VAT on Utilities – Third Party Invoicing

[Webpresence]

Hi, hope everyone is well

We have recently moved into new offices, we sub-let from the main tenant (Company X).

Each month Company X charges us for 33% of the utilities bills. Currently they charge us 34% of the total NET amount (excluding VAT), plus 20% VAT.

i.e. if the Water bill was £100 NET, they would charge us £34 + 20% VAT. However Water is exempt from VAT (0%).

Our question is, should they be charging us 20% VAT on top of the NET value, or 0% VAT?

They also charge us NET + 20% for gas and electric but we’re assuming this is fine because utilities are charged at 20% VAT.

Many thanks in advance.

Lee.

 

[STDFR33]

Yes, they should charge VAT at standard rate.

 

[Webpresence]

Yes, they should charge VAT at standard rate.

Many thanks, STDFR33. So 20% on all utlites then?

 

[STDFR33]

Many thanks, STDFR33. So 20% on all utlites then?

Yes. Because they are not the utility company so cannot apply exemp or reduced rates.

 

[TheCyclingProgrammer]

20% - they aren't selling you electricity, they are selling you an office rental service which happens to include utilities.

 

[Webpresence]

Many thanks for the advice guys, always good to get a clear answer

Have a great weekend.

Lee.

 

[spidersong]

I'm afraid those aren't clear answers:

1) There's nothing in the VAT Act that says you need to be a utility company to apply exempt (which this wouldn't be as water services are zero rated), reduced, or indeed zero rated goods or services. So it's quite possible for a landlord to sub-supply utilities and charge the relevant rate.

But this brings us to point 2. And to be a supply of the utilities it must be capable of both being separately supplied and separately measured, so it would need to be separately metered rather than being apportioned. So:

The Cycling Programmer may or may not be right, as yes HMRC would see this as a further rental charge, but.... rent is only taxable if an option to tax has been made by the person charging you (not their landlord or anyone else but the person actually making the supply to you). And your question doesn't say whether you're charged VAT on your rent, so if you are then yes 20% on top as an extra rental payment, if you're not then it's exempt the same as the rest of your rent.

 

[Scalloway]

From this VAT notice

https://www.gov.uk/government/publi...perty#service-charges-on-commercial-buildings

11.7.6 Electricity, lighting and heating
If you make a separate charge for un-metered supplies of gas and electricity used by tenants, it should be treated as further payment for the main supply of accommodation. However, where you operate a secondary meter, the charges to the tenants for the gas and electricity they use are consideration for separate supplies of fuel and power. These supplies will be standard-rated unless the fuel supplied is of a de-minimis quantity, in which case the supply will be subject to the reduced rate. See Notice 701/19 Fuel and Power for more information.

Recharges like this follow the charge for rent, ie exempt if the rent is exempt, standard rated if the property is opted to tax. In this case the OP's premises does not have a separate meter so VAT will depend on the option to tax.