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Property development VAT – how to get it right: CASE STUDY

When it comes to property development VAT, Gemma McCaldon-Gower proves that getting a VAT expert involved before embarking on any property development project can save millions in the long run.


What were the circumstances?

During a routine update meeting with our developer client, we discovered that they had embarked on a scheme to convert a pub into over 100 residential units (with planning restriction prohibiting the owner residing in the property all year round).

Our expert team asked to review the client’s proposed development and we quickly identified that the VAT treatment they had applied to the project was incorrect and that the project was potentially unviable as no VAT on either the conversion, or the onward sale had been considered.

Funding for the scheme had been agreed on the basis that there would be no VAT on the redevelopment. Prices had been agreed on all of the units with prospective buyers with no scope for VAT on the sale price.

This meant that there would no funds in place to cover the VAT liability that would eventually materialise.


What did we do?

Our specialist VAT team completed a detailed review and restructure of the proposed development to enable the client to mitigate any irrecoverable VAT.

We also identified areas of risk which might be challenged by HMRC, and provided robust technical arguments in support of the favoured VAT treatment, so that the client could demonstrate that they had taken ‘reasonable care’ in their affairs, in the event of an enquiry.


What were the results?

In short, we saved this client £2m of irrecoverable VAT.

Had we not get involved and put together the report and review, incorrect VAT treatment would have been applied to the project.  HMRC would likely have challenged the VAT treatment on either, or both the conversion work and the onward sale of the units, and the client would have been significantly out of pocket!

The client now works closely with our VAT team at the beginning of any project, and before funding is in place, to ensure that the correct VAT treatment is established and put in place in the first instance.

We currently have two more project in the early stages and look forward to working with our clients on future projects.


Property development VAT: Our advice

This example just goes to show that by working with our specialist team at the initial stages of your property development project, we can ensure that you have the very best and correct advice.  Property development VAT planning is most effective when undertaken at the outset of a project, as many options to save VAT need to be implemented before transactions occur.

As our client almost found out, applying the incorrect VAT treatment can be extremely costly and have ramifications in many areas including funding, cashflow and profitability.  Simply put, this project would have been unviable under its original structure.

In addition to our specialist VAT advice, we can also provide market leading funding advice.

The message is, if you are considering any project, get expert property development VAT advice at the outset.


Get in touch 

Cowgills is a leading independent firm of Chartered Accountants and Business Advisors based in the North West of England – from Greater Manchester to Liverpool. We use our sector experience to deliver tailored financial solutions and support for businesses.

Please do get in touch with our team if you require advice on the subject of property development VAT.

Property development VAT

The information was correct at time of publishing but may now be out of date.

Posted by Cowgills
11th January, 2022
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