There is a little known (even to HMRC) concession to this rule that allows the recovery of input VAT in certain circumstances. HMRC’s published and internal guidance states “Where a domestic room or rooms is put to business use, you may agree to an apportionment using an objective test to the extent to which the room is put to business use” (HMRC Manual V1-13, Section 14, para 14.7, and VAT Notice 700, Section 33,). This means that if Mr Jones can show HMRC that he intends to use the loft conversion for entirely business purposes, then the company will be able to recover the VAT on the building work and materials. If he can show that the carpets and decorations are for a business purpose as well, than the company will be able to claim that VAT back too. The staff dealing with VAT written enquiries are more experienced in this area than normal VAT Officers, and have more time to consider the matter without thepressure to make a quick assessment. If youmake a reasonable case, you should have no trouble getting the VAT back.
This tip was first printed in Business Tax Insider in June 2009.