Whether to register for VAT FHL

[charliej]

Hi,

Apologies if this question seems a bit simple, but I'm currently at the very early stages of applying for planning permission to create a furnished holiday let business, and I'm unsure on whether to register for VAT now.

There are likely to be some high capital costs on the build (£200k+), but it's highly plausible that the whole plan will fall at the first hurdle if planning is rejected. But, in the meantime, I need to pay a planning consultant that is VAT registered, design costs and architect fees. It's possible other costs are going to be incurred too before the outcome of planning is known.

I think it's likely that the business will trade in excess of the VAT registration threshold, certainly not in the first couple of years, but more likely once it's established and fully let.

Do you think I should elect for VAT now? Would this let me claim the input vat back now? I know in the long run the output VAT will result in 20% less in profit, but In my head, it seems to make sense to do this now which would help reduce my capital cost by reclaiming the input vat.

Is there anything else that I should be considering VAT wise? e.g. would the building costs be zero-rated for a furnished holiday let that's being let to tourists?

Thanks for any help,
Charlie

[bd6759]

You cannot register unless you can show HMRC that you are intending to make a taxable supply. That will be difficult if you don't have planning permission.

You will be able to reclaim vat on the build costs later once you are able to register.

[spidersong]

The thing to watch out for when the previous answer says "You will be able to reclaim vat on the build costs later once you are able to register", is how much later?

Most of your costs are services either professional services or construction services, and you can only go back six months prior to your registration date to recover VAT on services. So you'd need to register within 6 months of incurring your significant costs in order to get the VAT back.

However the other thing to bear in mind is how much VAT will you be incurring; if these are new buildings designed as dwellings and the planning permission is for dwellings, i.e. the contractor's building houses, then many of the charges will be zero rated for VAT so you wont actually have VAT costs, apart from on the professional fees, and even these can be somewhat ameliorated with a design and build contract.

But this depends on whether there are current buildings whether there are different owning and development arms of the potential business, whether you're DIYing some of the works etc.

If you're going to be spending in the hundreds of thousands then paid for VAT advice/planning is essential, I'd talk to an experienced consultant and not rely of an internet forum of people who haven't seen your business plan, or have knowledge of the site(s) you'll be working on.

[charliej]

Thanks for your help both. I think the best approach is to appoint a professional to assess the specific situation so i'm not getting caught out!