VAT Planning ahead of Land and Property Developments
A recent Upper Tribunal case between The Glasgow School of Art v HMRC highlighted the need to review VAT implications before renovating or developing a building and/or land.
The school was undertaking a project of the partial demolition, reconstruction and refurbishment of a building (Assembly Building) and the construction of a new building (Reid Building). The project was to be undertaken at the same time and the finished structure would be the Reid Building wrapping around and above the Assembly Building. There would be one wall of the Reid Building that would rest on the Assembly Building.
The Assembly Building was designed as a Students Union with bar and club (a taxable business). The Reid is managed by the School and serves several art school functions (a charity with Exempt supplies).
In order to receive funding, there had to be a ‘physical and useable link between the Assembly Building and the Reid Building.’ The design was therefore amended to include a single door connecting the two buildings.
The Glasgow School of Art believed that the two buildings are separate and capable of being and were operated independently. In practical terms, there is no access between them as the single door is not used. They had different appearance, functions and opening times and a separate occupation. The school wanted and obtained two separate premises with different purposes.
The school put forward that all the Input Tax relating to the VAT incurred on costs relating to the Assembly Building should be claimed.
HMRC, the First Tier Tribunal and the Upper Tribunal determined that the builds are classed as one building and the construction was a single supply for VAT purposes. The reasons including:
- a single price was charged by the construction company under a single contract
- the funding was required for the project as a whole
- the planning application was for both buildings
- there has always been a physical link (internal door)
- the whole construction was viewed as a single project
- the site was repeatedly described as ‘the Reid Building’
- there is no evidence that the Reid Building could have been constructed without the Assembly Building.
Although the school wanted and obtained two separate premises with different functions, this does not mean that there are two separate supplies for VAT purposes. As the building related to both Taxable and Exempt supplies, the full amount of Input Tax relating to The Assembly building could not be claimed.
A different approach to the build before construction could have changed the number of supplies that were being made and therefore increase the amount of Input Tax that could have been claimed.
If you would like to discuss this article in more detail or you would like to speak with a member of our team, please on 01772 821021 to be put in contact with a member of our Specialist VAT Advisers team.