VAT factor is key on land and property deals

Shropshire businesses dealing with sales and purchases of land and property have been urged to consider the VAT implications at the earliest possible opportunity.

Matt Orange, tax advisor at Dyke Yaxley Chartered Accountants
Matt Orange, tax advisor at Dyke Yaxley Chartered Accountants

Matt Orange, tax advisor at Dyke Yaxley Chartered Accountants in Shrewsbury and Telford, said it was vital for business owners to factor VAT calculations into deals from the very start of negotiations.

“We are currently working with a range of local businesses who are experiencing significant delays in completing this kind of sale deal due to VAT issues.

“The difficulties are usually because one of the parties involved needs to submit enquiries or forms to HM Revenue and Customs, and they’re waiting for a response.”

Matt said some businesses may own property where their tenant was charged VAT on the rent.

“In the world of VAT, this is known as an ‘option to tax’. The sellers are usually asked to provide clarification from HMRC about the VAT status of the land or property before the sale can be completed.”

Other businesses may be searching for paperwork from HMRC that may date back to as far as 1989, and it’s common for records to have been lost or destroyed over the years.

“We’re encouraging businesses looking to buy or sell land and property to consider the VAT implications as early as possible in the process in order to prevent delays,” said Matt.

“HMRC are currently stating a response time of at least 40 working days, although in certain circumstances, we have been able to help businesses get a reply faster than that average time period.”

Matt said from the buyer’s perspective, businesses needed to understand if they would be charged VAT on the purchase of the property or land, and whether they would be entitled to reclaim that VAT.

“We work with businesses to ensure they are in the most VAT-efficient position and that the advice we give is tailored specifically to each individual buyer’s circumstances.”

With VAT on land and property deals often running into tens or hundreds of thousands of pounds, Matt said it was crucial that businesses took professional advice as any mistakes could lead to significant penalties.

“Whether or not the VAT paid can be reclaimed, it affects the Stamp Duty Land Tax payable on the purchase price and this could cause cash flow issues – so it’s important that the VAT position is properly considered before any contracts are exchanged.”

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