STING IN THE TAIL FOR CASH-STRAPPED BUILDERS

Date Added: 11 November 2008

Builders and developers who temporarily rent out new properties in a bid to obtain some income while the housing market stagnates could be in for a VAT shock.

Many house builders are fully taxable businesses that can recover all of their input tax. However, the letting of a dwelling is an exempt supply and input tax on related costs might not be recoverable.

According to HMRC, a partly exempt house builder might have to:

§    adjust the VAT previously recovered on his submitted VAT returns

§    restrict the VAT to be recovered on current and future VAT returns

§    both adjust VAT previously recovered and restrict current and future VAT recovery

For many house builders the amount of ‘exempt input tax' related to their temporary lets is likely to be small and less than the de minimis VAT limit of £7,500. As a result they should be able to continue to recover all of their input tax, but they must take specialist advice to avoid VAT mistakes.

It is also worth noting that the point at which a house is marketed for letting becomes the trigger for the potential repayment of VAT, even though the builder may not succeed in attracting a tenant and therefore income for several weeks or months.

However, a quite surprising recent development is that HMRC appear to have given a green light to a VAT scheme which would appear to allow builders and developers to avoid having to make the adjustment described above.

Builders and developers should also take advice to ensure that these temporarily let properties continue to be viewed under HMRC rules as trading items and not as investments to avoid any further business tax consequences.

For further information please e-mail This e-mail address is being protected from spambots, you need JavaScript enabled to view it or call 01242 252555 and ask for Peter Perry.

FRIDGE STICKERS FOR RENTAL PROPERTIES

Date Added: 04 November 2008

In line with the Government's drive to improve energy efficiency, landlords must now issue new tenants with an Energy Performance Certificate (EPC) to show a building's energy rating on a scale from A to G (with A being the most efficient).

The new rules, which came into force in England and Wales on October 1, enable tenants to review potential properties according to their energy efficiency and fuel costs. Items impacting on the rating include insulation, central heating boiler efficiency, double glazing and even the type of light bulbs used! Once in place, certificates are valid for 10 years.

Landlords who refuse to produce an EPC face repeatable fines of £200 per property.

TAXING TIMES FOR REDUNDANCY PAYMENTS

Date Added: 04 November 2008

Companies battling in tough trading conditions may have to consider the difficult issue of reducing their workforce.

As with any business issue there are tax implications which apply to redundancy payments and it is vital to take specialist tax advice before proceeding.

The statutory redundancy payment (which can be up to £330 per year of service) is not subject to tax or National Insurance charges, but in many cases companies may wish or may have to make additional termination payments.

These additional payments could be subject to a differing tax and NIC status, and this is not only dependent on formal agreements such as contracts of employment. This is a particularly tricky area to navigate and with the current downturn HM Revenue and Customs can be expected to look closely at any payments that are claimed to be tax free.

If an employer is not careful he could find himself subject to punitive tax and NIC bills at a time when he can least afford them.

For further information please e-mail This e-mail address is being protected from spambots, you need JavaScript enabled to view it .