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VAT on rental property income and partnership issue

Discussion in 'Accounts & Finance' started by CF1969, May 20, 2013.

  1. CF1969

    CF1969 UKBF Newcomer Free Member

    Posts: 3 Likes: 0

    Can anybody please advise HMRC should treat VAT on income from rental properties held jointly by myself and my wife who are also a legal partnership for my wife’s hairdressing business. The hairdressing business is currently being subjected to an inspection and whilst the inspector has advised my wife that he is happy with the books he has inspected to date he now wants to review the VAT elements of the partnership and advised her today that any properties owned in the names of the ‘partnership’ will be subject to VAT on the rental income. I have a separate PAYE full time job and take no profit from the hair salon ‘partnership’ so am effectively a sleeping partner. The ‘partnership’ in place to run the hair salon is in the names of myself and my wife and we also have six rental properties owned jointly by myself and my wife which are run completely separate from anything to do with the hair salon. Are there any rules on when the rental properties fall within the scope of a ‘partnership’?
  2. Scalloway

    Scalloway UKBF Contributor Free Member

    Posts: 5,833 Likes: 1,430
    VAT is only chargeable on commercial properties when the landlord has opted to charge VAT on them.

    VAT is charged on holiday lets of up to 28 days.
  3. David Griffiths

    David Griffiths UKBF Regular Moderator

    Posts: 9,950 Likes: 3,159
    If the partnership is on the VAT flat rate scheme, then it is likely that the rental income from the properties should be included in the flat rate turnover.

    There is not usually VAT chargeable on residential property income but the flat rate scheme charges the flat rate on all business income. If the owners of the property are the same as partners in the business, then it should be included.

    That is one of the factors that should be taken into account before deciding to go for the flat rate scheme
  4. CF1969

    CF1969 UKBF Newcomer Free Member

    Posts: 3 Likes: 0
    Thank you for your response. The partnership does not use the flat rate scheme; I work out the input and output tax and pay the difference as normal. From what you are saying we not required to include the rental property income on the VAT returns, is this cast in stone or is it subjective based on overall circumstances?
  5. David Griffiths

    David Griffiths UKBF Regular Moderator

    Posts: 9,950 Likes: 3,159
    If you aren't on the FRS then you should have nothing to worry about. In fact, if you've incurred input VAT on expenses for the property then you might well be able to recover that under the partial exemption rules. That's too big a subject to go into here, and the recovery might or might not be possible, so you might want to ask your accountant for advice.

    Rents for residential properties are exempt income for VAT purposes. Rents for commercial properties are normally exempt but you can opt to bring them into VAT. I doubt that you could do that without knowing, even if you own any commercial property, and I'd guess that all 6 properties are residential anyway? Quite what grounds the VAT officer has for saying that the income is subject to VAT I have no idea.

    You should, however, include the exempt turnover in box 6 of your VAT returns
    • Thanks Thanks x 1
  6. CF1969

    CF1969 UKBF Newcomer Free Member

    Posts: 3 Likes: 0

    Yes the six properties are residential properties with assured short hold tenancies. We have a meeting with the inspector next month (he wants to spend a full day inspecting the VAT records) so will know more about his views then but thank you very much for your comments it has certainly put our minds to rest.