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VAT: A “heads up” for Property Developers

Posted: June 28, 2017

The following will be of interest to anyone involved in development projects that include any ‘planning gain’ improvement works.

In a recent European Court of Justice case a Bulgarian developer was building a large holiday village. One of the requirements for obtaining the planning was that the developer substantially upgraded the local waste pumping station. In England and Wales this might be referred to as a ‘section 106’ (of the Town and Country Planning Act 1990) requirement. Similar examples might be for link roads, roundabouts or building community use areas or play parks.

The UK deems such requirements to be part and parcel of the underlying supply, in other words any VAT incurred in meeting the requirement is treated in the same way as the VAT status of the underlying project. Where that underlying supply is taxable (VATable) then the VAT incurred on the additional work is recoverable as input tax.
ECJ cases take some time to process, and in advance of any formal, and final, decision the ‘Advocate General’ will provide an opinion. In this case the AG’s opinion is that the VAT on the additional improvement work required for the planning permission is not recoverable. This is because the additional work was deemed not to have been a business activity.
In many instances, this opinion will be supported and confirmed by the final Court decision, and this case decision is expected later in the year.
How does this impact on UK developers?
Current UK VAT treatment goes against the stance taken by the AG’s opinion in this case. If the final decision supports and follows the AG then UK developers with these kinds of additional works may find that recovery of associated VAT is restricted. Of course the looming spectre of ‘Brexit’ may affect this, but indications are that the proposed Bill to remove the UK from the EU will state that UK Courts will continue to refer to EU case law that is in place on the day that the UK actually leaves.


If you have existing or planned developments where planning gain improvements could be a costly element then it would be worth reviewing agreements to ensure that any VAT cost is secured, and if necessary obtaining HMRC confirmation of this.