these below. For more information on these changes and the VAT and property rules in general then please contact the VAT Practice.