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Is VAT charged on a commercial rent

Discussion in 'General Business Forum' started by Mitch3473, Jul 27, 2020.

  1. Mitch3473

    Mitch3473 UKBF Regular Free Member

    1,117 273
    Our landlord for our unit has just had a VAT inspection and has been told to start charging VAT on our unit. We've had the unit about 5 years and this is a new one for both him and us. A brief search of the interweb says basically it isn't chargable except for exceptional's a basic 2000 sq ft industrial unit, 1 of 3, he has the other 2. We under the VAT threshold limit and therefore are not VAT registered....
    Posted: Jul 27, 2020 By: Mitch3473 Member since: Aug 25, 2011
  2. STDFR33

    STDFR33 UKBF Big Shot Free Member

    4,432 1,171
    If an opt to tax is in place, then the landlord must charge VAT.

    Sounds like an opt to tax has been in place but the landlord has been treating the rent as VAT exempt.

    You’ll need to check your lease to see if it says what you currently pay is inclusive or exclusive of VAT.
    Posted: Jul 27, 2020 By: STDFR33 Member since: Aug 7, 2016
  3. SamPEL

    SamPEL UKBF Newcomer Free Member

    14 5
    Its unusual.

    My understanding is that the building has to be opted in and once it has been opted in it can never be opted out. I bought a block of small warehouses 5 years ago and had to pay VAT on the purchase, now the rents I charge are inc VAT.

    The biggest frustration for me is that the Stamp duty was calculated on the VAT inc pricing. I then reclaimed the VAT but was still paying tax on a tax!

    Since you're not VAT registered this has the potential to cause issues for you, not much you can do other than have an open conversation with your landlord.
    Posted: Jul 28, 2020 By: SamPEL Member since: Mar 23, 2018
  4. OMGVape

    OMGVape UKBF Regular Free Member

    444 58
    Ive got two individual units from different landlords. One charges vat and one doesn’t.
    The one who charges vat also charges vat on buildings insurance which sounds a bit wrong to me but as we are vat registered I don’t really care.
    Posted: Jul 28, 2020 By: OMGVape Member since: Jan 21, 2018
  5. STDFR33

    STDFR33 UKBF Big Shot Free Member

    4,432 1,171
    It’s the correct VAT treatment.
    Posted: Jul 28, 2020 By: STDFR33 Member since: Aug 7, 2016
  6. OMGVape

    OMGVape UKBF Regular Free Member

    444 58
    I didn’t think insurance was vat-able but makes sense if it’s commercial insurance
    Posted: Jul 28, 2020 By: OMGVape Member since: Jan 21, 2018
  7. cts1975

    cts1975 UKBF Regular Full Member

    221 39
    I'd take the view with the landlord that you have assumed VAT was included in the rent you have been paying.
    I had a VAT inspection a few years ago and the inspector had an issue with the 'Place of Supply' rule which meant we had to ask a customer for about £8k in VAT. Thankfully they paid without any problem. I asked the inspector what happens if they refuse to pay and she told me that this could be written off when doing our VAT return. It never came to this so I never got any further testing her claim. You landlord may be able to do the same.
    Posted: Jul 29, 2020 at 2:05 PM By: cts1975 Member since: Apr 29, 2012
  8. nelioneil

    nelioneil UKBF Enthusiast Full Member

    642 91
    Even though insurance is exempt from vat, this is the correct treatment as they are recharging the cost
    Posted: Jul 30, 2020 at 8:24 AM By: nelioneil Member since: Jan 22, 2013
  9. The Byre

    The Byre UKBF Legend Full Member

    10,059 4,114
    We had a case like this a couple of years ago and the skinny on the deal goes like this -

    It ALL depends on the landlord's core business and how his business is structured. If his core business is rentals, he has to pay additional corporation tax at 19%. If it is not his core business, he has to charge 20% VAT.

    He definitely needs to get a consultation paper written up by the VAT and CT experts at his accountant. These should cost no more than about £250 and will explain the ins and outs of the situation.

    There is a good bit more to the situation than that - so a proper paper written by someone who lives eats and breaths commercial rentals and that is relevant to his specific situation is a 'must-have'.

    A DIY approach to taxes is a great way for your landlord to crash and burn - and it is your landlord's problem, not yours. Though either way, you are going to have to fork out about 20% more.
    Posted: Jul 30, 2020 at 9:24 AM By: The Byre Member since: Aug 13, 2013