Tax  

Q&A: Ben Chaplin

Q&A: Ben Chaplin

Q: I was recently in the fortunate position of being able to introduce an interested purchaser to a developer in respect of a new £5m residence, which is being built. I have negotiated a commission of 2.5 per cent of the selling price on completion. I am not VAT registered. Will this commission be exempt from VAT in the same way as the commission and fees I receive for my financial intermediary services? 

A: In a word, no. Financial intermediary services are exempt under VATA1994, schedule 9, Group 5, item 5, and to qualify for exemption the adviser must be a person who:

•    Brings together a person seeking a financial service with a person who provides a financial service

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•    Stands between the parties to a contract and acts in an intermediary capacity

•    Undertakes work preparatory to the completion of the contract for the provision of the financial services, whether or not it is completed.

Although a financial adviser is likely to have exempt supplies meeting those conditions, there is no blanket exemption simply on the basis that he/she is a financial adviser. VAT depends on the nature of the supply being made.

An introduction to a vendor in respect of a property is not relieved from VAT either as exempt, reduced rated or zero rated, and therefore is a standard rated supply. Assuming the property sale in question proceeds at the suggested price you will receive a payment of £125,000 on completion of the sale.

If this is all received on completion of the sale, VAT registration will be required under the forward look, which is triggered when you have reasonable grounds to believe that your taxable supplies in the following 30 days will exceed £83,000.  

You would need to apply to be VAT registered from the date the expectation arose and account for VAT on the payment. As the developer will be making a zero rated sale of the property they should be able to recover the VAT if you add this on to your commission. However, if they refuse, you will need to treat the £125,000 as VAT inclusive, and account for £20,833.33 of the commission as output tax.

If the developer is happy to structure the payment so it is made in stages up to completion with sufficient intervals so there is no 30-day period in which you receive more than £83,000, you would not need to be VAT registered on the forward look, and if it is only the final payment that takes your taxable turnover over the threshold, then you would not need to be registered at all.  

You would just need to inform HM Revenue & Customs in writing that you have exceeded the threshold, but that taxable turnover in the following year will be below the deregistration threshold of £81,000.

Ben Chaplin is managing director of Taxwise