VAT refund on conversion of PPR to flats

by **njt** on Wed Sep 28, 2011 5:03 pm

We bought a house in January 2008 and have lived in it as our principal residence until May this year. It is a jointly owned freehold with a mortgage.

We have been trying to sell the whole house without success and so now plan to convert to two separate freehold residences with separate title deeds sharing a party wall (not a 'granny flat' scenario). The reason for the split is not (in practical terms) to make a gain (although it may be in tax terms). We are not interested in property development as such - we just want to be able to sell and move on with our lives. We are doing this simply because, in the current climate, it may be easier to sell two cheaper properties than one larger one (we are unlikely to make a capital gain that outweighs the conversion costs).

I gather that a reduced 5% rate of VAT may be available for certain costs of conversion and thought that the correct form was VAT 431C. However, that form does not seem to cover this (presumably common) situation. So I am unclear whether I am entitled to a lower rate of VAT at all (presumably paying in full and reclaiming) or, if I am, what the appropriate process is. Could someone provide some guidance?

Thanks

by **les35** on Thu Sep 29, 2011 9:32 am

The D-I-Y scheme will not apply, since you are not converting a non-residential building.
The 5% rate will apply as long as you appoint a contractor to carry out the 'changed number of dwellings' conversion; ie: you convert a single dwelling into two or more dwellings. There are, of course, various exclusions to this. However, you cannot register for VAT (you didn't want to!), since the onward supply will be exempt. However, the 5% rate will mean your overall costs of conversion are reduced, compared to the 20% rate.

by **njt** on Thu Sep 29, 2011 10:05 am

Thanks les35,

This is very helpful indeed. But what I am still unclear about is what I actually need to do to claim the reduction. Is there an hmrc form or guidance you could point me to? Do I pay and reclaim (or else how do I persuade my contractor to charge me less?). Are there time limits etc? Sorry for ignorance but hmrc site is not at all clear (to me anyway).

by **Generix** on Thu Sep 29, 2011 11:47 am

njt wrote:Thanks les35,

This is very helpful indeed. But what I am still unclear about is what I actually need to do to claim the reduction. Is there an hmrc form or guidance you could point me to? Do I pay and reclaim (or else how do I persuade my contractor to charge me less?). Are there time limits etc? Sorry for ignorance but hmrc site is not at all clear (to me anyway).

You should check with the contracter first that they are happy they can apply the 5% rate. Some are not very clued up when it comes to VAT so it saves arguments later.

by **les35** on Thu Sep 29, 2011 11:54 am

HMRC guidance is not easy to find! The guidance is in Notice 708, available from their web site.
To persuade the Contractor to invoice you at 5% - I often use the certificates in Notice 708, and re-word them. This gives the Contractor something for his own records. (I should point out that you are not legally obliged to issue a certificate.)
Re: time limits - do this as early as possible, so as to give time to resolve any questions with the contractor. Also, he will invoice you at 20% unless he is directed otherwise.