As you may be aware, where you incur expenditure of over £250k (plus VAT) on a property project, you are very likely to have what is called a ‘capital goods scheme item’. Very broadly, this means that recovery of VAT incurred on the project must be assessed over a 10 year period and adjusted to reflect any change of use over that time.
We recently had a case referred to us where the existence of a sitting tenant in a property which was scheduled for refurbishment caused significant difficulty in this area.
The existence of the sitting tenant (who was being charged a VAT exempt rent) meant that the owner had to obtain permission before opting to tax the property. Because permission was not obtained early enough in the process, HMRC have sought a clawback of around £50k of the VAT claimed on the refurbishment. We are working to try and mitigate the effects of this but it highlights how important it is to obtain detailed VAT advice when undertaking any major property project.