Change to serviced building plots liability

A serviced building plot is bare land in respect of which civil engineering works have been carried out to provide access to essential services such as gas, electricity, water, main drainage, street lighting and sewerage.

Until now, HMRC have treated the supply of a serviced building plot by the landowner to a developer as consisting of two supplies — an exempt supply of land and a standard-rated supply of civil engineering.

However, the recent tribunal decision in Douglas Virtue & Sonia Virtue t/a Lammermuir Game Services (20259) held that the sale of a 'plot of land within a serviced site' constituted a single exempt supply of land.

The tribunal also held that, in this case, the supply of the civil engineering works to the landowner was zero rated because it had been made in the course of the construction of a 'building designed as a dwelling'.

HMRC now accept that, with immediate effect, the supply of a serviced building plot of land is a single exempt supply of land by the landowner. The supply of civil engineering works to the landowner to provide access to essential services will continue to be standard rated in most cases.

However, where the landowner can demonstrate that these services are being received in the course of construction of a building designed as dwellings, or buildings intended for use solely for a relevant residential or a relevant charitable purpose, they can be zero rated.

Prior to this finding by the tribunal:

• landowners would incur VAT on the civil engineering works carried out and, if they were registered for VAT, were able to take credit for this VAT as input tax against the output tax due on the onward supply of the civil engineering to the purchasers of the serviced plots;
• if the purchasers of the serviced plots were commercial developers, the VAT on the civil engineering element would be recoverable to the extent that a taxable supply would be made of the completed buildings;
• if the purchasers of the serviced plots were DIY housebuilders, the VAT on the civil engineering element could not be recovered through the DIY housebuilders' VAT refund scheme.

The new policy follows:

• landowners will now be making an exempt supply of land and will not be able to register for VAT unless they have other taxable activities;
• if the supply of the civil engineering works to them is standard rated, they will not be able to recover this VAT and it will become a cost to the landowner;
• developers and DIY housebuilders will not be charged VAT by landowners in this situation.

Categories: News , VAT