The recent announcements by the Homes and Communities Agency of cuts to the National Affordable Housing Programme (NAHP) being £450 million for the 2010/11 financial year will cause developers involved in agreeing terms for developments reliant upon NAHP funding a fairly major headache. Not least of these headaches will be the VAT implications of developing sites where an option to tax for VAT has been made.
Housing Associations inability to reclaim VAT is often dealt with by the disapplication by the Housing Association of the vendor’s option to tax. The supply of a site following service of the notice is exempt for VAT and this can enable Housing Associations to develop sites which would otherwise be unviable.
Where Housing Associations are unable to commit to purchase owing to the reduction in the NAHP funding or uncertainty over its availability, a developer who has been endeavouring to facilitate the disposal and development of a site on which VAT is payable is left in a difficult position. The developer may choose to purchase the site itself, reclaim any VAT and develop to “Golden Brick”. At this point the sale of the site to a Housing Association (once any funding issues have been resolved) will be deemed, for VAT purposes, to be the disposal of a dwelling or dwellings upon which VAT is not payable (or on which more accurately VAT is payable but at the rate of zero).
In this situation the developer will be incentivised to build as quickly as possible but also to persuade the Housing Association to accept the recent guidance issued by HM Revenue and Customs, that Golden Brick isn’t simply necessarily two bricks above the damp proof course (being the definition traditionally used) but rather the point at which construction of the building has progressed beyond the foundation stage. With a large building or development this might bring the completion date forward significantly and so improve the developer’s cash flow.
Getting the definition of “Golden Brick” right and considering the other options available to navigate a route through the obstacles which VAT can present when developing in conjunction with Housing Associations is and will for the foreseeable future, remain a key issue for any developers active in this field.