I am a property developer who had a contract to purchase land for a large residential new build project and had the finance in place for the project when approved. I reclaimed the VAT on all of the professional fees and planning costs on quarterly VAT returns which are fairly substantial but there has been a very long delay, due to lots of issues, in getting to approval for the project from the local council (eight years) and the backers of the project have now pulled out and as they were unable to get the required finance for the build from other sources, they have sold the land on with planning consent to another party (no VAT). My concern is whether I am still entitled to reclaim the VAT as I only sold land at the end of the process instead of selling residential properties with zero-rated supply. I can show evidence that I fully intended to complete the building myself (correspondence with the people who would provide the finance for the build) and the sale of the land with planning due to circumstances out of my control. 

Arthur replies: 

In HMRC’s VAT Input Tax Manual at VIT22000, it is explained that if a business fails before it has actually made any supplies, the input tax recovery rules treat the intended supplies as if they were actual supplies. As long as there is a genuine intention to make supplies, the VAT incurred on preparatory costs for the failed business will be recoverable, subject to the normal rules. However, your scenario doesn't fit into this, because in your scenario, you ended up selling the land with no VAT, essentially making an exempt supply. So, quite likely, the 'clawback rules' will apply, meaning that you will need to repay the input VAT claimed. I would advise you to get proper VAT advice.