My client owns a 3 storey victorian building. He lets out the base storey to a commercial business. He is Vat registered, and charges Vat on the rent he collects from this commercial business.
He has just spent out a considerable amount getting the two upper storeys converted from disused rooms (that the commercial business downstairs used to also rent from him), into a maisonette with 4 bedrooms etc that is now let to 4 students.
My question is....when doing the book keeping, can we reclaim the Vat from all the building material costs that he incurred - from wood/nails/plasterboard/windows etc. These 2 storeys were gutted, structurally strengthened and then fitted out for student accom.
I have just tried reading though all the HMRC info on this, but now have my head spinning.
The bad news is that the activity your Client is involved in is VAT-exempt, so he cannot reclaim the VAT. The other question is - was he only charged VAT at 5% on the refurbishment works? (The rules are not straightforward, but the savings can be substantial!)
Thanks very much for your reply - I was beginning to think that myself too. However, he did buy all the building materials direct (and paid 20% Vat on them) - so am wondering if there is a way he can reclaim the difference if he was only really meant to pay 5%.....
