Reclaiming VAT on leasing a commercial property

[Dan2k78]

Hello,

I’m looking for some clarification on VAT if someone would be kind enough to offer up some advice. I’m currently looking to lease a warehouse and the vendor has told me that the price is £540,000 per annum ‘exclusive of VAT’. So if I add another £108,000 to my rental costs to include the VAT then the sum total becomes £648,000 per annum. This is a figure which I don’t believe is viable for my business plans.

I’ve read that VAT on renting premises can be recovered as a business expense but it’s here where I get a little confused. Could someone please clarify is this is correct? Can I actually claim back the full 100% of the VAT charged on leasing the building?

If so, am I correct in thinking that the only thing that would really be affected would be my cashflow as I’d need to pay out more over the course of the year before claiming back the VAT?

In terms of renting for example, I would pay out £12,480 per week for 52 weeks (£648,000 ) and then claim back £108,000 as a business expense? In reality, the original price of £540,000 per annum is what I eventually end up paying albeit, in a roundabout way?

Thanks to anyone who jumps in and adds to this. I do plan on speaking to a professional down the line but any advice beforehand would be much appreciated.

 

[OMGVape]

The rent is claimed as a business expense. Register for VAT and you will get the VAT back through each VAT return.

 

[KAC]

If you are planning to rent a warehouse at £540K per annum, I hope that you have engaged both a lawyer and an accountant who should be giving you appropriate advice on this matter. Ability to reclaim VAT depends on your being VAT registered and that your business is fully taxable.

 

[CustomLED]

If your rent is £540k a year then your VAT registered as the turnover threshold is about £85k, unless your planning on losing a load of money every year.

You charge VAT to your customers, then you take off what you've payed out in VAT and pay the balance to the VAT man. If you spend more VAT than you charge then you get this back but unless you offer good or services that have no VAT on them, then this would mean your company is spending way more than your taking (your losing money).

A £540k a year warehouse must be a crazy size! So I hope you have also taken into consideration business rates as that is going to be a BIG chunk of cash too. If it was where I'm located I would estimate them to be about £300-350k per year.

 

[Mr D]

Hello,

I’m looking for some clarification on VAT if someone would be kind enough to offer up some advice. I’m currently looking to lease a warehouse and the vendor has told me that the price is £540,000 per annum ‘exclusive of VAT’. So if I add another £108,000 to my rental costs to include the VAT then the sum total becomes £648,000 per annum. This is a figure which I don’t believe is viable for my business plans.

I’ve read that VAT on renting premises can be recovered as a business expense but it’s here where I get a little confused. Could someone please clarify is this is correct? Can I actually claim back the full 100% of the VAT charged on leasing the building?

If so, am I correct in thinking that the only thing that would really be affected would be my cashflow as I’d need to pay out more over the course of the year before claiming back the VAT?

In terms of renting for example, I would pay out £12,480 per week for 52 weeks (£648,000 ) and then claim back £108,000 as a business expense? In reality, the original price of £540,000 per annum is what I eventually end up paying albeit, in a roundabout way?

Thanks to anyone who jumps in and adds to this. I do plan on speaking to a professional down the line but any advice beforehand would be much appreciated.

As you'll be VAT registered presumably already then its OK to think of this as a net of £540k a year. If you cannot afford to pay VAT on your spending then you have other problems to deal with in your business.
Look at your income and your costs see what you can alter. You won't get out of paying out VAT that someone else is legally obliged to charge.

You pay VAT when you pay the bill. If the landlord is charging you monthly then you pay monthly. Then every 3 months when doing your VAT return the amount you pay to HMRC from the money you have collected is reduced because you have paid that out already. So your cashflow if anything is just adjusted by you because you know what you will be claiming. Net result for being charged VAT is effectively zero.

Presumably with a warehouse this size your turnover is measured in the multiple millions a year. You'll be paying best part of a million a year for it without staff.

 

[Dan2k78]

Thanks for all the replies. I really appreaciate all the advice given.

So yes, the warehouse is a large one (100,000+ sq ft.) but the idea is quite straightforward. Even though the building was last occupied by a large logistics company we don’t plan to use it in the same way. We plan to sell pallet storage space by location. This will include a one off Receipt, Handling and Dispatch fee as well as a weekly rolling flat rate plus VAT. The turnover will not be in the multiple millions but it’s our hope to have a year end balance in the hundreds of thousands when at capacity (after tax and expenses).

The £648,000 including VAT in rental costs is something that we can cover if we can claim back the £108,000 in VAT over 3 month cycles. The current rateable value is £430,500 so the business rate for the property will be £212,236 which has also been factored in.

From what you’ve all said so far, I believe one of the biggest factors for us will be the input and output VAT. Because our running costs are so high and we knew this from the start, we never planned to make a huge amount of profit overall.

I guess the big question is can we still make enough profit after the input and output VAT has been settled for the business to succeed?

 

[Mr D]

So spending so much on the warehouse, on the systems and the staff - and you are expecting year end balance in the hundreds of thousands when at capacity?
Not sure how you can do that without turnover measured in multiple millions.

The input and output VAT is something you have to do, its not a question of whether you can still make enough profit - if costs are too high then you reduce costs or change the income figures.

 

[Mark T Jones]

As a VAT registered business isn’t a P & L item it is a cashflow item, and you do need to work this into your projection.

 

[KAC]

*VAT WARNING* I think you need to get some VAT advice as what you are providing may well be "A licence to occupy land" and may therefore be an exempt supply. There is a possibility that you could opt to tax but otherwise you wouldn't be making taxable supplies and therefor wouldn't be able to reclaim the input tax on the rent. I am far from a VAT expert though and you need to take advice from someone like @lesvatadvice