Protección del lugar de los hechos o escena

to charge 20% VAT.

Chapter 5: Checklist

 You need to budget for VAT from the start of your project to make sure that you have enough money to fund the VAT costs as you go along.

 Start with the position that you have to pay VAT on everything and then determine whether or not the work qualifies for the reduced rate or zero-rate or whether you can claim VAT under the DIY refund scheme.

 Agree the VAT liability of the work with the contractor before signing the contract and agree who is liable for any additional VAT assessed by HMRC.

 Make sure that the correct information is shown on invoices, your planning application and other documents or HMRC may not refund VAT on your costs.

 Ensure that your planning permission, building consents etc are correct and in place before the work begins. This also applies if the plans are changed during the course of the construction work.

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So how do you work it all out? Case studies

These case studies are based on a couple of real scenarios from my clients over recent years. They shows how much VAT can be saved on new construction and a conversion.

In both cases, the end result will be self-contained dwellings with 4 bedrooms, 3 bathrooms and a garage.

The worst case scenario, whether you're doing a new build, conversion or renovation, is that you have to pay 20% VAT on everything but you can’t claim any of it from HMRC.

So with these examples, I've started showing the potential worst case scenario and then identified the actual VAT cost..

Remember that the case studies are for illustration purposes only. Your own VAT cost will depend on the exact circumstances of your development and your savings may be significantly lower..

Arthur, who builds a new house from scratch, starts with a maximum VAT cost £40,800 VAT through the three types of VAT reliefs. His actual cost is £6,400.

That's a MASSIVE saving of £34,400.

Our converters with a potential VAT cost of £73,200 (see p36) and end up with a VAT cost of £6,800.

That's a MASSIVE saving of £66,400.

In both cases, a significant proportion of the saving comes from buying the land and the barn VAT exempt. But both developers save substantial amounts by the zero-rate and

reduced rate of VAT on their contractors' costs and by claiming a DIY scheme refund.

Case study (1) is about Arthur who is going to build a new house

for his family. The house will be built on bare land. He'll do some

of the work himself, but will employ specialists for certain

work; including roofing, plastering, plumbing, electrician

etc.

case study (2) is about a couple, Mike and Sue who've bought an old warehouse to convert into a home for their family. Most of

the specialist work will be outsourced to contractors.

44 Further savings

They could also save some additional VAT our developers can save by some VAT planning. Our DIY converters could engage some of their suppliers through a “design and build” contract, as explained in Chapter 180, Part 1. The calculations are shown on p224. The additional savings in these

scenarios are relatively modest compared to the main calculations, but it’s useful to show how these arrangements work in practice. In other situations, the savings could be much more significant.

DIY Case Study (1): Part 1: The facts

Arthur has purchased land and has planning permission to construct a dwelling which will contain 4 bedrooms and 3 bathrooms. He will buy much of the basic building materials (including bricks, mortar, flooring etc) from local building merchants, while specialist contractors will install gas, electricity and water and related goods.

Bob will also be buying various goods for the house, including carpets, an Aga and an electric garage door.

VAT exclusive expenditure as follows:  Building materials:

 Other goods, including carpets, the Aga and electric gates that aren’t “builders’ materials” costing £10,000

 Builders' services: £30,000

 Contractors services for installing gas, electricity, water & sewerage: £12,000.  Land: £70,000

 Legal services including planning application: £6,000.  Surveyors, architects, designers services: £12,000  Hire of equipment: £4,000

Total net cost of new dwelling: £204,000. Potential VAT cost @ 20%: £40,800 At the ends of sections 2 and 3, we’ll see how much VAT Arthur can save through VAT reliefs on the

45 DIY Case Study (2): Part 1: The facts

The barn cost £150,000 and the vendor has opted to tax the property.

Basic fit out and specialist contractors (power, water, sewerage) are being done by local VAT registered contractors. Mike and Sue are doing the remainder of the work themselves and will purchase materials from building contractors.

VAT exclusive expenditure as follows:  Property: £150,000

 Basic fit out including services and building materials: £1600,000.

 Other goods, including fitted furniture and certain appliances that aren’t “builders’ materials” costing £20,000.

 Power, water & sewerage: £10,000. This includes £2,000 for connecting the supplies to the main services by extending cables and pipes from the property to the main road.

 Building materials and goods purchased directly by Nick and Kate: including £4,000 for an AGA: £18,000

 Legal services: £3,000.

 Surveyors and architects services: £4,000  Hire of equipment: £1,000

Total net cost of conversion work: £156,000.

Total VAT exclusive expenditure: £150,000 (property) + £216,000 (other expenditure): £366,000 Potential VAT cost @ 20%: £73,200 At the ends of section 2, we’ll see how much VAT Mike and Sue can save through VAT reliefs on the

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Working out your own VAT cost