I have recently taken on a new client (masons). They own the Lodge they use. They rent out the main hall they have to other masons and public sector. My question is should they be charging VAT on this? I have been told they can either opt in or out but don't fully understand the regulations behind this.
The option to tax does not apply to the building, but to the mason's interest in that building. If the building was purchased with an option to tax the freeholder (the mason's) has the option to charge VAT to the tenant. Determining whether to opt in will depend on many factors, including whether the prospective tenant will be VAT registered. If they are, the freeholder will be able to pass on the additional VAT without much trouble i.e. the tenant will be able to reclaim it. However, if the tenant is not VAT registered, or is exempt from registration, it may become prohibitive and result in uncompetitive rents.
Once an option has been made it cannot be revoked for 20 years. The decision to opt should not be taken lightly, and professional VAT advice should be sought.
