House and flat developers should “think VAT and CIS” when planning a new build or renovation project to avoid paying out tens of thousands in irrecoverable VAT and CIS subcontractor tax, as well as much higher fines under the new “aligned” tax investigation system for current tax returns (to be filed after March 2009) says Tony Medcalf, head of tax at Moore and Smalley LLP.

You only need to look at Preston’s ever–changing skyline to see that domestic rental property is big business especially for student accommodation. Many developers have also been forced to rent out unsold flats whilst the market picks up and great care is needed to avoid irrecoverable VAT.

Rents received from domestic rents are exempt from VAT which means that VAT paid on direct costs (including costs of construction or renovation) is irrecoverable – but there are many ways to keep this to an absolute minimum, including:-
• Use of “design and build” contracts and “partial exemption” deminimis limits
• Use of “golden brick” contracts
• “Bricking in” furniture (especially in student accommodation)

Whilst VAT rules for greenfield sites are well known, many pitfalls await anyone who strays outside the many rules to encourage brownfield sites, including:-
• Buying building materials direct
• Not using listed building consents to eliminate VAT on approved alteration
• Not collecting evidence to support reduced VAT on pub conversions and “empty property” deals<

Similar pitfalls await anyone who ignores CIS subcontractor tax, although there is good news here on “self employed” status disputes from 1/4/08 where “directions” can now be made to simply require self-employed tax to be offset against PAYE.

There is always good money to be made in property provided you plan in advance to allow change at short notice and I would encourage everyone to seek professional advice at an early stage.

For further information, contact Tony Medcalf, partner and head of tax at Moore and Smalley Chartered Accountants and Business Advisors, on 01772 821021