Id like to bring to your attention the following issue.
In relation to notice 742 from HMRC, can you please advise if the company should charge VAT on all expenses that are recharged to other tenant who share the premises with the company. The company is VAT registered, but the main income is from rent and it is exempt from VAT. The shared costs are part of informal agreement between the two companies for sharing some of the maintenance costs. All invoices for the maintenance are issued to the company and further reimbursement will be received through recharge invoices issued to other tenant.It looks even more complicated if you think about the way the company is going to claim the VAT back, as usually we dont claim anything back due to exempt sales.
Hope the post will be interesting and helpful for everyone who likes the forum and I am really looking forward for you comments.
Many thanks
Diona
-- Edited by Diona on Tuesday 5th of August 2014 10:44:32 PM
its not as straight forwards a question as it seems.
As you know, buildings are normally exempt from VAT but the VAT registered landlord can opt to tax in order to be able to reclaim VAT on the running costs.
If the landlord opts to tax then tennants must be charged VAT on their rent. (and can reclaim it if they are VAT registered).
In the scenario you are looking at about recharging expenses the landlord must have opted to tax to be able to reclaim the VAT on the running costs. So the client would also be charged VAT on recharged expenses.
If the landlord opts to tax then they have three months to change their mind about the election. If not reversed in that time then they cannot change the election for twenty years.
Opting to tax must be for the whole building. It cannot be subdivided into VATable and exempt portions. However the election is on a building by building basis rather than all properties owned.
Hope that helps.
kind regards,
Shaun.
p.s. note that if the option to tax is taken this can also have an effect on any future intention to transfer the business as a going concern so something else to be aware of before making a decision.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
The scenario involves tenant 1 (the company mentioned) and tenant 2. The shared cost are between the two tenants acctually. The tenant 1 is seeking a reimbursement of some of the maintenace cost, but probably it should be done by the landlord. The company (tenant 1) is VAT registred, but all sales are exempt and we don't claim VAT. The question is how we are going to recharge the expenses to tenant 2 and claim the VAT back. I found a guidance in the notice below, but probably I am missing something.
Land and property
HMRC Reference:Notice 742 (June 2012)
11.8 Shared premises
If you are the owner or tenant of the premises and you do not grant other occupants an exempt licence to occupy land (see paragraphs 2.5 and 2.6), then any service charge you make is standard-rated. This applies even if you are simply passing on an appropriate share of your costs. The only exception is if you are paying and recharging a bill that is entirely the liability of another occupant, such as a phone bill or insurance premium in the other occupants name. You can treat such payments as disbursements. You can find more information on disbursements in Notice 700 The VAT Guide.
