Case Study on VAT Treatment of Serviced Plots

Our client had a few acres of bare land with outline planning permission for 12 houses.
He could have sold the bare land to developers and received £1.2m. If he paid for services to be put in and connected up to each plot he would be able to sell the serviced plots for at least £2m. The quote for putting in the services was around £300,000 and the quote had VAT at 20% added, £60,000. Our client wanted to know if he could reclaim this VAT.
The sale of a serviced plot is an exempt sale for VAT. This meant that our client would not be able to reclaim any input VAT on the costs of servicing the plots and would have to suffer the £60,000 VAT cost.
Our client did not want the financial risk of putting in the foundations and laying the ‘golden brick’ which would have allowed it to become a zero rated sale.
EQ found the solution in VAT Notice 708. This Notice includes a paragraph that states that if you pay for services to go in to a plot you are allowed to get these supplies zero rated if you can demonstrate to the supplier that there will be residential properties built on these plots soon after the completion of the civil engineering works.
EQ contacted the supplier that quoted for the servicing work and made them aware of this rule. They re-quoted without charging VAT and our client saved over £60,000.
The VAT rules involving land and construction are very detailed and complicated. It is important to have an accountant that is experienced in this area to ensure that VAT is not paid unnecessarily.