Recovering some vat from flipping process

[plebhead]

Hi,

Looking at vat rules with house flipping and by all accounts as the final sale is vat exempt then recovering vat on products and services used to renovate is a bit of a no go. I'm just mulling over this scenario.

Plebhead trading buys property to renovate that has been uninhabited for 2 yrs or more.
Plebhead developments employed to renovate properties. Both are vat registered Ltd companies.

Plebhead developments Spends £20000 on supplies - vat is about £3.3k at 20%

They invoice plebhead trading £21000 - vat is 1k vat at 5% the lower rate as property has been vacant. >2yrs

£1k goes to hmrc from plebhead developments sale.

£3.3k recovered from hmrc by plebhead developments for purchases

Net Gain of £ 2.2k on vat

I realise that £2.2k is liable to tax if declared as profit and not offset elsewhere, but is the above principal legit?
Can the trading and development companies be directed by the same people??

Cheers

Plebhead

 

[diyhelp]

I suspect that HMRC might look to treat these companies as one as they are controlled by the same party. Check with you accountant as I am no expert but if it was this easy then everyone would surely be doing it?

 

[FWL]

There may well be an issue of common ownership here - however I would be interested to see how this work in real life. How did you get on @plebhead ?

 

[plebhead]

I'm doing all my research first prior to making the investment. Weighing up the advantages of a trading company over a sole trader and the tax implications. Working out better on the trading company side the more capital gains and income there is but no way clear cut. For the first deal it is marginal when you chuck in running costs and accountancy. Dipping my foot in the water and don't want to get it bit off by hmrc!! Want to do it by the book but don't want to be caught out with something I've overlooked.