Are you operating your Design and Build Company correctly?
For those of you who follow it, you may have noted the recent case involving Faskally Care Home (FCH) which has emerged from the First-Tier Tribunal (Tax).
The case essentially revolved around FCH's use of what the RP sector knows as design and build company. Essentially a vehicle through which construction services are procured to provide streamlining and, as a by product, to improve the VAT recovery position.
By way of recap, design and build companies are used commonly within the RP sector to appoint contractors and construction team professionals, with such companies making a zero-rated supply to the RP - meaning that RPs can seek to mitigate the effect of any VAT they cannot recover against units let on a rental basis.
FCH were using such a structure but did not operate it correctly and as a consequence had to account to HMRC for a significant VAT liability.
For those that are interested a full download of the case can be located here. However the key point for RPs to take away is that it is absolutely essential that if you are using a design and build company within your group structure that you operate the same correctly. Much of the criticism about FCH's use arises out of the procedures and use of the company rather than any challenge to the structure itself. This means:
- making sure that invoices from contractors, etc. are correctly addressed to the design and build company, not the parent RP;
- ensuring all staff thoroughly understand the reasons for using the design and build company and the structures around this and can speak about the same knowledgably if challenged;
- looking at, for example, email sign-offs so that correspondence which relates to the design and build company's activities carries the appropriate auto signatures, etc.; and
- ensuring that arm's-length arrangements are adopted between group organisations and, for example that the appropriate markups on the services it provides are paid to design and build company.
If you would like to discuss the use of your design and build company and/or would be interested in refresher training then please do not hesitate to contact us to explore further.