When starting a property development, it can be difficult to determine the level of input tax recovery from the outset. This is because the VAT liability of the supplies made by the developer at the end of the development can vary depending on various factors including:

• the type of property - commercial or residential;
• the type of grant - freehold, long lease or short lease;
• whether the developer will opt to tax; and
• the intended usage of property and the occupier’s VAT status.

Initial attribution of input tax is usually based on intention, which can change over time. This change in intention could result in an additional cost, or it can be an opportunity to claim some input VAT back.

Either way, the input tax swing can be significant for the cash flow and ultimately, the viability of a development project.