R&D tax relief & VAT – An opportunity to add value to your clients?

At first sight, architects and the tax impacts of new buildings might seem an unlikely relationship. However, your involvement in a project from conception to completion means you could be well placed to help your clients identify cases where tax might be saved, tax problems avoided, or even to influence the design of a property in such a way that VAT costs on the project can be mitigated.

For architects’ clients, commissioning a property development or redevelopment is a significant step and a major financial investment. In budgeting for a project, tax is a potential cash or cash-flow cost element and in our experience clients will welcome solutions to mitigate or eliminate this cost. 

At RSM, we understand that tax is complex, particularly in relation to land and property, and we can work together with architects and their clients to identify where the type of development, or its intended use, can result in tax savings, or where seemingly minor points in the planning consents or property design can create an unexpected and unwelcome VAT cost.

R&D

Research and development (R&D) tax relief is a company tax relief that can either reduce a company’s tax bill or, for some companies, provide a cash sum. Relief is based on the company’s expenditure on qualifying R&D. Currently the net benefit can range from between 6p and 26p of each £1 of qualifying expenditure. For there to be R&D for the purpose of the tax relief, a company must be carrying on a project that seeks to resolve uncertainty through an advance in science or technology. Therefore, identifying such projects for your clients can create opportunities for them to save tax – which is where we can help. 

New build homes and residential properties

VAT zero-rating relief is available for construction services for qualifying developments, but not generally for associated professional services. However, if the project can be structured as a ‘design and build’ contract, the VAT zero-rate can also extend to otherwise standard rated architectural, surveying, engineering and similar services associated with the development.

However, it is not all good news and it is all too easy for a planning condition to have a dramatic negative VAT impact. Even something as seemingly minor as a condition preventing separate disposal of a property can mean that relief from VAT cannot apply.

Live/work units are another constant source of VAT problems; as the property is part-commercial construction services cannot benefit from total zero-rate VAT relief.

Commercial to residential conversions

A valuable relief in the form of a 5 per cent reduced rate of VAT for construction services is available for commercial to residential conversions, but care needs to be taken when the property includes an existing residential element. Pub or retail conversions are typical examples of where VAT advice should be sought.

Charity and not-for-profit clients

There are a range of VAT reliefs available to charities, depending on their intended use of a property, but they are far from straightforward. It is all too easy for the benefit of a VAT relief to be lost or compromised, to the cost detriment of the charity involved.

How can we help?

Timely advice can result in valuable tax savings and RSM is a leading adviser in both the professional services and the property/construction sectors. For both architects and their clients, we can advise on the tax position of projects from the planning and design stages to completion.

If you would like to discuss any of the aspects further please contact Ian Carpenter