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HMRC internal manual

VAT Land and Property

Business and non-business: are property transactions by development corporations business?

Development corporations (DC) are set up under Acts of Parliament to develop large areas, typically of derelict inner city land. They are public bodies who receive significant Government funding. However, they do not benefit from the public sector relief schemes in VAT Act 1994, sections 33 and 41, and are normally required to operate in a commercial manner. The result is that most DCs will be engaged in both business and non-business activities, with only some of the VAT they incur being recoverable as input tax.

The majority of DCs acquire land under compulsory purchase and either upgrade the land, selling it to property developers, or develop the land selling the buildings. These are business activities.

The majority of DCs are also involved in the rejuvenation of the development area, which is not solely confined to the land. These activities may entail new roads, environmental improvements, schemes to increase employment, community projects etc. The situation needs to be examined closely since the activities may not wholly relate to the business activity of exploiting land. It is most likely that not all the VAT incurred in relation to these activities is recoverable as input tax, but the precise extent will depend on the individual development.