In calling upon Britain to “build, build, build”, Boris Johnson announced the most radical reforms to our planning system since the Second World War, making it easier to build residential and commercial buildings and looking to boost an economy so damaged by the COVID-19 pandemic.
Whilst COVID undoubtedly has not gone away – and indeed a second peak may still rise - and despite social distancing posing significant challenges to productivity, alongside an incremental cost of PPE, it appears that contractors have responded to this call to arms. Recognising, perhaps, that in its wake COVID will leave a significant need for additional infrastructure such as: social housing, residential units both for rent and for purchase, along with student facilities and accommodation, and we have recently seen rising levels of activities from operators in the sector.
As VAT advisors, few if any areas of the tax provide the challenges and opportunities as those generated by buildings and construction. Unlike any other area of VAT, supplies of building and construction services can be subject to any of the three rates: 0%, 5% or 20%. In some instances, two identical projects could be subject to completely different rates of VAT merely by being supplied to different recipients. The difference between a supply being subject to VAT at 20% or 0% could be the demolition of a wall.
Why is this significant? Clearly VAT and tax should not be the key driver in a development project, but there are so many benefits that can be derived from correctly navigating the many nuances and complexities found here. For operators in so many sectors – social housing, healthcare and welfare, residential lettings, education, student accommodation and so on – VAT represents an absolute cost, and therefore reducing VAT applicable on capex to the lowest rate possible - and to the fullest extent - is invaluable. For contractors, applying the correct rate of VAT is not only an important compliance matter but may prove decisive in a tender process when supplying services to a VAT-sensitive recipient.
Key considerations are:
Wherever possible, look to establish the most beneficial VAT position before the project begins; it is much easier to charge VAT appropriately from the onset than retrospectively correct
As a recipient, especially where VAT is a cost, look to achieve the lowest possible correct rate of VAT on the development; challenge suppliers where undesirable treatment may be being proposed and it is possible to do so
As a supplier, ensure compliance and competitiveness by assessing all elements of a project and which VAT rate is applicable to each
Consider structure and approach; within the confines of commerciality, is there structuring (e.g. Propco/Opco) that can achieve a more beneficial position? This is particularly pertinent to social housing, landlords or student accommodation providers
Consider alternatives; if an undesirable VAT position exists, can plans be altered to remedy this? Often, relatively minor changes can result in significant savings and
Wherever possible, seek appropriate advice in order to fully explore the above.
To find out more about how effective VAT planning can help your business, get in touch with Emma Forrester, VAT and Indirect Tax Manager via email emma.forrester@armstrongwatson.co.uk or call 01228 690192.
