Can VAT on building sale be split for part residential use?
I have a client who is buying a building that consists of three floors. The ground floor is a public house and the upper two floors are residential, used as living accommodation for the pub landlord. The two upper floors are one flat because they have internal access.
The seller has opted to tax the building and my client intends to convert the pub into a shop and then improve the flat with decoration, plumbing and electrical work so that they can all be rented out to tenants at the end of the project. The shop tenant will not be the same person/business renting the flat.
I have three questions:
- The seller wants to charge VAT on the full selling price but I understand there is an agreement between HMRC and a brewery association that 10% of the proceeds can be exempt if there is owner’s accommodation in the building. Is this correct?
- If the 10% opportunity is possible, could we perhaps ask the seller to increase this to 20% on the basis that there are two floors for residential use rather than one?
- If my client opts to tax the property, presumably he can claim input tax on the 80% or 90% VAT charge because it will wholly relate to the commercial part of the building?
What do readers think?
Query 20, 615– Queen Vic.
She’s never going to leave
My clients (a married couple living together) have two adult children. Their daughter lives at home with her parents. Their son lives in his own home. My clients do not charge their daughter rent and pay all the utility bills (including broadband) for the household and the council tax. They also pay for all their daughter’s food and toiletries. When their daughter joins her parents on a family outing, her parents will usually pay everyone’s train fares and the restaurant bill for any food eaten out. To equalise the treatment of both children, the clients prepare a rough calculation of the monthly amount they spend on their daughter and pay an equivalent amount to their son every month. Whenever their daughter or son goes on holiday, the parents make a contribution to each of them to cover some of the additional costs the child incurs while away.
My clients’ income is more than enough to cover all the amounts they give their children and their standard of living is not affected. May they treat the above expenditure as normal expenditure out of income and so exempt from inheritance tax? Does it matter that the amounts spent vary from month to month? How would the exemption work in relation to the household utility bills and the meals out, which the parents also enjoy? If the parents chose to pay some of the bills out of their savings, would that matter, as they have enough income to cover the costs?
Query 20,616– Full Nest.
A question of interest
One of my client companies has come within the corporation tax payments on account regime for the first time, having exceeded profits of £1.5m in the year to 31 March 2025. That means it has a corporation tax liability to settle on 1 January 2026, but must also make estimated payments on 14 October 2025 and 14 January 2026. By 14 April 2026, we will have a fairly accurate picture of the likely liability for the year, but for the first two instalments we will be guessing. As I understand it, if we guess to pay too little we will owe interest to HMRC, and if we pay too much it will owe interest to us – with a ‘turn’ in its favour of 5%. These amounts will affect the tax computation as taxable income or a deductible expense.
Can readers share any hints or experience of how to deal with this? Is it just a question of making your best guess and sorting it all out with a reconciliation at the end? And is my gut feeling – that the ‘turn’ makes it better to pay more rather than less – correct? I’ve noticed that HMRC’s system appears to calculate and credit interest on a daily basis when my non-POA companies pay their CT early, but it is not showing any interest on this client’s substantial first payment made on 14 October. Is that significant?
Query 20,617– Headspin.
Offshore employer pick’n’mix
We have a situation in which a client received money, which HMRC claims is employment income, from an ‘employer’ that is incorporated offshore but which is usually connected – commercially and sometimes in line with tax definitions – with a UK entity. The offshore employer applied for and was granted a PAYE scheme reference, and paid tax and NIC to HMRC as part of that PAYE scheme for many years. HMRC claims that:
- offshore employers voluntarily operate PAYE but are not bound by the Income Tax (PAYE) Regulations 2003 and cannot therefore be subject to the redirection provisions (reg 72 and/or reg 81), and thus
- cannot be issued reg 80 determinations.
We have searched the regulations and there is no mention of offshore or voluntary. Our view is that if HMRC has accepted an application for a PAYE scheme then there can be no picking and choosing which terms and conditions apply – either all the provisions apply or none of them do. What do readers think?
Query 20,618– All or Nothing.
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