Disclosure of Tax Avoidance Schemes for VAT and other indirect taxes (DASVOIT) came into force on 1 January 2018 and VAT Notice 700/8: disclosure of VAT avoidance schemes has been updated. Further information about DASVOIT is available in Notice 799: disclosure of tax avoidance schemes for VAT and other indirect taxes.

Section 6.2 Scheme 1 – the first grant of a major interest in a building aims to remove the VAT cost of extending, enlarging, repairing, refurbishing or servicing buildings that are zero-rated when sold by developers. Examples of the buildings concerned are houses, student halls of residence and buildings used by charities for non-business activities.

6.2 Scheme 1 – the first grant of a major interest in a building

This scheme aims to remove the VAT cost of extending, enlarging, repairing, refurbishing or servicing buildings that are zero-rated when sold by developers.

Examples of the buildings concerned are houses, student halls of residence and buildings used by charities for non-business activities.

6.2.1 The scheme’s features

The scheme comprises or includes the following features:

(a) a zero-rated major interest grant is made in the building (see Notice 708 Buildings and construction) to a connected person (see paragraph 6.1.2), and

(b) the following input tax is attributed to the grant:

• input tax in respect of a service charge relating to the building, or
• input tax in connection with any extension, enlargement, repair, maintenance or refurbishment of the building (other than for remedying defects in the original construction).

6.2.2 Examples of arrangements included in the listed scheme

A housing landlord may seek to use this scheme to recover input tax on the renovation of houses that he had constructed several years earlier. Having decided that some of the houses require major refurbishment, the landlord leases or sells them to a subsidiary in such a way that he attributes to that zero-rated disposal the VAT on the refurbishment, which may be undertaken either before or after the grant. The subsidiary may then simply lease the houses back to the landlord so that he can then let them on again to tenants.

By way of another example, the builder of new halls of residence may try to recover future input tax on repairs and maintenance of the buildings, even though his income from the property at that time will be exempt, by building into the initial zero-rated lease or sale a payment for, and agreement to provide, repairs and maintenance in the future.

6.2.3 Examples of arrangements not included in the listed scheme

This listed scheme does not include arrangements where:

(a) the zero-rated grant is made under the VAT Act 1994, Schedule 8, Group 5, Item 1(b) (person converting a non-residential building);

(b) the zero-rated grant is made under the VAT Act 1994, Schedule 8, Group 6, Item 1 (substantial reconstruction of a protected building); or

(c) there is no zero-rated grant made to a connected person.