Beleaguered Housebuilders - HMRC to issue Revenue and Customs Brief - but is this enough?

The Brief is helpful in confirming that any reasonable method of arriving at the disallowed input VAT will be acceptable (although evidence may be asked for to support this method).

They suggest that one method to arrive at allowable input VAT may be by reference to the expected value of taxable and exempt supplies, i.e.

Estimated value of House (when eventually sold)
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Estimated value of House + rental/premium receipts

They add that if it is not possible to estimate the above values a different calculation might be needed that apportions the input tax by reference to the expected rental period. Interestingly HMRC then state that taxpayers should think carefully before using the rental period method because for VAT adjustment purposes "the total economic life of a building is ten years"

The first question must be why is the economic life of a house ten years for VAT purposes when mortgages are routinely granted for 25 years or more?

The second question is why are HMRC not re-instating the same concession - whereby short lettings could be ignored - that they granted 15 years ago during the last downturn?

HMRC have asked for comments on the draft Brief by 21 August. If you want to make your voice heard on this important topic - shout now!