How P10 Accountancy Got Involved
P10 Capital asked P10 Accountancy to review the VAT treatment of the project from scratch. Our team carried out a full technical assessment against HMRC's qualifying conditions, examining:
• Legal title: confirming a single title would become two separate titles at Land Registry
• Planning permission and approved drawings: confirming each new apartment was genuinely self-contained, with its own entrance, kitchen, bathroom and services
• The building contract and scope of works: separating qualifying conversion works from any unrelated standard-rated works
• The client's intentions: supporting the case that a genuine change in the number of dwellings was being created
Having confirmed all of HMRC's conditions were met, we advised the client that the initial VAT treatment was incorrect and they actually qualified for 5% VAT treatment due to the qualifying conditions .We advised our client to reissue invoices at the 5% reduced rate rather than the standard 20% rate on all qualifying labour and materials and set out a clear, practical route to correct the invoices already raised for work completed to date.
The Savings & Cashflow Impact
20% → 5%
VAT rate corrected
~£187,500
Estimated saving
• A straight 15-percentage-point reduction in VAT on qualifying conversion costs, worth an estimated £187,500 on a project with total gross costs of circa £1.5 million.
• Because the eventual sale of the converted apartments is VAT-exempt rather than zero-rated, VAT on development costs is an irrecoverable, real cost to the business, so every point saved on the rate drops straight through to the bottom line and directly improves project margin.
• Correcting invoices already issued at 20% put money back in the client's pocket: the contractor's reissued invoices and credit notes reduced its own VAT liability to HMRC, generating a repayment that flowed back to the client, turning an overpayment into an immediate cash injection at exactly the point in the build when cashflow is tightest
• Getting the rate right from the outset and holding the right supporting evidence removes the cost, delay and uncertainty of a retrospective challenge from HMRC
“The client's previous advisers weren't wrong to be cautious, reduced-rating rules on residential conversions genuinely are technical. But getting the detail right unlocked a saving that flowed straight back into the project's cashflow, right when it mattered most.”
Chris Morris, Director, P10 Accountancy
Working on a change-of-use or residential conversion project? Talk to P10 Accountancy's construction & property VAT specialists before your contractor raises a single invoice — the earlier we're involved, the more we can save. enquiries@p10financial.com | 020 8891 4422 | www.p10financial.com
