VAT @ std rate charged on Buildings Insurance due to landlord, is this right?

[*Lexxy*]

our landlord has finally provided us with some detailed invoices, to say their accounting procedures are a little lacking would be a huge understatement!

the amount quoted for building insurance has had vat applied at 15% for the period July to December 2009 & 17.5% Jan to December 2010. we're not talking huge amounts but i don't want to be paying them something i don't need to (i know it will be claimed back on our VAT return too).

i've looked on HMRC for guidance & i can only find something about Insurance Tax at 5% (i think) :|

while i'm here, vat at std rate applied to rent & service charge is normal practice i take it?

also, none of the invoices from the landlord have which VAT rate has been applied - i am right in saying this has to be detailed doesn't it? i know we do on our invoices.

thanks :)

[David Griffiths]

It's correct.

Insurance is normally exempt from VAT. However if it's recharged onwards then it becomes standard rated unless the recharge is for exactly the same amount as the original bill from the insurance company.

What that means is that if the landlord gets and insurance bill for £x specifically for your unit, and charges £x, then that's exempt.

However if the bill is for £y for the whole building/estate, and the landlord apportions £z to your premises, that becomes standard rated.

[*Lexxy*]

brilliant! thanks David i'm sure they'll have buildings insurance for the whole of the premises, even if 90% of the units are empty, so it's a re-charge & VAT is correctly due.

[spidersong]

I'd just take issue with David on this one it's not actually a question of what price is charged but what the charge is for.

Fair enough to be a disbursement the intermediary must charge the same price out as they paid, and then the charge would be outside the scope of VAT as the supply is between the original seller and the eventual purchaser, not the person receiving the recharge.

But also to be a disbursement the purchase has to be for the direct benefit of the end user. In the case of insurance it is unlikely that most landlords arrange an insurance policy in their tennants names, nor is the landlord likely to be registered to provide insurance services. What the landlord is charging for is extra rental income, they haven't provided you with a supply of insurance, so if the rent is taxable then any further payments for the rent are also taxable.

It doesn't matter if the landlord shows their 'workings out' of how they make up their charges, what matters is the actual supply received, and unless there's a policy with your name on somewhere that you'd claim against yourself then you haven't received a supply of insurance no matter what the level of recharge.

[*Lexxy*]

sorry spidersong, most of that has gone over my head!

it's in our lease that we're liable for a % of the buildings insurance that the landlord takes out. so because this isn't in our name & we'll never claim on it, you're saying this affects us how??

thanks

[spidersong]

Basically because it's not in your name, it's not your insurance and so it's actually just an extra cost of the rent.

So if you pay VAT on the rent you pay VAT on the insurance. The only way you'd get exempt insurance with taxable rent is if the policy was in your name and recharged in full.

If you don't pay VAT on the rent then you don't pay VAT on the insurance recharge.