A recent survey determined that a large percentage of estate agents that manage property on behalf of private landlords are uncertain about VAT tax implications. This article will go some way to explaining VAT requirements for letting agents for both landlords that reside in the UK and land owners from overseas.
It seems apparent that a high percentage of lettings agents are unaware they are responsible for paying VAT on behalf of landlords and are therefore required to complete a VAT invoice in order to claim it back from the landlord. Without the VAT invoice the lettings agent foots the bill.
What VAT is payable on rented property?
In order to understand your tax liabilities you need to know when VAT is payable on a property. Expenditure such as fixtures and fittings, repairs and utility bills are tax deductible so if you are responsible for the upkeep of the property you are managing the details should be included in your Self Assessment Tax Return form.
Rental income is exempt from VAT, but the costs you incur in the day-to-day running of the property will have VAT added on. The list includes your management fees, service charges, maintenance and repairs. VAT is also added on to ground rent if the property is in a block of flats and buildings insurance when the property is freehold.
If the property you are managing is furnished, you can claim the amount spent on maintenance or opt for a 10 per cent reduction of the net rent to cover depreciation. Until 6th April 2015, you can also claim tax deductions of up to £1,500 if the property is installed with an energy efficient heating system.
Letting agents must be very careful when offsetting costs from expenses landlords are responsible for as it is not permitted to overdraw client’s money. For example, you are no longer able to pay the expenses of one landlord from the income of another landlord. If there is any shortfall due to the client as a result of banking errors, overdrawing, incorrect withdrawal or, administrative errors, the lettings agent is responsible for reimbursement.
Okay, what else do I need to do?
When submitting your VAT tax return, estate agents are also required to produce a list of rental income they have collected on behalf of the landlord including deposit receipts. You can get specialist software to make this process easier. Most software, such as Daily Cashbook, helps to guide agents through the legal compliance minefield and prevent you incurring penalty fines for submitting false information.
If you are a lettings agency and manage property on behalf of a private landlord or local council, the rules on VAT are complicated as there are slight differences depending on the type of property and what agreement you have with the landlord. You should be aware that by law you as the lettings agency are obliged to pay VAT and complete an invoice. For further advice about this issue or any other tax questions you may have contact Taxaccolega today on 08000 235 234 or email email@example.com.