Early intervention provides valuable VAT advice to our clients

We recently advised an individual who was purchasing a commercial property in order to convert it into his own home. The business selling the property had previously ‘Opted To Tax’ and therefore advised our client that he (the seller) would be charging VAT on the sale price of £400,000 and that our client could recover it from HMRC via a process known as a ‘DIY Refund Claim’.  The seller was incorrect and our intervention resulted in VAT not being charged on the sale to our client. This was crucial to our client as HMRC would not have repaid our client the VAT he had incurred (via a DIY Refund Claim) as the VAT had not been correctly charged in the first place. Our client would have required to obtain a credit note for the VAT that had been charged in error.
This same client had instructed a contractor to undertake £300,000 of refurbishment costs in converting the property from commercial to residential use. The first interim invoice from the contractor had VAT charged at the standard rate of 20% when it should have been at the reduced rate of 5% as it was a conversion from commercial use to residential use. Had we not intervened, HMRC would have repaid our client only £15,000 (5%), and not the £60,000 (20%) that the seller proposed to charge him. The only way our client could have rectified this without our intervention would have been to go back to the contractor and ask for a credit note for the VAT charged incorrectly. Our advice resulted in the client having a cash flow benefit of £45,000 and, possibly more importantly, negated the possibility of losing £45,000 had the contractor become insolvent in the interim.