CA94555 - Structures and buildings allowance (SBA): additional VAT: background and definitions

CAA01/S270GA

Generally, all the VAT incurred on the construction or purchase of the asset can be reclaimed by a VAT-registered business on its VAT return if it is to be used for business purposes to make taxable supplies.

The VAT Capital Goods Scheme applies, amongst others, to land and buildings with a value of £250,000 or more. It can result in additional VAT consequences for up to 10 years.

The VAT Capital Goods Scheme adjusts the rate of recovery of VAT if the use of capital assets changes in later periods. If the proportion of use changes for VAT, from taxable to exempt supplies less VAT is claimable by the purchaser. If the proportion of use changes from exempt to taxable supplies, additional VAT is claimable from HMRC. See CAA01/S547-S549 CA11900.

An additional VAT liability is the further VAT payable to HMRC if the proportion of exempt use of an asset covered by the VAT Capital Goods Scheme increases CA94570.

An additional VAT rebate is claimable from HMRC when the proportion of taxable use of an asset covered by the VAT Capital Scheme increases CA94580.

The relevant VAT interval is the period, usually 10 years, used to make the computation which gives rise to the additional VAT payable or the additional VAT rebate.

Any additional VAT liability is incurred and additional VAT rebate arises on the last day of the relevant VAT interval.

For the purposes of the SBA additional VAT liabilities or rebates only apply to the person with the relevant interest who first makes qualifying use of the building. The qualifying expenditure of any subsequent holders of the relevant interest are not affected because their relief for the SBA is based on the qualifying expenditure incurred by the person who first makes use of the building. It follows that if the first person to use the building does not use it for the purposes of a qualifying activity, then no VAT adjustments are due in respect of any subsequent claim to SBA for that building.