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HMRC have published guidance and worked examples on the VAT implications when house builders decide to temporarily let their dwellings before selling them.

Information Sheet 07/08 has been published in response to recent enquiries from the house building sector and takes account of the High Court decision in the joined cases of Curtis Henderson and Briararch [1992] STC 732 which arose in the early 1990s. The key points to which the Information Sheet refers are:

• if you temporarily let a dwelling before selling it, you may affect the VAT you can recover on your costs
•  many house builders who temporarily let a dwelling will not be affected but you need to check this to avoid making VAT mistakes
• there is an easy way to check if you are affected by applying what HMRC describe here as a ‘simple check for de minimis’.

If you fail this check, you may have to:

• adjust the VAT previously recovered on your submitted VAT returns
• restrict the VAT to be recovered on your current and future VAT returns
• both adjust your past VAT recovery and restrict your future VAT recovery.

If you need to adjust VAT previously recovered, exceptionally and if you prefer, you may be able to do this without contacting HMRC.

Link

HMRC Information Sheet 07/08