Indirect Tax - VAT, Customs Duties & Excise
Tax risk is what companies face when they are unsure of having planned their taxes with foresight, accounted for their taxes correctly and complied with all relevant tax laws. Dramatic shift in the global economy has changed tax policy and enforcement, forcing companies and governments into more disputes. Tax policy-makers say they expect indirect taxes to be their leading source of new revenue over the next decade, while tax administrators and taxpayers view indirect taxes as a key source of risk over the next three years.
In particular, the UK VAT legislation relating to construction projects and property transactions are in constant flux and change making it more complex. This requires an in-depth knowledge of the interaction and impact of the VAT legislation for the construction industry and land owners to avoid the risk of misinterpretation which may result in costly oversights and errors. Recent VAT compliance audits by HM Revenue & Customs (HMRC) have highlighted a lack of understanding by business and highlighted that the VAT regulations are not being adhered to. The constant stream of VAT tribunal cases and the European Court of Justice judgements show a trend of complex decisions which will have both an immediate impact of the VAT liability of construction works. In some cases this will also have retrospective implications for businesses which may open the opportunity for a VAT refund.
Generally, new build domestic residential and certain relevant charitable buildings benefit from zero-rating, whilst the reduced rate of 5% can apply to certain qualifying renovation and conversion works including dwellings empty for 2 years or more and coverting non-residential building into dwelling(s). The supply of other construction services and civil engineering works will generally be standard rated.
Recent legislative changes have affected the VAT liability of protected buildings whereby approved alterations entered into and approved prior to 21 March 2012 can still be zero-rated until the 30 September 2015.
The freehold sale of commercial property which is new (less than 3 years old) or incomplete is always standard rated. The freehold sale or long lease of an old commercial propety is exempt from VAT, but the option to tax the property is available which will enable a vendor or landlord to recover input VAT. The decision to opt to tax should be carefully considered and must be formally notified to HMRC. In certain circumstances, it is the actual use or intended use of the commercial property that will determine the extent to which input VAT may be reclaimed.
Supplies between landlord and tenants should also be considered with careful attention to the VAT impact in the lease agreement and assignmnt which may also include any inducement or surrender payments and service charges.
AECOM has a global indirect presence which is experienced in providing support in relation to technical VAT issues on construction, land and property.
For more information please contact Heather Atkins.