Andrew Needham looks at how VAT recovery on an asset alters with a change in its use.
Suppose that a business purchases an asset, for example a building, for a project, expecting to use it in its taxable business, and recovers all the VAT on the purchase. However, circumstances change, and it no longer needs to use the building and decides to sell it to a housing association for redevelopment. It cannot opt to tax and so the sale is an exempt supply. The change of intention takes place two years after buying the property.
Adjustment for change of use
If the intended use of an asset changes within six years from taxable to exempt or non-business instead, the law (SI 1995/2518, reg 108) requires the original attribution to be corrected. The correction must be made on the VAT return for the period in which the change of use occurs
