Vertical residential conversions and VAT – What is the score?
This is a bit like a football match with First Tribunal decisions going first one way and then another. Currently the score is 2-2!
The point at stake is whether carrying out the conversion of a mixed use building (often a pub with residential accommodation above) is an exempt supply, so no VAT recovery or a zero-rated supply, giving full VAT recovery. The last case decided was a pub with commercial first floor and two residential floors above. A fourth floor was added and four maisonettes constructed. The two that did not use any of the commercial floor were considered to be exempt but the two that did were held to be zero-rated even though they had used part of the previous residential area.
Watch this space; it is more than likely that this case will be appealed to the Upper Tribunal so both HMRC and taxpayers can have some certainty over what the legislation actually says.