They come in threes – VAT queries

That’s what is said. I’ve noticed over the years that when I get a query on one area of VAT, I can expect a similar query to be asked soon after.

This past month I’ve seen two instances where similar queries have been asked. At the moment I’m waiting for the third query on each topic to be raised.

Business splitting

I’ve been asked about business splitting or, as HMRC call it, disaggregation. Usually this is where the business is reaching the VAT threshold and the owner wants to avoid VAT registration so looks at ways of staying below the VAT registration limit. One idea they come up with is to create another legal entity to provide the same services, perhaps to a particular class of client, e.g. business or consumer, or in a different location. Is it legal? Yes, it is. There are, however, anti-avoidance provisions in the Value Added Tax Act 1994 that allow HMRC to direct that two or more businesses are treated as one for VAT registration when the business splitting is artificial. Under current legislation HMRC can only issue the direction to start from the date it is issued or a future date.

If you have an issue in this area and would like help, please contact me.

Building work and planning permission

I’ve had several cases over the last year or so, and two in the past month, where the VAT treatment of the work being undertaken is affected by the planning permission granted by the planning authority. It is really important to make sure that the planning permission held fits the bill. Decisions released by the First-tier Tribunal indicate that the planning permission requirements will be strictly adhered to. In one case the planning permission was for refurbishment and extension of a house – standard rated. However, as the work was started the remedial work needed meant that almost all the building was demolished to the point where a new dwelling was going to be constructed. The planning authority were aware of the issues. No one thought to get the planning permission change to allow the construction of a new dwelling. The First-tier Tribunal decided that because the planning permission only covered refurbishment and extension rather than construction of a new dwelling all the work was standard rated.

To avoid falling into the same trap it’s important to check that you have the right planning permission.

If you have an issue in this area and would like help, please get in touch with me.

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