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Where Taxpayers and Advisers Meet

Commercial workshop - exempt supply?

befuddled
Posts:17
Joined:Wed Aug 06, 2008 4:00 pm
Commercial workshop - exempt supply?

Postby befuddled » Tue Dec 12, 2017 2:40 pm

My business partner and I have been trading for 25 years but following his disastrous divorce my partner now wants to dissolve the partnership and realise his assets so that he can buy a small flat to live in.

In 2005 we bought a derelict agricultural barn and constructed a new purpose built workshop on the site with B2 general industrial usage, which we have occupied from May 2006 for the purposes of our woodworking business. We appointed a number of specialist contractors to construct the workshop for us. VAT inputs were reclaimed through our normal VAT returns.

We are now intending to subdivide the property into two, one of the workshops will be sold off by the partnership to realise its capital value. The partnership will then be dissolved and the assets split equally between ourselves with me retaining ownership of the second workshop as part of my share.

So our estate agent has now asked the question "Please can you confirm whether VAT is chargeable on the sale price of your property, as this can be a key factor for some occupiers."

I understand the following:-

We constructed the workshop as commercial premises for making taxable supplies from, which we have now done for 11.5 years.
No 'option to tax' was sought from HMRC at point of construction or since.
Our intention is not to reclaim any of the VAT inputs for the costs of converting to two workshops and any associated repairs.

I think due to the passage of time that the workshop qualifies as an exempt supply and that there are no further VAT implications but would welcome any help or pointers from more informed members of this forum.

Best regards

Phil B

spidersong
Posts:352
Joined:Wed Aug 06, 2008 4:05 pm

Re: Commercial workshop - exempt supply?

Postby spidersong » Tue Dec 12, 2017 3:52 pm

Obviously with something of this size you're best getting paid for advice from someone who can get the full facts rather than just what can be presented in a forum post. That being said I'd agree with your analysis based on what you've posted.

The default is that sale of land and property is an exempt supply, unless it's within three years of completion, subdividing doesn't create a new building and so shouldn't affect that element. As there's no option that doesn't bring VAT into it either. So no VAT on the sale.

The Capital Goods Scheme, which can mean you repay previously claimed Input VAT has a time limit of 10 years and so you're outside that. So assuming no major works in the intervening time then no adjustments needed to prior recovery.

One consideration I would look at is that some of the VAT on capital costs may be recoverable as you will be continuing to use half the building for your taxable business, so costs relating to that should still be recoverable. Of course if you deregistered after the 'split' then at that point VAT would be due on any assets retained as a deemed supply to yourself upon deregistration, however as the building is exempt no VAT would be due on it per se, although you might need to make some of those capital goods scheme adjustments depending on the cost of conversion etc. which might mean you end up with little or no recovery, but as I say that depends on plans after the split, and such things are why bought in advice is necessary on these sorts of projects/situations

befuddled
Posts:17
Joined:Wed Aug 06, 2008 4:00 pm

Re: Commercial workshop - exempt supply?

Postby befuddled » Mon Dec 18, 2017 2:06 pm

Dear Spidersong,

Thankyou for taking the time to reply and explaining the situation so clearly.

I fully take on board your comment about paying for advice, which I will be doing shortly but I use this forum first as I find it better to be 'up to speed' with the terminology etc. so that I can fully understand the advice when I receive it.

Best regards


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