Saving VAT on an extension

[cerbfan]

If someone say wanted to build a very large extension and ancillary building which was going to cost say £400K - £500K which was going to be liable for VAT would there be any way around some or all of this VAT liability? Knocking down the original house would not be an option in this case.

My thought was that a Ltd building company could be set up and apply for flat rate tax for builders of 9.5% (plus 1% discount in first year). Then build the extension over a couple of years and put through just under the £150K (Flat rate VAT limit) per year of the build costs which would be matched by payments from the client (who would also be the Director in this case) so the company would make no profit. If this was done it could save I think around £30K in VAT. If there were any proportions of Labour in the build that was performed with non-VAT registered builders the Client could then just pay for those directly instead of putting it through the company.

At the end of the 2 years the company would fold without making a profit or loss.

Would this work or be legal?

Anyone have any smarter ideas for saving VAT on such a large project?

[Eric Mc]

Are you building the property as part of a trading business or to live in it as an individual?

[cerbfan]

To live in it; for ever the amount its going to cost and how much I need to stretch myself.

[Eric Mc]

To try and reclaim any VAT on the basis that it was a business project would be fraudulent.

However, there is a VAT reclaim scheme for private builders, called the Self Build Scheme, which may be of interest to you.

http://www.hmrc.gov.uk/vat/sectors/consumers/new-h...

[eliot]

Eric Mc said:

To try and reclaim any VAT on the basis that it was a business project would be fraudulent.

However, there is a VAT reclaim scheme for private builders, called the Self Build Scheme, which may be of interest to you.

http://www.hmrc.gov.uk/vat/sectors/consumers/new-h...

It has to be a new build - O/P (And me actually) are retaining a portion of the house - therefore doesn't qualify.

[Eric Mc]

There are times when "new" doesn't actually mean "new".

[cerbfan]

After reading through the HMRC guidance I cannot see anyway of getting away with a claim for an extension. Not sure what you mean by new does not always mean new but the original house is well over a hundred years old so not new by any stretch of the imagination. This is why I'm looking for some more creative ideas to get around it.

[Eric Mc]

An extensive renovation of a very old property or a conversion of an old non-residential property (such as a barn or old office building) into a residence can be treated as "new" for VAT purposes. However, the criteria for this are very restricted and probably in your situation it would not be a viable route.

Trying to do anything else, such as "pretending" that the operation is a trading activity is not allowed.

[cerbfan]

Your right it looks like it will not be feasible to reclaim the VAT.

I just really thought there must be some other way round it, just like most high value property transactions don't seem to pay stamp duty when the sales go through at what point does the potential savings on these schemes start to make sense?

[pharmvrs]

Perhaps your architect can become more inventive with the plans and build your "new" house next to the "old" house, then once the VAT is repaid you can merge the two houses together? Or install a nice glass walkway? Or have i watched too much grand designs lately

[Eric Mc]

Watch out for those "conections" between "old" and "new" buildings. There is a VAT case where the erection of a perspex roofed covered pathway was enough to scupper a VAT reclaim scheme.