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HMRC internal manual

VAT Registration

Joint working in the construction industry

In construction industry scenarios where land is jointly owned, it can be difficult to work out whether any new VAT registrations are required.

Where persons have entered into an agreement to acquire land, develop land or do both jointly, and you are not sure whether that agreement will result in a new VAT registration, you will need to think about

  • whether the nature of the joint ownership and the activities that the joint owners will be undertaking together in relation to the land has created a new taxable person, for example a partnership (see VATREG08450), which is distinct from the original parties
  • whether that new person will be making taxable supplies.

If the joint owners are making taxable supplies above the registration threshold they will have to register for VAT as a partnership, subject to the normal rules.

Trustees

Where property is jointly owned, the legal and beneficial owners may not be the same person. A legal owner, often referred to as a trustee, will normally hold a property on trust for the beneficial owners.  The beneficial owner is the person who directly receives the benefits of the proceeds from selling, leasing or letting land or buildings.

Joint tenants

Joint tenants share ownership of the property with the other named owner/s. All the proceeds and costs will be divided between them according to the terms of the agreement. Joint tenants cannot dispose of shares of the property separately: all the joint tenants must act together.  So if A and B are joint tenants and A ceases to exist, B will then hold 100% of the property.

Tenants in common

Tenants in common co-own the property with another party (or parties). The law regards each as having separate shares in the property. Each party can dispose of their share separately.  So, if A and B are tenants in common and then B sells its share to C, the tenants in common are now A and C.

Where the law treats trustees as supplying the property jointly (for example, because they are joint tenants), they will have to register for VAT jointly if the value of that supply exceeds, or will exceed, the VAT registration threshold.

Where the law doesn’t treat trustees as supplying the property jointly, for example because they are tenants in common, each party is required to account for VAT on the taxable supplies it makes in connection with that property under its existing VAT registration number. But you will still need to check whether the nature of the agreement between the parties has created a new partnership. If it has, and that partnership will be making taxable supplies, the parties will have to register the partnership for VAT separately if the supplies exceed the registration threshold.

Examples

The examples below are designed to help you work out whether a separate VAT registration is required. A decision table is also included at VATREG10020. The examples are not exhaustive and each case will ultimately turn on its facts.

Example 1

Two parties (A and B) agree to construct an office building on land they own jointly as joint tenants. They intend to make an option to tax, so their supplies will be taxable. Legal title to the land is held by A (under a deed of trust) so A holds the land in trust for the benefit of A and B as joint beneficial owners. The two parties have not entered into a formal partnership agreement but have agreed that the proceeds from the sale of the building will be shared between them according to their respective contributions to the project, meaning that an effective partnership has been created. This means that A and B will be supplying the building jointly, so they cannot account for VAT on the sale of the building through their existing VAT registrations.  They will have to register for VAT together as a partnership in respect of the supply of the office building

Example 2

Three parties (A, B and C) enter into a joint venture to convert a disused office building into apartments on land owned by C. The agreement between the three parties doesn’t give A or B an interest in the land and the agreement is that A and B will only provide construction services.  Title to the land is held exclusively by C, so only C can sell the completed apartments.

This means that, even if the terms of the joint venture agreement say a partnership has been created, the joint venture itself will not make any taxable supplies. So it will not be required to register for VAT separately.

A and B will make supplies of construction services to C, and will need to account for the VAT on those supplies under their own registrations.  C will account for the VAT on the supplies of the apartments under its existing registration.

 

Example 3

Four parties (A, B, C and D) are involved in the development of a shopping centre. They each acquire legal and beneficial interest in the land to be developed, so they will each be entitled to share in the rental income generated on completion. They have opted to tax, so the income from the rents will be taxable. Under a declaration of trust, A, B, C and D transfer legal title to the land to a firm of solicitors which then acts as bare trustee.

Because the benefit of the consideration, here it is the rental income, accrues to each of the beneficial owners (A, B, C and D) rather than to the bare trustee, paragraph 40 of Schedule 10 of the VAT Act 1994 applies. This means that A, B, C and D are treated as making the supplies of the sub-leases jointly, and they are entitled to recover the relevant input tax incurred on the costs associated with the shopping centre. They cannot account for VAT on the rental income through their existing VAT registrations and will be required to register for VAT together in respect of the joint property rental supplies.

Example 4

Two parties (A and B) enter an agreement under the terms of which commercial developments will be undertaken on adjacent parcels of land. The agreement allows the parties to share some of the costs of developing the land.  However, A and B retain ownership of their own parcels of land. On completion, they will each make separate rental supplies relating to their own land. The land itself is not jointly owned, so the rental supplies will be made by the two businesses separately and individually.

This will be the case even if A and B have formally entered into a joint venture agreement, and the terms of that agreement says a partnership has been created. The joint venture won’t make any taxable supplies, so it will not be required to register for VAT. A and B must account for the VAT on their rental supplies under their existing registrations.

Any invoices which suppliers issue to the joint venture must set out clearly what each party has received by way of supply and, therefore, what it is entitled to recover. HMRC will not insist on suppliers raising separate invoices as long as the invoices they raise are unambiguous. We should not accept an invoice which has been made out to only one of the parties in a joint venture which has a copy of the joint venture agreement attached to it. 

Where a joint venture which is not required to register for VAT holds an invoice in the name of the joint venture, but the invoice does not set out the relevant allocation of the supply, the parties should go back to the supplier and insist that an unambiguous breakdown is included on the invoice.

Example 5  

Two parties, A and B, jointly acquire a site, holding the interest in it as tenants in common.

They collaborate and share the costs related to acquiring planning permission and to procuring major infrastructure works. This enhances the value of their joint asset.

After that initial work has been completed, the site is partitioned so that A and B each holds legal and beneficial interest in its own portion of the land. The joint tenancy is severed and the two parties are no longer tenants in common. They now develop their own areas of land separately, and sell their own properties to customers.

As A and B are not making joint supplies, they must account separately for the VAT on any taxable supplies they make in respect of this site through their existing VAT registrations.  The terms of their collaboration are unlikely to have created a partnership but, even if they have, as the partnership will not make any taxable supplies, it will not be entitled, or required, to register for VAT.